Experts estimate that over $1 billion through hotel development and transactions has been invested into the Moscow hotel market in the last 2 years, indicating clear evidence that international and domestic investor interest is intensifying, says Jones Lang LaSalle Hotels. Other Russian cities are starting to attract similar attention as investors are looking at new emerging hotel markets outside the capital.
Mark Wynne-Smith, European CEO, Jones Lang LaSalle Hotels, said: "Russia is achieving outstanding economic growth and its annual GDP figure is growing at an average rate of 6.4%. This is driving both foreign and domestic investors to gain a foothold in the market. Foreign direct investment into the country topped $18 billion last year so we are seeing that investors are seriously looking at the market and the hotel sector is reaping the rewards."
He continued: "Evidence of the appetite for hotel assets has been demonstrated in a number of ways over the last 18 months investment firms have announced their intention to create funds for investment in the Russian hotel industry, such as the 'Hotel Real Estate' fund by Finam investment holding. Further evidence includes - European real estate lending institutions offering greater lending facilities for Russian hotel investments with strong support from their Russian counterparts, a significant number of prominent European and US developers and investors are seeking to establish a presence in Russia as well as key international hotel operators plus there have already been some high profile hotel deals."
New Markets
Many cities across Russia are experiencing an economic and development boom reflected in elevated Gross Regional Product and Foreign Direct Investment. Yekaterinburg (8.9%; $62.6 million respectively), Novosibirsk (5.7%; $13.8 million) and Samara (8.7%; $160 million), to name just a few, have all attracted the interest of domestic and international investors in various commercial real estate sectors including hotels. International hotel operators such as Accor, Hyatt, Rezidor SAS and Raffles International have all been studying the fast growing markets in Russia as potential areas for future development.
Marina Usenko, Head of Jones Lang LaSalle Hotels in Russia: "Another area we see as a future market for hotels is Rostov-on-Don, 1,226 km south east of Moscow. The city has undergone considerable regeneration and is home to over 20,000 companies. Currently dominated by business travellers, there is however potential growth in the conference sector. There is lack of international operators at the moment but players such as Rezidor SAS have taken a keen interest in the market."
"Sochi, the Russian Riviera which is a well known tourist hot spot and was originally a health spa town also has the potential for hotel development. It has gained popularity for its snow-capped peaks of Krasnaya Polyana, a winter resort only half an hour away from the city centre the city has been put forward for the 2014 Winter Olympics," She continued. "Considering the existing hotel properties in Sochi and the limited available land along the beach area, it is likely that the new quality supply will start with the renovation and takeover of existing spa hotels. The winter resort of Krasnaya Polyana being a new destination with a very limited accommodation infrastructure, on the other hand, is expected to expand through new hotel development."
Among other emerging hotel development markets, the Kaliningrad region in the north east is a designated Special Economic Zone giving tax advantages to business and investors. Investment in the area rose by 118.7% in 2005 compared to the previous year reflecting the region's importance as a leisure and business destination.
Source: Jones Lang LaSalle
