2002-12-27 Hotel Business Activity Report for the second half of 2002…
According to the estimations of HCD Group
specialists, the current situation of the Moscow hotel market can be summed up
by performance improvement in all segments. Overall the market enjoys guestroom
tariff stability and a return to performance levels achieved in 1998 As a
result, the market is more robust than two years ago. General room occupancy
levels increased in 2002, notably in the summer months, whereby demand for
hotel accommodation has caught up with limited hotel supply in the four and
five star category, as these segments have reported very little room supply
growth. The economic recovery to pre-crisis levels has enabled the main players
to reduce their discounting policy, thus optimising room yield and the
profitability of revenues streaming from room operations.
In fact, most participants have seized the
improved economic climate in the latter half of 2002 to increase their
published and commercial tariffs. Moreover, the steady growth in hotel demand has not only benefited
hotels with small room supply, located in the city centre (Moscow Central
Administrative District) but also has impacted positively on the performance of
larger hotels (in excess of 250 rooms) located in the
Moscow periphery.
In the aftermath of the monetary crisis in
1998, the Moscow city hotels were searching for various ways to stimulate hotel
demand, including the use of more aggressive tariff discounts. As a whole, this
tendency continues to influence the behavioural patterns of hotels in Moscow. The occupancy rate of top segment hotels
between November 2001 and 2002 has remained at the 64%. Average room rates
during the same period have risen by 3.5%, and total hotel revenue by almost 7% in the same period.
The critical mass of hotel demand in
Moscow lies in the 2 and 3 star category, which is due to the fact that these
low hotel prices are within reach of the current local consumer spending power. Not surprisingly,
according to our in-house statistics, the hotels positioned in the 1 and 2 star
category in general achieved average room occupancy levels neighbouring 80%,
with an average room rate slightly above $18 US (excusive of VAT) in November
2002.
Mid-tier hotels (3 star) recorded average
room rates around US$ 60, though demand in
terms of average room occupancy is lower than in budget hotels, roughly around
65 and 70 per cent. We can also comment, that top segment hotels (i.e. 4 &
5 star hotels) trade at similar average room occupancy levels. The main
performance indicators of hotels of mid-tier and budget segments fluctuated
only in terms of room rate. Occupancy has practically remained unchanged, but
average room rate has risen considerably since last year (from November 2001 to
November 2002) by 13% for hotels positioned in the 1 and 2 star categories, and
by 23% cent for 3 star hotels. In our statistics, we have based our prices in
US dollars and excluded inflation. Hotels in the mid-tier and budget categories
have recovered lost ground by redefining their rate policy, thus increasing
room yield. Nevertheless, inflation and local competition have evened out the
extent to which individual hotels can increase their room tariffs.
In terms of future hotel growth, the
market can absorb mostly first class hotels (four star) in the city centre and
two to three top segment (five star) hotels. With regard to the evolution of
the mid-tier segment, the expansion in Moscow can only be achieved outside of
the Garden Ring. Indeed, only top segment hotels, which command high rates, can
generate yields high enough to meet investor expectation. In addition, high
development costs and scarcity of available plots for hotel real estate are
obstacles, which undermine the financial viability of three star development in
the Moscow city centre.
The centre of Moscow will continue to
raise the level of existing hotel room supply at the detriment of hotels built
in the Soviet Era suffering from physical and functional obsolescence and
requiring heavy investment volumes. In its General Plan, the Moscow City
Government committee for urban planning has called for the creation of 19.500
hotel rooms by 2010, of which 40 % (or 7.800 rooms) will be allocated to the
development in 2 and 3 star segments. Besides urban
planning programme, other factors influencing the quality standards of mid-tier
hotels in Moscow include the guest demand profile. New construction techniques,
larger room dimensions, more rigorous hygiene criteria and better trained
service will combine to produce an overall better mid-tier product, which
better targets local business demand.
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