Marina Smirnova – Deputy Director of the Consulting Department, Head of the Hotel Consulting Group at Colliers International.
About the company:
Colliers International is an international consulting company providing services in the field of commercial real estate. It unites offices in North and South America, Europe and Asia, which makes it possible to apply international technologies taking into account the specifics of local markets, as well as carry out the most complex real estate transactions in any country in the world. Today the company offers a full range of services in the field of commercial real estate and takes into account all possible client requirements.
Cooperates with both international corporations and Russian companies.
Provides consulting services on the rental and sale of office, retail and warehouse premises, and advises in the field of hotel real estate. It also provides services for real estate valuation, market research, concept development, property management, analysis of investment projects and much more.
Irina Ushakova – senior analyst at Jones Lang LaSalle Hotels Russia & CIS”
About the company:
Jones Lang LaSalle is the only real estate company named to Forbes magazine’s «100 Best Companies to Work For» and Forbes magazine’s «400 Best Companies to Work For» list. It has over 150 representative offices operating in markets of more than 450 cities in 50 countries. The total turnover in 2006 was about 2 billion US dollars. The company provides comprehensive real estate and wealth management services to owners, occupiers and investors locally, regionally and globally. It is the market leader in corporate real estate management services – the company’s portfolio is more than 92.9 million sq.m. areas around the world. In 2006, the total volume of transactions concluded for the acquisition, sale and attraction of financing amounted to 70.9 billion US dollars.
AZ:For several years now, Moscow has been experiencing an acute shortage of hotel rooms (especially in the mid-price range). What are the prospects for the construction of new hotel facilities in the capital?
Marina Smirnova:There is no shortage of plans to build hotels in Moscow: according to the Moscow Government, 100 hotels are expected to be built over the next 3 years, or one every three months. Of course, these plans will be adjusted by the realities of life, but already in 2007 it is planned to open (in addition to the Ritz-Carlton, which received its first visitors in July 2007), the Milan Hotel (300 rooms, Shipilovskaya St.) and the Borodino Hotel. (230 rooms, Rusakovskaya str.). Both hotels are positioned in the middle segment (3-4*) in terms of the range of services, but in terms of price they are rather in the upper segment (the cost of living in a standard room will be 200-250 US dollars/day).
According to the forecasts of our company’s specialists, mainly expensive hotels will be built in Moscow, which is explained by the high cost of land and high competition for land plots between other commercial and residential real estate projects. Relatively cheap hotels will be “pushed out” closer to the Moscow Ring Road, to areas with difficult transport accessibility and undeveloped (from a business point of view) areas.
Irina Ushakova: There really is a shortage, and not only in the most popular middle, but also in the high segments of the market. Unfortunately, hotels in the middle segment of the market do not appear often in Moscow yet.
About three hotels have been put into operation in recent years, but all of them are from the high segment. The “ORCO MaMaison” hotel (Pokrovka St.) is expected to enter the market, but all these are isolated cases.
The Moscow Government’s plans to sell more than 350 hotels by 2010 have been changing for several years now, but not many new hotels are appearing. First of all, our company considers the market segment in which there are objects comparable to the international level. Not many hotels are being built here: the Four Seasons (in the renovated Moscow Hotel), the Hilton (on the site of the Leningradskaya Hotel) and the Moscow City building complex, where hotel facilities will also be located, are expected to open.
Our forecasts regarding plans to build 350 hotels by 2010 are too ambitious. Mainly, the market will expand due to the replenishment of the high segment.
Properties in the middle segment will also be in demand in the capital in the next two years, and prices for them will remain as high.
AZ: Moscow hotels stand out from other large cities around the world with very high prices. How, in your opinion, does this situation affect the occupancy rate of hotels? What is your forecast for further price increases?
Marina Smirnova: We enclose our annual report on the Moscow hotel market. There are dynamics of prices and loading.
Of course, high prices affect the decrease in demand, but in general, since the purpose of the trip of the main clients of the city’s hotels is business, there is no replacement for this direction (a client with business connections in Moscow cannot hold negotiations in some other city). Therefore, demand remains high during the week, but decreases on weekends and holidays.
The absence of “weekend tourists” and other client groups capable of compensating for the decrease in occupancy on weekends and summer months leads to a decrease in average annual occupancy, despite the fact that, again, during the business week demand remains at 100%.
Irina Ushakova: This is reflected in the fact that over the past two years hotels have been increasing prices by an average of 35-40% per year. Over the past few years, prices have been constantly rising, but in 2006 the market responded to hotel occupancy: hotel occupancy began to decline slightly.
However, the latest trend shows that occupancy has increased again, and prices are trending upward again.
Today Moscow is the most expensive city in the world.
One of the proofs of this is the insane prices for hotel rooms. Even if this is a hotel all over the world from a 3* chain, in Moscow a hotel can position itself as a 4*.
AZ: How active are investment and construction companies in the hotel construction market in Moscow? What are the main problems for investors and what are the ways to solve them?
Marina Smirnova:Problems — land plots and obtaining permits.
Money is not a problem.
Irina Ushakova: First of all, an investor should ask himself the question — should he build a hotel at all? Nowadays, preference is often given to other market segments — it is more profitable to build offices, retail premises and residential real estate. If there are any encumbrances or the developer deliberately decided to build a hotel, then the 5* segment, being very expensive, takes a long time to pay off.
