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Q3 2016 Quality Hotel Market Results in Moscow and St. Petersburg: Still Going Strong

MOSCOW, 26 October, 2016 – JLL presents the Q3 2016 results of the quality hotel market  in Moscow and Moscow Region, and St. Petersburg.

“This year has so far proven to be extremely positive for the hotel markets of two Russian capitals. Very strong improvements to operational indices of the previous year have been recorded, and we see no reasons for the progress to slow down.” – Tatiana Veller, Head of JLL Hotels & Hospitality Group, Russia & CIS, says. – “Tourist season extended into September, and coupled with the beginning of the 2016-2017 business season, allowed most segments on both markets to further grow occupancies, and increase rates on that basis.”

Moscow saw the market-wide occupancy YTD across segments improve by 5 p.p. in comparison with 2015, and reached 72%. Hoteliers also increased ADR by almost 8%, and the market average was RUB 7,500 in January-September. This resulted in the RUB 700 improvement of the RevPAR index, to RUB 5,300 revenue from each available room on the market.

The winner of the race to profitability in the reported period was Luxury segment, which, by having 83% of its rooms occupied in September (and 67% YTD), and continuing to drive rates on the back of strong demand for high-end accommodation, is still setting RevPAR records (as a result of first 3 quarters it grew by 22% compared to last year, reaching an ever recorded high of RUB 11,400).

All other segments also recorded growth in occupancies and rates, besides the lowest observed segment, Midscale, which as a result of first 9 months of 2016 lost 2.8% in ADR (to RUB 3,800). At the same time, very healthy growth in demand, and thus in occupancy, especially in the more budget-friendly segments, resulted in the RevPAR increases from 7% to 17%, increasing from lower segments to higher.

“Specifically notable this year is very high demand for budget-friendly accommodation in Moscow. This is probably due to the changing mix of guests, higher share of local clientele, large groups, and travelers from the more budget-conscious destinations. The three lowest segments – Midscale, Upper Midscale and Upscale – all recorded YTD occupancies of over 70% (with Upper Midscale reaching almost 80% by the end of Q3).” – Tatiana Veller notes.

The next hot market is the Moscow Region Resorts, which continued going strong in September, notwithstanding the fact that the summer break and vacation season is over. By the end of Q3 2016 compared to the same period last year, the strong (14 p.p.) hike in occupancy (to 52%) and modest price increases allowed these players to receive outstanding RevPAR results, 46% higher than last year (RUB 2,600 in absolute terms). If the Sales teams at these properties manage to attract private and business events in the last 3 months of the year, this may very likely turn out to be the most profitable year they have ever seen.

“We would like to be conservative and say that St. Petersburg had a very good year. But the truth is, 2016 so far has been exemplary for all segments of quality hotel market in the Northern capital.” – Tatiana Veller comments. – “September didn’t fail to add to the success of the summer months. As a result, city-wide hotels sold 69% of rooms YTD by the end of Q3, grew rates by almost 20% (to RUB 6,300) and RevPAR by 24% (to RUB 4,200).”

The victorious segment in St. Petersburg is the Midscale, lowest segment whose performance JLL observes. With more and more groups and individual tourists flocking to the beauty of Northern Venice, the players in this category of accommodation drove rates higher, utilizing very strong demand and relative stability that seems to have settled in as far as future patterns are concerned. RevPAR YTD increased by 31% here, combination of a 4 p.p. occupancy growth (to 67%) and a 24% increase in ADR (to RUB 3,150).

Luxury hotels also continued to benefit from the robust demand and reached 63% occupancy YTD, surpassing the previous year’s result by 3.5 p.p. and with a 17.5% rate increase (to RUB 17,300) are still among the segments with the most favorable dynamic in RevPAR (24% gain, to RUB 11,000).

“In general, St. Petersburg is now playing a rate game.” – Tatiana Veller says. – “Occupancies have exhibited single-digit growth YTD in all segments (from 0.3% in Upper Upscale to 3.7% in Midscale) while the ADR grew by a minimum of 17% (in Upper Midscale segment). This shows that the hotel owners and operators are starting to reap the rewards of continued interest to their home city as a tourist destination and are mastering the revenue management skills while also bringing more to the bottom line from each sold room.”

“We foresee the patterns to stay the same on most of the markets for the remainder of the year. This business season, by reports from the hotel operators and owners, is proving to be very successful and should additionally strengthen the position of existing players.” – Tatiana Veller concludes. – “Quality hotel supply in Moscow and the Region grew by 526 rooms, and in St. Petersburg by 314 rooms since the beginning of this year. St. Petersburg is not expecting any other hotels to enter the market this year. Another 1,667 units of new room stock are forecasted in Moscow by the end of 2016, so it may dilute the positions of existing players a little bit, but considering the robustness of the demand, should not hurt much.”