Almost 300 days down on being CEO Continental Europe, I experienced a somewhat different side to European efficiency this week. As a speaker at the RHIC (Russian Hotel Investment Conference), one is initially faced by the challenges of getting a visa for Russia (luckily they still tolerate my presence there, one of my panelists at the conference had to cancel last minute due being denied an entry visa). Having overcome the initial hurdles in getting there, I was overwhelmed by the traffic. On day 1 of the conference, the 5 km journey from the Ritz Carlton to the Radisson Royal took 2 hours. On day 2, the same taxi ride only took 8 minutes. Figure that!
Contrary to the traffic – Moscow is one of the top-performing markets in the EMEA region despite moderate average daily rate (ADR) growth since the big dip in 2009. The overall downturn in tourism in 2009 was quickly overcome by a strong recovery in 2010 (20% growth year-on-year in the total number of hotel guests accommodated and bed nights sold), followed by another strong year in 2011 (14% growth year-on-year in hotel guests and 8% growth in bed nights).2010 also welcomed a major influx of new hotels (over 2,000 rooms of mostly higher-grade quality) and another some 1,000 rooms during 2011 / 12 has given more choice to hotel guests, but has also kept room rate growth firmly in check.
Development activity is still subdued, with only 5,000 rooms currently in planning and due for completion by 2015. The recent expansion of supply will make it more difficult for hotels to increase rates at historic levels, but the profitability of assets remains far healthier in Moscow than in other markets, driven by the city’s relatively low cost base. A sudden surge of investment activity registered during the last 20 months, mostly amongst domestic investors, indicates that the level of interest in the Moscow hotels, both operating and at final stages of development, is high. Despite the shortage of sellable assets, recent transactions included a number of milestone deals, such as the sale of the Ritz Carlton, the Courtyard by Marriott and the public auctioning of the landmark Metropol Hotel. Desired yields for hotels in Moscow range from 9 to 11%, although similar to many European key destinations, investors tend to show a higher yield tolerance for trophy assets in the range of 5 – 7%. By the way, Jones Lang LaSalle Hotels acted as an advisor on the Ritz Carlton and Courtyard by Marriott transactions.
My next EMEA pursuit with be the Hospitality Summit in Istanbul in two weeks…more to follow then….I am beginning to wonder if Istanbul’s traffic can beat Moscow?