Experts doubt that the investments in Moscow hospitality sector can recoup

Эксперты рынка сомневаются, что инвестиции в гостиницы окупятся

Moscow is a wonderful city now that made a lot of investments to hotels. Because of such things, it flourished by World Cup and created one of the best hospitality sector in the world both for tourism and business trips. But our expert – General manager of Renaissance Moscow Monarch Centre Hotel Armin Eberhard – doubts that due to the current situation on the market, investments will pay off in the long term.

In his opinion, the segment’s growth is constrained by two key factors: the lack of regulation of the private sector (short-term rental housing) and the problems of pricing in the market, when the hotel business can not compensate for a long time the costs:

«I absolutely agree that the diversity in the hospitality sector in Moscow specifically needs to grow, – Mr. Eberhard explained us, – hence the new trend in the last years to build 3* and select service solutions by all major brands, becoming the main fare of growth for companies.

I agree with him on another point but would stress it much more that based on current state regulations for professional businesses to host guests there has to be a much more controlled effort on private housing offered for short term let, like air B&B.

  1. It is not the noise alone that is a disturbance to long term tenants, it is also their security and security for the city overall, just now so majorly highlighted during the world cup
  2. The hygiene, labor and work place safety and epidemiological requirements on hotels is extremely strenuous, a major burden for operations and costs and requires detailed operational plans and excellence in executing cleaning schedules in kitchen, bathrooms, pools etc. Especially faced with such a worldwide event like FIFA 2018 this was put on the front sheet of the government and the operators struggled to maintain operational control with the onslaught of demanded evidence and paperwork to prove we are operating within the law and maintain hygiene safety at the top level. None of this is checked or controlled in private accommodation and while our fridges get inspected daily a common household has no limits what the landlord will leave in there and how hazardous it may be for the guests. Yet, the costs for rent are similar. Here is a lot to be done to increase the same control and apply the same regime to level the playing field.

When he mentions restrictive areas for hotel development then I have to say looking a the diverse range of location of new bedroom stock coming online in the last three I don’t see a need to compensate this with private lodging.

When we examine the need for increase in bedroom supply of all categories in Moscow for the future I would rather caution the optimism of adding so much stock every year to the existing portfolio. The current trends in the market we measure on international level shows that the sector has not recovered the average daily rates it ran before 2014, since the ruble drop, despite increase in some years.

Volume in terms of average occupancy has increased, due to new markets mainly from the East replacing traditional source markets like Europe and US for example, these delivered volume but at lower rate.

Oversupply in the current market conditions can lead to the negative development that hotels cannot achieve required occupancy averages, trying to substitute the demand from lower priced category competitors leads to an average rate drop and a drop of turnover vs. higher costs through higher occupancy which in turn means less investment back into the hotels in the long run.

There are many examples of cities in Europe alone which went through such cycles before the supply stabilized.

Moscow boasts one of the best hotel products in the world in my opinion in terms of quality of the facilities and the maintenance and upkeep it requires. Endangering this with too much growth will have a long term affect on the customer perception and that is challenging to rectify later on».

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