Kazakhstan: In Focus

by Staff -- Hotels, 11/1/2007

Kazakhstan By the Numbers

• Population: 15.2 million
• Size: Ninth largest country in the world, similar to the whole of Europe
• Investment potential: World Bank reports Kazakhstan as one of the top 20 countries in terms of the strength of its investment climate
• Economic growth: Budget surplus of 6.4% in 2006; GDP growth projected at 8% to 10% through 2010*
• Low hotel supply: Less than 2,000 international-class hotel rooms

*Source: Economist Intelligence Unit

Who visits Kazakhstan: 

• “For the time being, the primary travelers to Kazakhstan are international business travelers. At the two Renaissance hotels we have open, the length of stay varies. But since the trip to Kazakhstan is long, our guests tend to stay longer—usually two to three nights,” says Marriott’s John Litzenberger, Marriott International’s vice president, international hotel development.
• “There were more barriers to development in the 1990s. That allowed demand to build. For a number of years, demand was almost all international travel. Now, it is starting to shift to domestic and even CIS regional business,” says Darren Blanchard, director of business development, Russia/CIS, Rezidor Hospitality Group.
• “Corporate multinational and local companies. Most of the travelers are from the oil and gas industry, as well as the banking, auditing and consulting companies (coming in to support them). Corporate FIT and corporate meetings make up 95% of our market,” says Nicolas Villemin, director of sales, Hyatt Regency, Almaty.

Where they are going: 

• “The Kashagan project is the major oil project in Kazakhstan, if not in the world. Atryau, on the Caspian Sea, is the area’s city. But there are no direct flights from Europe, so Almaty is the major transit point. It’s where the major multinational companies have their offices and where decisions are taken,” says Nicolas Villemin.
• “Since the Kazakh capital moved to Astana, some of the business that had been concentrated in Almaty has been obliged to follow the government. Increased commercial activity in Almaty has more than offset any business displaced to Astana. As Kazakhstan sets the pace, we are optimistic that the neighboring countries will follow its lead,” says Litzenberger.

What drives new opportunities:

• “An extension to the airport is currently under development. That project includes a multinational chain hotel,” says Nicolas Villemin.
• “The past five years have seen tremendous infrastructural improvements. Although there is plenty of room for improvement, the government definitely is supporting business development and trying to reduce the amount of administrative red tape. Kazakhstan clearly has taken the lead in the region; its progressive policies have positioned it as the commercial hub,” says John Litzenberger.
• “There is a lot of capital flowing around the country,” says Darren Blanchard.
• Nissan is building a US$50 million car assembly plant in Astana; Aktau’s city master plan is being developed and its port has been designated as a Free Economic Zone

How performance will trend:

• “Occupancy for the major upscale hotels in Almaty is over 70%, which is a good sign. Room rates have risen aggressively over the last couple of years.” — Marina Usenko, senior vice president, Jones Lang LaSalle Hotels, Moscow
• “Due to our good fortune in finding an exceptional business partner in Kazakhstan and the decision to begin in two remote markets, we have been able to achieve faster and better results than we had expected in those two markets. There is no question about the large stimulus that has been delivered to the local economies. We believe this trend will continue as we open properties in Almaty and Astna in the next two years. Rates and occupancy levels will continue to increase until an equilibrium between supply and demand is reached, which may take several more years.” — John Litzenberger
• “Occupancy will remain stable, as will average rate, due to the growing demand for hotel rooms. Occupancy may drop slightly when new international hotels come on line, but average rate will remain stable since each hotel has its specific market.” — Nicolas Villemin

Kazakhstan’s Challenges

With rack rates that can rival—or sometime exceed—averages from Rome to Hong Kong and new supply coming in at a trickle, Kazakhstan is a dot on more and more brands’ development maps. While performance should continue to be strong, at least in the near term, there are challenges. Chief among them is the lack of trained staff.

“Sourcing qualified staff is a challenge as there are no specialized hotel schools in the country,” says Nicolas Villemin, of the Hyatt Regency Almaty. Marriott’s John Litzenberger says the staff shortage is particularly evident in “remote” cities. Many locals see better opportunities in Almaty and Astana. And, too, the oil companies sometimes are able to lure away trained, multi-lingual staff with higher salary packages,” Litzenberger adds. Rezidor’s Darren Blanchard has much the same view. “There is a good degree of education in Kazakhstan and a good number of English speakers. What is lacking through the CIS is hotel experience. Brands that already have hotels in Russia or Ukraine, as we do, are bringing in teams from those hotels. They understand the culture and the language, which makes it easier for them to train staff,” he says.

JLL Hotels’ Marina Usenko cautions brands to be prepared for high turnover. “It’s an issue every general manager talks about,” she says. With a limited pool of experienced workers available, operators will need to develop strategies to keep talented staff on board.

Longer term, Blanchard voices concerns about overdevelopment, especially in Almaty and Astana “Many hotel brands have been approached by developers. If all those deals happen, everyone could suffer,” he adds.