MCREMO-Q1 hospitality (ENG)

(4Q2008).ThemaindemandforMoscow’shotelsisthecorporatebusinesssegment.Withthecrisisforcingcompaniestoreducetravelcosts,hotelsinMoscowhaveseensignificantdropsindemandfromtheirtypicalsources.Hotelsarepreparingforthehardestyearsincethe1998crisisandarenowreviewingtheiroperatingcostsandtryingtoattractclienteleviadiscounts,specialoffersandofferingbetterdealsforgroups.InadditionthedevaluationoftherubletotheUSDandEUROhasledtohardcurrencyratedropswhichcannotbecompensatebyincreasesinRURpricing.Onapositivenote,thenewcurrencyexchangeratesmaketheRURpricesmoreattractiveforforeignguestsandonetrendhasseengueststradeupfromonesegmentofhoteltohigher–forthesameUSDrate.Also,itisimportanttonotethatMoscowhadseensignificantRevPARgrowthacrosstheboardyearonyearsince1999.Thegenerallackofsupplyhadallowedhotelstopushratesandprofitabilitytolevelsenviedthroughoutmostothermajorglobalcities.Soanydropsnowarestartingfromahighlevel.SupplyAccordingtotheinformationoftheDepartmentforMoscowHotelIndustryCoordination,theestimatedMoscowhotelsupplyequaled247hotelsasofend2008(thelastavailabledata).However,weneedtounderstandthatthisfigureincludesalltypesofhotelaccommodationregardlessofthequalityofservicesoffered.Weidentifythemodern-standardroomstockinMoscowasapproximately9,773rooms(33hotels).Thesearemainlyinternationalbrandedhotelsdominatedbyupscaleproperties,aswellasacertainnumberofRussianchainhotels,mainlyconcentratedinthemid-marketsegment,i.e.KorstonandHeliopark.AspertheDepartmentforMoscowHotelIndustryCoordination,28hotelsaretobeconstructedin2009,whichalreadyseemsratherdubiousduetotheworseningfinancialconditions.Inthepresentsituationonlyalmostreadypropertieswillbeputintooperationwithpaperprojectsputonholdorcancelled.Ourviewisthatfewerthan10newhotelswillopenthisyear.February2009sawtheopeningoftheAkvariumHotelwithinCrocusExpo–thefirstopeningwithinthecomplex.The225roomhotelofferseconomylevelaccommodationcomplianttointernationalstandards,withprices217118520321924705010015020025030020042005200620072008F*NumberofHotels,2004-2008F*Source:DepartmentforMoscowHotelIndustryCoor-dination*ForecastHotelLocationCategoryRoomCountOpeningDateRenaissanceMoscowMonarchCentreLeningradskiyprospect31/2Upscale3663Q2009MarriottCourtyardwithinthemixed-usecomplexVivaldiPlazaKozhevnicheskayastr8/4Uppermid-market1702Q2009HolidayInnSimonovskiy2SimonovskyValMid-market2173Q2009IBISSchipok22/1Economy1473Q2009Total900Somekeyinternationalbrandedopeningsfor2009willbe:Source:DTZHospitalityResearch65,965,868,472,579,4010203040506070809020042005200620072008F*place,thousandNumberofBedPlaces(000s)Source:DepartmentforMoscowHotelIndustryCoor-dination*ForecastMoscowHotelMarketOverviewrangingfromRUR4,400toRUR14,700dependingontheroomtypeandseason.Asseenfromthetable,in2009theinternationalroomsupplywillincreaseby900keys.Otherpossibleopeningswillbelocalpropertiesofvariouscategoriesinmainlymixed-usedevelopments.Trends:Affectedbytheeconomiccrisis•manyprojectsareputonholdorcancelled.Withdevelopersresortingtoa“waitandsee”approach,anewlydevelopedinternationallybrandedhotelwillcapitalizeontimelyappearanceandgrowingdemandoncetheeconomyreboundsandgrowthcommences;Thereisaclearlackofqualitysupply•intheeconomyandmid-markethotelsegments.Highlandcostsandgrowthinuppermarketdemandhaveledtoafocusonupscalehoteldevelopments.Nowisthetimetoturnattentiontothesesegmentsinstronglocations;Equityinvestorsareactivelylooking•forthedistressedpropertiesandprojects.Thecrisishasalreadyledtoanumberofhigh-profilecancellations.Thus,AFIDevelopmentrefusedtobuildahoteladjacenttoitsMoscowCityshoppingandrecreationcentreMallofRussiaandtheupscalehotelwithintheTverskayaZastavamixed-usedevelopmentatBelarusskaya.OPK(theUnitedIndustrialCorporation)has(notconnectedtothecrisis)losttheopportunitytodevelopaluxuryhotelandapartmentcomplexon5RedSquare–directlyoppositetheKremlin.Moscowhaslostwhatwouldcertainlyhavebeenalandmarkproperty.ThepropertyhasnowreturnedtothestateandwillbeusedbytheFederalSecurityService.Anumberofnotableprojectshavebeenputonholdorpostponed,amongwhicharetheGrandHyattResidencesandSpainMoscowCity,FourSeasonsonthesiteoftheformerMoskvahotel,hotelwithintheFreestyleParkcomplexalongKievskoeShosse,Intercontinental,Rafflesiandothers.ThiswillcertainlyhelpthoseexistinghotelstocomeoutstrongoncethecrisisisoverandleavesgreatopportunitiesforhoteldevelopmentstillinthelargestcityinEurope.DemandMoscowis,byfar,themostvisitedcityinRussia,themaindemandisgeneratedbycorporatetravelers(49%),followedbyleisuretourists(23%)andMICE-guests(19%).TheMICEsegmentisstillintheembryonicstagebecauseoftheevidentundersupplyofmodernconferencefacilities,expensiveflightsandvisaregime.Thechartaboveshowsasustainedupwardtrend.In2008thenumberofguestsreached4.1million,a3%year-on-yearincrease.Theinfluxoftouristshasbeenhinderedbyexpensiveaccommodation,poorqualityaffordableaccommodation,costlyflightsandtheongoingandexpensivevi