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Moscow Hotel Market Update. Q3 2015 Results

Moscow, 27 October, 2015 – JLL Hotels & Hospitality Group announces the Q3 2015 Moscow hotel market results.

   This year clearly sees the business activity returning to Moscow. Impact of sanctions has so far been a double-edged sword. On one hand, it led to the Western European and US demand fleeing from Moscow hotels. On the other hand, it brought in other types of tourists – domestic businessmen and wealthy Russian leisure travelers, Chinese tour groups. Market-wide occupancy grew by 4 p.p. (to 68.8%) YTD vs. 2014.

   “Some of this new demand is on the cheaper side, causing pressure on rates. Across segments the first three quarters of the year witnessed a marginal drop (by 0.1%, or RUB 4) in rates.” – Tatiana Veller, Head of JLL Hotels & Hospitality Group, Russia & CIS, said. – “The hoteliers, having spent almost a year in the weak ruble zone, learnt once again, remembering the 2008-2009 experience, to manage costs better. Many of them localized their purchasing; almost everyone with debt leverage renegotiated their loans into ruble terms. Considering the new reality, where operations are fully ruble-based, the performance of hotels in Moscow has been relatively strong, especially in RevPAR terms. Average RevPAR in Moscow hotels increased by 8.2%, or almost RUB 400.”

   Not a lot of new supply came into the market this year, with Marriott Novy Arbat (234 Rooms) and StandArt Hotel (by Design Hotels) with 105 Rooms added to the higher category, and Ibis Dynamo (317 Rooms) and Hampton by Hilton Strogino with 214 Rooms (promised before year end) bringing additional stock into the Midscale segment.

   “Moscow is pushing hard to prepare for the 2018 FIFA World Cup. The city has been working on many improvements (transport infrastructure and parking, pedestrian shopping/dining areas, making the city more bike-friendly). This, alongside with the Russian capital now being ‘a steal’ for hard currency paying tourist, while offering an endless array of excellent dining, cultural and entertainment options, will help it continue being a solid choice for travelers.” – Tatiana Veller commented.

Moscow Hotel Market in details

Luxury

   The positive trends that the summer set this year with Occupancy and ADR gains seem to be here to stay. September has registered the highest Occupancy since 2007 (85%); Q3 overall number (73%) has been only beaten in 2013 (by a meager 4p.p.), and a 64% Occupancy YTD is also very respectable in historic perspective.

   “ADR of RUB 14,732 in this segment YTD has been at record high since 2008. This allowed for a very solid RevPAR gain of 18% compared to YTD number last year. It’s quite apparent that this trend started as a ‘splurge on luxury while it’s at a discount’ by the hard currency paying travelers, but got supported by robust business demand in the new season and the higher proportion of wealthy regional Russian leisure clientele travelling domestically.” – Tatiana Veller noted.

   “We foresee that if the ruble stays relatively cheap, the luxury segment will continue to benefit from travelers upgrading to higher quality hotels. The business season continues, and typically October and November are still strong in both Occupancy and ADR before the pre-holiday drop.” – Tatiana Veller said. – “No new supply in this segment is expected before year end, so demand for the existing properties should not be diluted.” 

Upper Upscale

   With a slight drop in ADR (by 2%), this segment was able to still register a respectable RevPAR gain of 6% (to 5,850 rub.) helped by a 9% increase in Q1-Q3 occupancy YoY vs. 2014. It seems that upper upscale hotels had to drop rates to win the quality demand from the higher segment, and not lose the more price-sensitive, group and MICE demand, to the cheaper accommodation options. Also, the additional branded supply trying to win market share, probably made its contribution to the rate game.

   Typically the fourth quarter is still rather strong in Rate terms for this segment, benefitting from Fall business events in the city, while slowing down toward the end of the year in Occupancy, so the hope is that the year will still close positively.

Upscale

   Price pressure on hotels in this segment in current market conditions continued to be very strong. It has been a challenge for players in this space since the beginning of this year to maintain rates. As a result, even though the Occupancy in Q3 has been the highest since 2003 (78.8%), and also very good in YTD terms (69%), but it came at an expense of the ADR loss of about RUB 400. This translated into a RUB 200 drop in RevPAR vs. to last year, and actually led the segment to the lowest RevPAR since 2011 YTD.

Upper Midscale

   “Upper Midscale segment has been a volume play this year.” –  Tatiana Veller commented. – “Occupancy showed the best results since 2004 both YTD (74.9%) and in Q3 (85%). But, because high volume business is typically also price-sensitive, the urge to lower rates has been hard to resist. The rooms have not been so cheap since 2005 (ADR YTD is approx. RUB 4,800), which resulted to the segment barely able to reach last year’s numbers in RevPAR both in Q3 (RUB 3,700) and YTD (RUB 3,620). The real challenge will be to transform volumes into hard cash next year.”

Midscale

   “This segment, being the largest slice of the market (about 1/3rd of total room stock), competes both with the higher level international-quality branded hotels, as well as with the unbranded local supply. It may lose out to cheaper competition, but also steals groups and budget-conscious demand from more expensive hotels. Surprisingly, it saw the least fluctuation in terms of both occupancy (within 1p.p.) and ADR (within RUB 200) both in Q3 and YTD compared to 2014, making it the safe harbor in terms of stability of cash flows.” – Tatiana Veller concluded.