As investors increasingly look to enter the Russian market, including the regions outside of Moscow and St. Petersburg, the demand for hotel rooms and convention spaces across Russia will undoubtedly grow accordingly. This presents investors with significant real estate investment opportunities in the regions where Soviet-era accommodations are often the only option and the hotel market is far from saturated.
These trends were discussed at the Russia & CIS Hotel Investment Conference that took place last month in Moscow. During one of the conference’s panels, Michael O’Hare, managing director of Horwath HTL Russia and a leading hotel industry expert in the region, commented, “It was positive to hear that projects and demand for opportunities are beginning to grow again…There are over 50 cities in the [Russian] region with over half a million inhabitants that could support new hotel supply and that is where we expect the focus to be in the coming years.”
New hotel deals in the pipeline
Recognizing the investment prospects in the Russian hotel industry both in Moscow and beyond, leading international hotel chains recently stepped up their activities in Russia with major project announcements:
• At the Russia & CIS Hotel Investment Conference, Hilton Worldwide announced three new hotel projects in Russia, raising the total number of hotels the company has either opened or plans to develop in Russia to 11. As a testament to its confidence in the growth potential of Russia’s regions, Hilton plans to open a 171-room Hilton Garden in the Urals city of Kazan, Russia’s sixth largest city, by 2014. Hilton’s Garden Inn brand is also set to debut in Yaroslavl, a city around 150 miles northeast of Moscow, by 2012. The hotel will feature 179 rooms, 10 meeting rooms and a ballroom. The third hotel will be in Moscow.
• Earlier this month, Marriott likewise announced plans to open 25 new hotels across Russia within the next two to three years, according to the company's Vice President and Area General Manager, Michael Stengel. Like Hilton, the company plans to expand in Kazan, opening one of its Courtyard hotels there in early 2011. Later in the year, Marriott plans to open additional hotels in Moscow as well as the regional cities of Krasnodar, Krasnoyarsk, Irkutsk and Ufa.
• American billionaire Ronald Lauder announced plans in July to open up a new hotel chain in Russia called Vashotel, which will include 18 economy two- and three-star hotels in Moscow. The project cost is estimated at $1 billion.
EBRD and IFC promote affordable hotels in Russia’s regions
The private sector is not alone in recognizing Russia’s need for new hotels that meet international business standards. This past July, the European Bank for Reconstruction and Development (EBRD) and the International Finance Corporation (IFC), which serves as the World Bank arm for private sector investment, announced that they will jointly assist in funding the development of five mid-class hotels in the Russian regions. These 750-occupancy hotels, which will target business travelers, are to open in four regional cities that the two organizations consider to be prime for investors - Yaroslavl, Samara, Kaliningrad, and Krasnoyarsk. The loans for constructing the hotels will total €45 million.
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