Experts currently are predicting a genuine hotel boom for both Moscow, and for the regions. However, despite the significant number of ambitious new projects being proposed, there is still a deficit of hospitality industry real estate. According to Becar, the aggregate sum of all the hotel spaces in the capital shrank more than 1000 rooms since last year. This drop has occurred primarily among the moderately priced and economy class properties, the shortage of which is being felt ever sharper and sharper. The issue is that reconstruction projects have closed down a large number of three star facilities, such as Moskva, Rossiya, Minsk, Leningradskaya, Ukraina, Altai, Ostankino, Tsentralnaya, and Turist. Many of these will make the jump to 4 and 5 star hotels after they are reopened. According to the Moscow Department of City Planning Policy, experts saw 220 hotels operating in 2007, as 13 new projects were executed as planned.

More than 220 hotels are currently operating within the Russian capital. By comparison, London is currently the home of 1.7 thousand hotels, while Paris hosts 1.5 thousand. The cost of a night’s stay, however, is still slightly less in Moscow than in either of it’s British or French counterparts. Russian and foreign investors are actively engaging the more remote regions, which are not yet particularly spoiled for attention from the large hospitality brands. In recent years, Accor, Kempinski, Hilton, Residor, Marriott, Hyatt, and InterContinental have all announced plans to start work in the Russian regions, intending to involve themselves in economy class projects as well as properties for the luxury set. In 2008, 55 hotels are planned for opening, though according to analysts it is still too soon to speak about really solving the deficit. Market players warn that not all of the projects will be completed. Investors are certainly not rushing to put money into economy class hotels in Moscow, preferring to favor the more expensive facilities. As certain analysts point out, in light of the new projects under way, this segment may even approach saturation in either 2008 or 2009. The cost of hotel services may stabilize or even see a general decrease, though the more moderately priced hotels have not yet seen this level of development, saturation still seems quite a long way off.

Hilton Moscow Leningradskaya

Since November 2005, the Leningradskaya has been closed for reconstruction, and the building itself, an architectural monument, has been undergoing restoration work. This process is to complete itself by the end of 2007, and the hotel itself is to open at the start of 2008 under the Hilton Moscow Leningradskaya brand. The hotel must replace its utilities infrastructure and rework the facades and interior design. The total number of rooms will drop from 329 to 275, but the minimum area of each room will increase from 18 to 33 sqm. Additionally, the restored Leningradskaya will include three conference halls, a fitness club, a pool, a restaurant, and a banquet hall. The five star Hilton Moscow Leningradskaya will be the first of the brand’s projects in Russia, but according to Yen Carter, the general director of Hilton International, the company intends to open properties in 30 cities across the Russian Federation, including Yekaterinburg, Kazan, Krasnodar, Rostov, Sochi, Samara, and Perm.

“The company does not intend to invest independently in the construction of properties, but will develop business through a franchise system,” says Carter. He explained further that the third Hilton to open in Russia will not be managed directly by the corporation. By 2017, Carter said, there will be 70 Hiltons in Russia. These will be luxury and moderately priced properties, with a total of 12 thousand rooms between them. He further added that Russia has a dearth of quality hotels considering the rising demand. “This is why we believe that implementing the hotel network in the regional centers of Russia will be possible,” he emphasized.

Hyatt Regency

The international hotel operator, Hyatt International Hotels & Resorts, plans to open five more hotels in Russia and the CIS under its own basic brands – Grand Hyatt, Park Hyatt, and Hyatt Regency. The end of 2008 will see the opening of the Grand Hyatt Moscow, with 350 rooms, which will be located on the territory of the Moskva-City project in Federation Tower. Under this same brand, a hotel will later be opened in Yekaterinburg.

“The Hyatt Regency in Yekaterinburg will be opened in May of 2008. The construction of this five star hotel was begun at the end of 2004. Now the basic work is already completed, and the selection and training of staff is underway. Next week, the French manager of the hotel will arrive in Yekaterinburg. The Hyatt Regency will be situated in the center of the city on the shore of the Iset River. The twenty floor hotel, with 296 rooms, will include a presidential apartment, two restaurants with Asian and European meals, bars, fitness centers, and a pool. The facility will host guests from the summit of the Shanghai Organization of Collaboration, which will take place in Yekaterinburg in May of 2009,” says a representative of the Verkh-Isetskaya investment company, Nikolay Murugov. For now, Hyatt owns only one hotel in Russia – the Ararat Hyatt in Moscow. The Yekaterinburg Hyatt will be the first project in the CIS to be located outside of a national capital. Worldwide, the company owns a total of 300 hotels.

