Not a single large property emerged on St. Petersburg’s hospitality market in 2007, though many investors announced future plans for development. Meanwhile, a record-breaking number of properties are preparing to enter the market in the years 2008 and 2009. At the moment, 137 projects with more than 11,000 rooms are in various stages of completion.

Stormy Response

The latest large hotel to enter the St. Petersburg market is Kempinski, Moika, 22, which opened its doors in May 2006. After that, it has been mainly mini hotels with 8-10 rooms that have been added to the hospitality market of the Northern capital. It is at their expense that the room stock grew by 8.3% from Sept. 1, 2006 to Sept. 1, 2007. But in order for St. Petersburg to become one of Europe’s top five major tourist centers (as called for in the ambitious municipal program) its hospitality stock must grow to 35,000 rooms. At present there are 17,000 rooms in about 300 hotels–or three times less than London’s 938 hotels, and almost four times less than Paris’ 1,186 hotels. Even Prague has more hotels with 483.

As reported by GVA Sawyer, only 53% of the room stock in the Northern capital (about 10,000 rooms) falls into the category of quality hotels (from 3 to 5 stars), 3* accounting for half of them. And yet it is the middle-range hotels that are in short supply. In 2008 the situation may start to change, however. “In 2007 the hospitality market was bubbling. Never before had such a number of projects been announced; Russian businessmen follow the example of their foreign peers who actively enter hospitality projects,” says Blake Anderson, an independent consultant to the hospitality market cooperating with Rinaldi Groups and Linstow. According to the Investments and Strategic Projects Committee at the St. Petersburg government, 32 hotels are now being built in the Northern capital — six 5* hotels (607 suites), four 4* hotels (662 rooms), sixteen 3* hotels (1,710 rooms) and six economy-class inns with 54 rooms. Exploration and design works are going on at about 150 other sites.

Western Operators Prepare Rooms

Especially active is Finnish SOK Holding. In January the commercial operation of the 278-suite 5* Holiday Club St. Petersburg hotel will begin on the spit of Vasilyevsky Island, which will be the city’s first hotel with an expressed spa function, to be followed by the 348-room Sokos Hotel Olympic Garden not far from Moskovsky prospekt and Technological Institute subway station. The 255-room Sokos Hotel Vasiljevsky is due to open in March-April 2008. All told, the Finnish company will swell the St. Petersburg hospitality stock by 881 rooms. The hospitality projects will be managed by its subsidiary Sokotel Ltd. “By 2012 our company will be managing eight four-star hotels, each having from 200 to 400 rooms,” says Lorenz Salo, general manager of Sokotel Ltd and general manager of Holiday Club St. Petersburg Hotel. The aggregate investment of SOK Holding in an accommodation chain in St. Petersburg is estimated at more than 300 million euros.

The Estonian development company Pro Kapital Grupp also plans to open a 5*, 108-suite hotel at 54 Bol. Morskaya St. under the Domina Prestige brand. The investment is 22m euros. Wenaas group is going to launch its third Park Inn Hotel to follow Pulkovskaya and Pribaltiiskaya hotels. In its turn, the French hospitality operator Accor, in a joint venture with Kesco, intends to open a 220-room 3* Ibis Inn worth about $20 million at 54 Ligovsky prospekt at the turn of the year. Altogether the partners intend to open five hotels in St. Petersburg. Between now and 2011, Kesco is ready to invest about $100 million in these projects. The Norwegian investment company Linstow also plans to open three hotels in St. Petersburg in the years to come. One of them, with 175 rooms, is slated for delivery early in 2009 in a building the company is modernizing at Liteiny prospekt. The first Holiday Inn managed by Inter-Continental Hotel Group is expected in the first quarter 2009 and in the middle of 2010 the Crowne Plaza Hotel must open its doors.

The odds are high that Western operators will get a firm grip on the middle-range hospitality segment. At present, not a single chain hotel operator save for Azimuth is represented on the St. Petersburg market, but new companies are expected in the premium-class segment. Rapid construction on the Four Seasons Hotel is under way near to St. Isaac Cathedral. Starwood Corp. is going to open a hotel on Voznesenky prospekt under the fashionable W brand in 2009. Severnaya Korona Hotel will probably open in 2009 under the Le Meridien brand. Marriott, Moevenpick, Hilton, Hyatt, Sheraton and other players are also going to make their next moves.

Petersburg Residents Get Used to New Formats

One of the recent trends is project enlargement. “The greatest demand is for a 400-room 3 or 4* hotel with conference and banquet halls. The lower the hotel category, the more rooms it should have. This is why foreign operators would rather run hotels having at least 200-250 rooms,” explains Mr. Andersen. There’s no room for such projects in the historical core, which already accounts for 60% of the total hospitality stock. Therefore, developers are turning their eyes to the suburbs. The potential guests expect extra services from remote hotels such as conference halls and spa centers to accommodate for seasonality. “The growing interest in the SPA function is demonstrated both by independent operators and chain players, especially in the premium class,” says Elmar Greif, chairman of the board at The Leading Hospitality Company.

Another remarkable trend is installation of hotel projects in mixed-uses. This approach is exemplified by a project by Clover Group. The company is going to erect a mixed-use on Ushakovskaya Quay with two hotels. Similar plans are cherished by VTB Bank realizing the Naberezhnaya Evropy project. In the words of the company’s vice president, Alexander Olkhovsky, a new hotel type, namely a condo-hotel comprising self-contained residential units sold to private investors, can be integrated into this complex. Each of the investors comes into possession of autonomous apartments while the overall management is tackled by a hospitality operator.

“The market reserve is in smoothing out the seasonal demand – above all, due to business tourism,” believes Marina Smirnova, alternate director of the appraisal and consulting department at Colliers Int. “If new hotels, spacious conference halls and comfortable conditions for large-scale conventions and congresses emerge in the city, it will be possible to attract music festivals and hold other major events during the winter season,” says Dmitry Machikhin, commercial director of Ambassador. “I optimistically look on the prospects of St. Petersburg hospitality market,” says Michael Cooper, vice president of Inter-Continental Hotel Group in charge of strategic development in Russia and Ukraine. “The fact that St. Petersburg is changing from a place of seasonal vacationing into a round-the-year center of business activity is a good prerequisite for successful business.”