Kicking off a new era for branded hotels in Russia
Football fans flocking to Russia for the 2018 FIFA World Cup aren’t the only ones filling its growing stock of branded hotel rooms.
Tourism has reached the highest level since the fall of the Soviet Union as travelers – especially Asia’s growing middle class – increasingly seek out new destinations beyond the traditional European hotspots . The weaker Ruble also has a role to play, making travel to Russia’s cities more affordable for foreigners as well as encouraging more Russians to holiday at home.
Record numbers of travelers from China made a trip to Russia in 2017 while visitors from the US increased by 25 percent and tourist numbers from the UK also rose slightly last year.
This has coincided with a branded hotel boom, which started more than 20 years ago but has accelerated in recent years with the world’s biggest hotel chains, including Hilton, Radisson, Starwood, Wyndham, IHG and Accor opening new hotels or rebranding old ones across Russian cities.
Moscow alone has welcomed 5,500 new rooms since 2014, most of which will be occupied during the World Cup as one million fans descend on the Russian capital.
But, with or without the World Cup, ‘Russia was ready for more hotel rooms’, according to Tatiana Veller, head of hotels and hospitality group, JLL Russia & CIS. She believes that the World Cup will help to showcase Russia’s cities to a wider audience but it’s unlikely to have a lasting impact on its hotels market, which is largely dominated by domestic travelers.
“Even before Russia won the bid to host FIFA 2018 there was a well-developed hotel supply. Unless you have zero hotels in a city then you’re not building solely for the event.”
The World Cup effect
Nevertheless, Russia hotels are set to benefit from the short-term impact of hosting the tournament, despite measures being put in places by the government to prevent room prices hitting sky-high levels. JLL research shows that former World Cup host nations’ major cities experienced higher occupancy and average room rates during the event.
Germany, South Africa and Brazil – the previous three nations to host the tournament – all saw better performance during the month-long championship with occupancy in their key cities exceeding the previous year in all cases. Average room rates also rose by between 40 and 60 percent.
Moscow and St Petersburg are expected to experience a similar boost between mid-June and mid-July 2018, compared with the same period in 2017.
Although these months are usually among the busiest for the Russian hotel and tourism industry, hotels nevertheless receive a steady stream of business and leisure visitors all year-round – and tourism numbers are set to continue on their upward path in the coming years.
The country is expected to attract over 30 million international tourists in 2018, according to the World Travel and Tourism council and this is forecast to rise by 4 percent annually over the next decade, hitting just over 57 million by 2028. Business travel spending is also expected to grow by 9 percent in 2018, rising by 4.6 percent each year to 2028.
Outside of Moscow, St Petersburg, Sochi, Kazan and Kaliningrad, which welcome a steady stream of travelers year-round, the World Cup will put some of Russia’s lesser known destinations under the spotlight. Saransk and Rostov-on-Don opened their first branded hotels in preparation for the World Cup – and their numbers are growing. Today there are four branded hotels in Rostov-on-Don and two in Saransk.
But Veller says many of the smaller cities hosting games are not classic tourist destinations: “Some of these second and third tier cities will be hoping to generate some positive coverage from the tournament but I highly doubt the Sochi effect will be replicated.”
Lessons from Sochi
Sochi saw a stratospheric rise in tourism after hosting the Winter Olympics in 2014.
But Sochi is unique. It benefits from both winter and summer tourism thanks to its combination of mountains and beaches and the once outdated resort underwent total redevelopment ahead of the Games.
Veller believes that growth in tourism will help to drive Russia’s hotels market in the coming years – and as the market develops, it could well catch the eye of new foreign investors.
The market currently caters well to luxury and budget travelers but needs more mid-scale and three-star hotels. Airport hotels are already on some investors’ radar along with serviced residences and hotel-managed apartments within mixed-use developments.
For Russia’s hotels, the World Cup is just one small part of a much larger game plan.