The Kremlevskii Complex

Across from the Kremlin’s Spasskii Tower, the most expensive hotel in Russia will be opened in 2008, the Kremlevskii Complex. The historical facade of the building will be maintained. A Russian auction house will be located along with a small quantity of retail points and residential apartments within the complex. The area of the complex will be increased from the current 43 thousand sqm to 71 thousand sqm and the office space will be removed completely. The principal investor for the project is the OPK, or United Industrial Corporation, who has put $150 million into the project, though this amount certainly may be increased. The director of the project, Evgenii Morozov, explains that the leases with 30 specialized firms have already been signed. The contractor for the project is Kompaniya Stroyresurs, which collaborated with Stranag AG to complete preparatory work on the site. Morozov has announced that OPK is beginning the initial bidding process among leading hotel networks in order to choose an operator.

The Raffles, Mandarin Oriental, Jumeirah, Bulgari, and Starwood companies all are among the possible winners.

Grand Hotel Europa

Grand Hotel Europa is planning to complete the remodeling of its rooms for 30 million dollars, according to the press service of the hotel. At the present time, the hotel’s second phase of reconstruction and remodeling has already been completed. The project was begun in August of 2005. Only 200 rooms of the hotel have been completely renovated and the overall look of the property’s entrances has been altered significantly. The Ikornyi Bar, an on-site restaurant, has also undergone interior decorations. During this period, 17 million dollars have been invested in the renovations. By 2008, the remaining 100 rooms will also be renovated.

The interior design for the hotel’s rooms was crafted by the French specialist, Michelle Jeanne, in the spirit of a private residence with a harmonious color scheme, based on variations of the color red. The rooms will include plasma television screens and beds more than 70 cm in height with hypoallergenic matrixes. The furniture has been produced individually for every room of the hotel.

The Grand Hotel Europa is one of the oldest in Russia. The building was first constructed in 1824 and later went through significant reconstruction, during which the interior elements were modernized, as was the facade, by the architect, Rossi. In December of 1991, the hotel was opened after a general reconstruction. The hotel has 301 rooms, including 89 ‘standard classic’ rooms, 123 ‘improved,’ 19 ‘half-luxury,’ 17 of which boast terraces, 22 penthouses, 24 luxury apartments with two rooms, 5 executive apartments, and 2 presidential suites, the Lidval and Rossi rooms. In many of the living areas, the original furniture, sculpture, and wall hangings have been preserved. Management of the hotel will be the responsibility of Orient-Express Hotels.

Please name for us the most significant trends and events of 2007

Angelica Normann, head of hospitality real estate department, Ernst & Young

In today’s real estate market, it is a major trend for companies that, up until 2-3 years ago, were only involved with either offices or retail estate centers to turn their attentions to the hotel market as well. In particular, we observe that unprofiled developers are following this trend in order to diversify their business.

A very large number of market players have announced their intentions to build hotels. But, not all of them understand that doing business on the hotel market is much harder than on the office market. Offices are leased for a year, and conditionally speaking, the owner does not need to think much about them; he simply receives a profit. But a hotel is a living organism that needs to be worked with everyday, as its “tenants” are constantly changing and it is necessary to meet their demands. Sometimes hotel projects are brought to us that do not even include a restaurant, which is a definite must.

Developers do not have enough experience, which is why there are so many delayed projects. Moreover, the system of incentives that Moscow authorities promised to hotel developers has still not been put into gear. Rather, developers encounter various administrative barriers when constructing hotels.

In 2007, despite all the promises, less than 10 hotels opened for business in Moscow. With many more hotels closed for reconstruction, this situation has led to a massive deficit of hotel rooms, with prices rising at a very rapid pace.

It is also significant that a large number of Western players are already operating on the market, namely Residore, Mariotte, Accore, Hayatte, Intercontinental, Kempinski and others. So long as Russian networks are unable to compete with such global giants, these companies will shape the Russian market and set the standards. Moreoever, despite the market’s upward trends, the deficit will continue for a minimum of 5-7 years.

Vadim Prasov, vice president of the Federation of Restauranteurs and Hoteliers

The opening of the Ritz Carlton Hotel in Moscow was a landmark event for the city in 2007. The hotel sets a new top standard for Moscow, especially in terms of price. The equivalent event for St. Petersburg was the opening of the Ibis Hotel. As for the regions, although many there are pleased that a large number of quality projects are going up, it is still too early to speak of large-scale construction. For the most part, the average construction period for hotels in the regions is 2.5-5 years.

