Openings Could Fracture Upscale Hotel Market

Moscow’s hotel market has experienced a spate of openings over the last six to eight months. From large-scale internationally branded hotels to smaller locally operated establishments, the top end of the city’s hotel industry is facing increased competition from growing supply. And despite ongoing financial difficulties, numerous openings remain in the hotel pipeline. All this could contribute to a fracturing of the city’s upscale segment.

Most recently, the Hotel Ukraina opened as a Radisson Royal after a three-year renovation. Following an official ceremony on April 28 with the city’s Mayor, Yury Luzhkov, the hotel will take bookings from June 1. The new Radisson Royal will add 505 rooms and 38 apartments to the city’s current stock of about 8,000 top category rooms, according to data from GVA Sawyer.

The facade of the 206-meter building, the last of Stalin’s Seven Sisters to be built, has been restored, while the interior has been lavishly decorated. All at a cost of $300 million, Alexei Mikushko, chief executive of the hotel, told The Moscow Times at the time.

The developers of the Garden Ring, or Sadovoye Koltso, hotel on Prospekt Mira have also opted for classical appointment. The 85-room hotel, which unlike many other properties that have come online recently does not operate under an international brand, opened in January. “The hotel is focused on business travelers and has an approximately 50:50 breakdown of Russian and foreign guests,” said Yulia Tselykovskaya, from the hotel’s marketing department.

Operated by Accord Management Group, the Garden Ring will benefit from a new conference center that is to open sometime next year. The developers behind the hotel originally intended to open the conference center and hotel as one project, but postponed the former as a result of the crisis, Tselykovskaya explained.

While these two hotels boast a central location among their selling points, not all new projects consider it the key to success. “People are starting to move out of the center as it is becoming clogged,” said Anthony Fardon, general manager of the newly opened Renaissance Moscow Monarch Centre, located on the Third Ring Road between the Dynamo and Begovaya metro stations.

The 366-room new hotel, Moscow’s second Renaissance, will operate under a franchise agreement with Interstate Hotels & Resorts, further consolidating Interstate’s presence in Moscow. The company already manages the Hilton Leningradskaya, two Holiday Inns, Lesnaya and Sushchyovsky, and the city’s three main Marriott hotels.

The Renaissance Monarch is looking to bring in a range of guests. While business travelers will form the backbone of its clientele, as throughout Moscow, group tourist bookings will be important in securing lower vacancy during the weekends and surrounding days. “We are also looking for local guests,” Fardon said.

A four-star hotel, one of the Renaissance’s key selling points will be its conference facilities. Described in a news release as “the city’s largest single area conference and convention facility,” the main room could hold upward of 400 guests. The hotel is also part of a multifunctional project developed by MonArkh, which includes office and retail real estate.

Nevertheless, location can be a major advantage as demonstrated by the Ibis hotel at Paveletskaya, which opened last September. Within walking distance of the terminus station for the Domodedovo Airport express train, the hotel has reportedly done well from business travelers — something its recently opened local competitor hopes to cash in on. The Aquamarine hotel, part of AFI Development’s multifunctional Aquamarine center, began taking guests at the end of 2009, but was officially opened in February. “Location is key,” said Natalya Ivanova, PR director at AFI Development, adding that the hotel had realistic expectations as it was opened during the crisis.

Careful Conclusions

These new developments are not, however, a sign of a revival in hotel investment. Hotel projects usually have a four- to five-year development cycle, so the projects coming online now were planned and, in many cases, financed prior to the start of the global recession.

What’s more, there is unlikely to be a major lull in completed projects, said David Jenkins, head of hospitality for DTZ Russia and the CIS, as delays in development mean that the completion of projects started prior to the crisis will be spread out. Many of those hotels that have opened so far in 2010 were due for earlier completion.

But financial difficulties have not completely stopped development. “Even despite the crisis, plans are still being made,” Jenkins said.

In addition to these recent openings, more are in the pipeline. The Radisson Belorusskaya and Courtyard by Marriott Paveletskaya are also slated to open before the end of the year, while the Lotte Hotel is set to open in June 2010. Located on Novinsky Bulvar with 304 rooms, the hotel is being developed by Lotte Hotels & Resorts, South Korea’s largest luxury hotel chain. Rated as a five-star development and linked to the Lotte Plaza elite retail center, the Lotte Hotel will be part of what Konstantin Goryainov, deputy general manager, described as the “five-plus” bracket. In this he includes only two other hotels in the city, the Ritz Carlton and the Ararat Park Hyatt.

This activity at the top end of the hotel segment could see Moscow’s upscale hotel sector split, with those hotels considered luxury pulling away from others. Commentators regularly lament the lack of midrange hotels in the city, and the future development of further top-end projects may widen any arising division. “The development of a Four Seasons hotel and a Raffles hotel will push up the luxury brands probably taking some of the current top hotels with them,” Jenkins said.

“The recent openings are likely to change the competition in Moscow slightly,” Fardon said. But not all commentators are certain that this development activity will make even slight changes. “This is a drop in the ocean for Moscow,” said Goryainov, adding that the market may see modifications but not major changes.

As Moscow’s guests are overwhelmingly business travelers, the price of commodities pays a key role in supporting the city’s visitor flows. “Everything depends on oil and gas,” Goryainov said, citing a figure of $80 dollars per barrel at which many companies then have enough funds and are willing to fund business travel expenses.