Construction of a 3* hotel will also not be cheap due to the high cost of land, investments in obtaining permits, attracting additional capacity, and will not pay off quickly.
Today, it is most profitable to build a hotel in the 4-5* segment, which is focused on business clients, which allows you to raise rates. It is difficult to talk about specific payback periods, because… There are many project factors that need to be taken into account. But, to generalize, we can talk about a payback period of 8 years or more. And the main difficulty for a developer today, as well as for other segments of the real estate market, is the purchase of a vacant plot of land.
”AZ”: There are many cases of demolition of outdated hotel buildings in the center of Moscow. Is the city keeping up with the pace of construction of new hotels, so as not to further complicate the situation with the shortage of hotel rooms?
Marina Smirnova: Not yet in time.
The deficit associated with the closure of the Ukraine Hotel (1,017 rooms) for reconstruction and the demolition of the Rossiya Hotel (3,500 rooms) is about 3,000 rooms. In 2006-2007 introduced: “Holiday Inn” (312 rooms, Sushchevsky Val), “Peter I” (134 rooms), “Holiday Inn” (524 rooms, in Sokolniki), “Ritz-Carlton” (332 rooms), “Borodino” (230 numbers). There are 1532 rooms in total.
Irina Ushakova: The city really does not have time to compensate for the shortage of rooms.
After the demolition of the Rossiya Hotel and the dismantling of the Moscow Hotel, clients who are not ready to pay 600-700 US dollars per night are forced to stay in hotels left over from the Soviet era, of which there are also not many and the quality of the services they provide leaves much to be desired the best. And, as I mentioned earlier, in order to compensate for the lack of rooms, it is necessary to build mid-segment hotels.
AZ:In the last two years, large international hotel chains have begun to actively enter the Moscow market: the Ritz Carlton has taken the place of the Intourist Hotel, the Four Seasons has taken the place of the Moscow Hotel, and Hayatt will be located in the Federation Tower. How will the arrival of luxury hotel chains affect the investment climate of the city?
Marina Smirnova: The entry of high-class international operators into the city’s hotel market emphasizes its investment attractiveness, especially for Western banks and funds . But this is a consequence of the improvement of the investment climate in Moscow, and not vice versa.
Irina Ushakova:The Russian market is of interest to such brands as: “InterContinental”, “SHANGRI-LA”, “Peninsula”, “Mandarin Oriental”. These are mainly operators who do not yet have a representative office here.
Only near Red Square, four different hotels are planned inside the Rossiya Hotel building, divided into different zones. A hotel will be built on Ilyinka Street, on Tverskaya Street and all facilities will be 5*.
”AZ”:What prospects open up for engineering companies working in the field of building automation and air conditioning systems in connection with the Moscow Government’s plans to build hotels in the capital?
Marina Smirnova:As the number of hotels increases, competition between them increases. In this regard, the influence of such factors as cost control, hotel income management, automation of the work of all profit centers is increasing. As for climate control and air conditioning systems, the presence of such systems is a mandatory requirement for modern hotels of 4* class and above, and international operators require the installation of such systems in hotels of lower class.
Irina Ushakova :Each chain of Western hotels has its own internal standards, which regulate, among other things, the arrangement of engineering equipment. I believe that engineering firms should first of all focus on specific hotels from well-known brands, where opportunities for selling their products and solutions are predictable. Now the boundaries between the star ratings of hotels are confused, and there are no uniform categories for hotels. For example, the “Accor”, “Rezidor SAS” or “InterContinental” chains have their own standards.
AZ: Which of the hotels currently under construction (or recently built) whose projects interesting from the point of view of architectural and planning solutions or engineering approaches, would you highlight?
Marina Smirnova:From an architectural point of view, projects in Moscow City (for example, the Rossiya Tower) and on Golden Island (architects: Van Egeraat and Nunez) promise to be interesting. Obviously, there will also be original engineering solutions. But the timing of these projects has not yet been determined. Other hotels under construction, in my opinion, do not offer anything very original (“Moscow” involves the reconstruction of the previous hotel). The filling of a luxury hotel. Perhaps some innovations in communications and control systems, but this depends on the requirements of the operator.
Irina Ushakova: Considering that not many new hotels have been opened in Moscow over the past two years, it can be noted that the number of rooms is outdated, and modern technologies are not often used. I would like to mention the Ritz Carlton hotel, its developer was the Capital Partners company.
AZ: Sochi received the right to host the 2014 Winter Olympic Games. What is your forecast for the development of hotel construction in this region?
Marina Smirnova: There is a forecast from the city administration — to build 26 thousand new hotel rooms. It is obvious that not so much hotels will be built, but apartments (housing).
It is planned to build 1 million sq.m. in Imereti Bay. areas, mainly hotels, housing and infrastructure.
Irina Ushakova: Investments in Sochi must take place. The city’s infrastructure will change, including the construction of new hotels. Considering that the region itself is “seasonal”, it is necessary to focus on conference facilities when building hotels.
A kind of analogy can be drawn with the French city of Cannes, because… The ideologies of both cities have many similarities. Russian oligarchs and financial structures have bought up many land plots in Sochi and, most likely, they will be the ones who will sell land for construction or engage in development themselves, including hotels.