Overall, three vectors of development can be traced in the regional hospitality market. They involve the race to develop tourist recreational areas, the creation of gaming zones, and, of course, the Olympics in Sochi. As for Moscow, if you follow what the press has to say, then it seems the hotel boom is just about to begin. But, the fact of the matter is that very few projects are being realized, mainly due to the character of Moscow’s market, where developers encounter high administrative barriers, expensive land, difficulties obtaining plots and an insufficent supply of qualified management personnel. I do not know one developer who has received the incentives promised to them by the city. This is why it is still too early to speak about a boom. Even the question as to when the hotel room deficit will ease up is still largely a philosophical debate.

Marina Usenko, senior vice president of Jones Lang LaSalle Hotels

The deficit of hotel spaces in Moscow has generated constant increases in the price of a room. And whoever comes to Moscow is forced to pay, as there are practically no other alternatives to expensive hotels.The majority of hotels have been closed for reconstruction, including a significant portion of mid-range priced hotels, such as the hotels Ukraine, Moscow, Central and Russia. As such, the number of rooms in the city has decreased (new offers have not been able to compensate for the number of closed hotels,) while the demand and inflow of tourists continues to rise. After their reconstruction, all listed hotels will enter the market in the luxury caterogy, as it is not profitable for their owners to enter the 3-star hotel market, which has significantly longer pay-back periods. As such, in the capital, there is a catastrophic deficit of 3-star hotels.

Vladlen Krasilnikov, head architect of the Association of Theater Architects

It is well known that when building hotels in Russia, most love to hire Western managers and consultants in light of the ostensible deficit of qualified Russian personnel. But, when it comes to architects, projects in Russia that have been designed by Western architectural firms are undoubtedly doomed to fail. This is because a foreign company does not know the specifics of the market and the city’s architecture and has difficulty obtaining the required approvals for the project. Today, the majority of major Russian hotel projects are designed either by domestic architects or through a collaboration of the two sides – both Russian and Western architectural companies.

Erkan Erkek, CEO of Capital Partners

The landmark event for our company was, without a doubt, the opening of the Ritz Carlton Hotel. This was certainly a unique and one-of-a-kind project for Moscow. Considering the dynamic development of the hotel market, we plan to recoup on investments within 5-7 years. In the first half of 2009, Capital Partners (CP) will begin construction on our next project – the Metropolis Complex, with a total around of around 140 thousand sqm, located on Leningradskoe Shosse. We plan to designate 100 thousand sqm for offices and 40 thousand sqm for a 4-star hotel.

Marina Kharlamova, leading expert-analyst of the hotel market, consulting department at GVA Sawyer

The greatest landmark events for the hotel industry in 2007 were certainly the opening of the high-class Ritz Carlton and the opening of the first high-class apartment hotel – the Pokrovka Suite Hotel. Also noteworthy was the closing for reconstruction of one of the capital’s most major hotels – the Ukraine. As a result, the supply of hotel rooms in the city dropped by 1,018 rooms, which only served to exacerbate the hotel deficit and rapid price increases. In Moscow, supply is not satisfying demand due to the slow pace with which new projects are entering the markets, as well as the deficit of quality offers. However, the high revenue levels per available room (RevPAR) and the incentives offered to hotel developers allowed the hotel market’s investment appeal to substantially strengthen in 2007.

Damir Kaftaranov, general director of City Hotels

Today there continues to be a sharp deficit of hotels in all categories. In addition, geographical divisions have naturally developed, with most major Russian networks operating hotels predominantly in the regions, while the international companies are in Moscow and St. Petersburg. What is more, international players are currently dominating the high-end segment, while national networks are mostly represented in the 3-star cateogry.Among the international networks in the mid-level segment in Moscow, the most known hotel is the Holiday Inn (of the InterContinental network brand.) InterContinental is actively entering the regions and is preparing to launch two hotels next year in Petersburg while also simultaneously developing several projects in the regions. In fact, InterContinental is the most prominent player on Moscow’s hotel market. A company with even more ambitious plans to expand into the regions is the Hilton chain, which arrived this year in Russia. Hilton has announced a plan to open 35 hotels in a period of 5 years. By the beginning of next year, Hilton plans to launch a project in Leningrad, and by the middle of next year, another project will begin in Novosibirsk.