Russian hotel market reports strong start to 2017
Has the market has stabilized to pre-crisis levels?
Thomas Emanuel, Director of Business Development at STR will join more than 150 industry leaders in Moscow next month to present a Hotel Performance Report at the upcoming Russia Hotel & Tourism Investment Conference. Ahead of the meeting STR gave an overview of the hotel market in Russia and the CIS.
Following the collapse of the Russian ruble in the second half of 2014, the hotel market suffered a significant fallout, reporting a 20.1% RevPAR drop for the full year. This result was mainly driven by occupancy levels, which fell 15.3%, coupled with a 5.7% drop in rate. Performance started recovering over the subsequent years, with 2016 seeing a 24.0% RevPAR uplift compared with 2014, bringing it just 0.6% below the country's year-end 2013 RevPAR level (the year before the collapse). Russia's performance has been strong so far for 2017, with RevPAR 9.3% higher than it was during the first seven months of 2013, indicating that the market has stabilized to pre-crisis levels.
Domestic tourism has been a driving force for Russia's hotel performance in recent years. This growth has been driven by the weakening ruble, along with restrictions on outbound travel to Egypt and Turkey, popular destinations for Russian tourists. This has benefited a number of Russian markets, including Moscow, St. Petersburg and Sochi.
TOP PERFORMING DESTINATIONS IN RUSSIA AND CIS
From January to July, hotels in all CIS countries that STR reports on recorded uplifts in revenue per available room (RevPAR) in their local currencies when compared with the first seven months of 2016. Ukraine (RevPAR +25.6%) and Kazakhstan (RevPAR +24.5%) reported the strongest growth during this period.
An increase in both business and leisure travel boosted performance in the Ukraine, as the country recovers from economic setbacks that have affected hotels since 2014. As a result of the country's currency devaluation, average daily rates (ADR) have risen quite significantly.
Astana, the capital of Kazakhstan, hosted the 2017 World Expo from June to September. The government's expanded visa policy to draw more foreign tourists appears to be helping the nation's hotel industry, from both a performance and development standpoint.
Sochi is currently the top performing market in Russia in terms of RevPAR, up 28.2% as of July 2017. Yekaterinburg follows with an 11.8% RevPAR increase, and increases in both occupancy (6.5%) and ADR (5.0%).
On the flip side, Armenia saw the slowest performance growth in the region, with RevPAR up just 1.9%. The country recorded a 26.5% decline in RevPAR for the first seven months of 2016, so the moderate year-over-year increase is less significant when taken into context.
"It's always a bit of an anomaly when a country's hotel sector benefits from a currency devaluation," said Emanuel. "Although the weakened ruble is not necessarily a positive sign for Russia's economy, on the other hand domestic tourism has increased substantially as international travel has become less affordable. Now that performance seems to have recovered, it will be interesting to see how the market responds to incoming supply. As of August 2017, there are 44 hotel projects under construction, accounting for 8,350 rooms."
To listen to the full performance report, join us at Russia Hotel & Tourism Investment Conference, taking place 24 October at the Radisson Blu Belorusskaya.
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