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Russia’s hotels boosted by its economic woes.
Friday, 21st April 2017
Source : JLL Staff Reporter

The colorful domes of St Basil’s cathedral and the opulence of the Hermitage have attracted many an international traveler to Russia’s grand cities over the years.

And with the FIFA World Cup on the horizon in 2018, tens of thousands of football fans will be descending on the country from Europe and further afield.

In preparation, almost 20,000 internationally branded hotel rooms have been added to the Russian market since 2010, largely driven by Sochi 2014 and FIFA 2018.

For its recent visitors, however, Russia has one big additional appeal; the lure of a cheaper stay after the value of the ruble plunged following its macroeconomic downturn.

This in turn has prompted a change in the make-up of foreign travellers to the country. Tom Mundy, Head of Research at JLL Russia, says: “The number of Asian travelers has markedly increased from 32 percent of total tourist arrivals in Russia in 2012 to 52 percent so far in 2015”.

“Much of this is down to the relative affordability of Russia for Chinese travellers who are paid in currency which is de-facto pegged to the US dollar.”

In addition, foreign travelers benefiting from favorable exchange rates are finding they have the means to upgrade their hotels once they get to Russia, says Tatiana Veller, Head of Hotels and Hospitality at JLL Russia.

“This has proven quite supportive for the luxury segment in Moscow with occupancy rates at 65 per cent between January and October 2015,” she adds.

Plus with the average daily rate (ADR) growing 12 percent year on year to end-October to approximately RUB 15,000 ($220), combined with nearly 13 percent occupancy growth, luxury hoteliers brought an extra 20 percent to their bottom line.

Russians stay closer to home

Russia’s economic woes have, however, curtailed the holiday plans of many of its citizens. Only 30,000 Russians are expected to holiday abroad in 2016 in contrast to 150,000 three years ago. It’s not just the weakened ruble, which makes everywhere else unrealistically expensive – there are also fears for personal safety amid growing geopolitical tensions.

Instead, Russian travelers have been drawn to their country’s historically popular tourist destinations such as Moscow, St Petersburg and even Sochi, home of the 2014 Winter Olympics and many holidayed in Crimea this summer.

In St Petersburg, occupancy levels in the luxury and mid-scale segments in 2015 were well above 2012 levels.

These latest forecasts build on a growing trend. Already in the summer of 2015, Russian domestic tourism hit a new high. Moscow recorded unparalleled increases in operational performance of most hotel segments.

Moscow’s quality hotel market as a whole showed an almost 10 percent jump in occupancy to 74 percent in 2015, compared to 2014, resulting in a 9 percent growth in revenue per available room (RevRAR). It’s a trend that looks set to continue.

“As the economy becomes more inverted, businesses are producing, distributing and selling locally, which increases the number of people travelling for business purposes inside the country,” Veller explains.

In terms of business travel, Moscow outperformed Frankfurt’s occupancy rates (73.9 percent versus 70.3 percent) and almost reached Brussels’ levels of 75.1 percent in the first nine months of this year.

For Russia’s hotel sector, the economic downturn may be changing the type of customer they welcome through their doors but it’s not hurting their bottom line.

This article was originally published on JLL Real Views, JLL’s news site exploring the big trends shaping the real estate industry’, with ‘Real Views’. Reprinted with permission.

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