Cushman & Wakefield, a commercial real estate services firm, recently announced preliminary 2012 results for the hospitality sector in Moscow, which has seen growth in operating performance for two consecutive years. Despite continued global economic concerns, the general lack of hotels in Moscow aligned to an increase in travel to the city has helped hotel occupancies reach levels last seen before the crisis.
Overall trends:
- Revpar increased across all segments in Moscow in 2012
- Occupancies returned to pre-crisis levels
- Five branded hotels opened in 2012, including the first Moscow property for Russian chain Azimut
- Four hotels sold in Moscow in 2012 for a total of US$550 million
“For some hotels now, and certain segments, the only possible growth in 2013 will come through rate increase and yielding,” said David Jenkins, partner and head of hospitality at Cushman & Wakefield, Russia.
Some hotels will end the year with annual occupancy in excess of 75%, and certain segments such as the mid-scale and upscale hotels will average the year at above 70% occupancy. With rates in both the luxury and upper upscale segments still sensitive and growing only by a few percent in 2012, a push in rate from the segments below can help the entire market to grow ADR in 2013.
Segment trends in 2012
- Luxury: flat to 2011
- Upper upscale: almost 20% RevPAR growth, mostly through occupancy
- Upscale; almost 10% RevPAR growth with combined growth in occupancy and rate
- Upper midscale: minor growth to 2011
- Midscale: 10% RevPAR growth, coming all in occupancy
Five new branded hotels entered the market in 2012, including the first Moscow property for the Russian chain Azimut. On an annual basis, Moscow has typically seen three to five new branded hotels open and such a regular and steady pace aligned to continuing demand increase has ensured that supply and demand remains well balanced and that the market continues to be one of the strongest hotel operating markets in the world.
For 2013 though, more than 10 new branded hotels are expected to open, among them the Marriott hotel and apartments on the New Arbat, which is expected by September 2013 and will be the first Marriott managed ‘Marriott’ in the city with the other three hotels managed by Interstate Hotels. In addition, the property is offering Marriott serviced apartments for sale – another first for the city. Another opening of interest will be the Novotel in Moscow City – the first hotel to open there.
“There are more than 10 new branded hotels expected to open in 2013 but the majority are non-central and we do not see them having a major initial impact on next year’s results” Jenkins said. “We will, though, see some interesting new openings with the Novotel and Marriott and some new supply at Vnukovo (Hilton) and Sheremetyevo (Sheraton) that will be good for those areas.”
The main transaction news of the year was the sale of the historical Metropol Hotel to the owner of the Azimuth chain. It seems the hotel is to continue operating as an independent property and a significant renovation is anticipated in the coming years to bring the asset back to its former glory.
Additional sales of the Budapest Hotel, Radisson Slavyanskaya and Courtyard by Marriott Moscow Paveletskaya again demonstrated the interest in trading hotel assets in Moscow. There is still limited trading interest from overseas and hotels continue to pass from one to another local owner. On the one hand high trading performances by Moscow hotels benefit existing owners, but at the same time this generates extremely high asset values that can often create challenges for overseas investors to appreciate.
“The Moscow hotel market remains one of the strongest in the world in terms of achievable results and still offers much in the way of development opportunities for hotel investors,” Jenkins said. “With still less than 35% of total Moscow available hotel rooms ‘branded’ there is still huge scope for growth of branded hotels in the city – especially at the economy level. Occupancies continue to grow and we believe that 2013 will see a continuation of the positive trends seen in the past two years.”