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Moscow Hotel Market Update. 2014 Results

February 02, 2015, 16:34 (PX Newswire)

It has been a turbulent year in Russia and this has of course had a negative impact on hotels – not only in terms of performance but in value. A year that started out with geo-political issues causing concerns that hotels would lose international clients, ended up with hotels more concerned about the ruble rate and inflation and owners dealing with much reduced hard currency valuations as well as challenges in servicing hard currency debt from a ruble cash-flow.

“Whilst Moscow hotels managed to avoid a significant drop in performance (whole market was 12% down in RevPAR compared to 2013, which under circumstances was not a disaster), the main problems exist below the revenue line – in terms of a rapidly reducing GOP due to inflation and the impact of the new ruble rates when taking a ruble EBITDA to pay off a hard currency loan or to make hard currency valuations.” – David Jenkins, Head of JLL Hotels & Hospitality Group, Russia & CIS, said.

He added: “We are seeing developers and owners reconsidering investment plans, especially as there are significant parts of hotel fit-outs that are imported. Bank financing has of course rocketed and transactions have come to a complete halt as even the most ‘liquid’ hotel investors try to consolidate current projects before even considering anything new. Investors are also trying to figure out the ‘new value’ for hotels.”

So whilst on the one hand the hotel GM’s and operating companies are seemingly doing their best to keep RevPAR as high as possible, on the other hand the hotel owners are struggling with the new reality.

“With several new hotels recently opened and more to come in 2015, a jump in supply is not really what is required right now.” – David Jenkins noted. – “Hotels in Moscow are now ‘bargains’ for those sitting in the West, but without a boom in demand there can be no route to increasing rates, and without a shift in how Russia is perceived there will be no boom in demand.”

According to JLL, the Moscow hotel market saw a few significant openings in 2014, incl. Four Seasons (180 rooms), Doubletree by Hilton Marina (270 rooms), Radisson Sheremetyevo (391 rooms), Mercure Baumanskaya (44 rooms). Starwood have brought their premium St. Regis brand to the Nikolskaya Hotel (brand changed from Kempinski, 210 rooms). Additional 1.3 thousand rooms to come to the Moscow hotel market in 2015, incl. Marriott Noviy Arbat (234 rooms), Ibis Dynamo (310 rooms), Doubletree by Hilton Vnukovo (430 rooms), Hampton by Hilton Strogino (214 rooms).

“The market does mostly depend on politics. On the one hand the hotels in Moscow are now the cheapest they have ever been for travelers from the West – this, in a ‘normal’ market situation, would stimulate demand. On the other hand it is far away from being a normal market situation – in fact it is the time when tourists will stay away. This is a great shame and really there is not a lot hotels themselves can do about it.” – David Jenkins said. – “I am quite pessimistic about how 2015 will go; until hotels can all boost occupancy and keep it a steady 70% and above there will be little chance for them to increase ADR.”

Moscow Hotel Market in details

The full year result of 61.8% occupancy is the lowest since 2009. Given that inflation is above 10% and the ADR dropped by 3% it is clear that the luxury hotels are working hard for every guest. This so far has been without the Four Seasons and we wait to see the impact of this new entrant in 2015.

Despite the challenges, a RevPAR drop of 6.5% is far better than was seen in 2009 (when it dropped by 25%) and it does show that nothing is fundamentally wrong in the market demand (no indications of collapse but neither of expected growth). It is though the first year of negative RevPAR growth since 2009. Annual RevPAR growths have though been minimal, 4% in 2010, 3% in 2011, 2% in 2012 and 4% in 2013 – below ruble inflation and demonstrative of a rather stable luxury demand. This increase of supply to include Four Seasons is likely to create an element of turmoil in 2015.

Upper Upscale

This segment is far less stable than the luxury segment, although a 7% RevPAR drop was again not as bad as was imagined at the beginning of the year – though it is a mix of a 9% drop in occupancy aligned to a slight 2% increase in ADR. “This is the steepest occupancy drop of all segments, surely an indicator that ADR is likely to drop in 2015. A full year occupancy result of just 59%, with ADR at RUB 10,000 leaves RevPAR at RUB 5,951. This is now below USD 100 – and for hotels that cost significant sums to construct or re-construct, this is a concern.” – David Jenkins noted.


The upscale segment was hit hard in 2014. “A 14% RevPAR drop has it now at below RUB 4,000 – lower even than the upper midscale segment. They tend to be larger hotels, depending on groups and are highly impacted by this current crisis. With ADR at RUB 6,000 and occupancy at 65%, prices for foreigners are almost ‘too good to be true’ yet there is no boost to occupancy. Without this demand growth it is hard to see how the segment can recover in 2015.” – David Jenkins mentioned.

This segment also sees new competition in the form of Doubletree by Hilton Marina, Radisson Sheremetyevo and Marriott New Arbat.

Upper Midscale

With an ADR that is 7% below the upscale segment and an occupancy at 71% this was again the best performing segment in the city – though RevPAR was down 4% to last year. With a smaller room-count, central locations, quality brands and full facilities these hotels seem to be the most buffered from any crisis.


With a disappointing 8% drop in RevPAR coming from an equal drop in rate and occupancy, the midscale segment closed with RevPAR at RUB 3,000. These hotels are generally less central and have fewer facilities. Occupancy was around 70% for the year which is more or less the peak.

About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4.0 billion and gross revenue of $4.5 billion, JLL has more than 200 corporate offices, operates in 75 countries and has a global workforce of approximately 53,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3.0 billion square feet, or 280.0 million square meters, and completed $99.0 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $50.0 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 , 2013 and 2014 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

For further information, visit www.jll.ru

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