Hospitality market in Russia: Q1 results in Moscow and St. Petersburg

5 Apr, 2012, Moscow

MOSCOW

With a positive growth of 10% Revpar across the city in 2011 over the previous year, the Moscow hotel market is again showing good operational returns. As ever, the first quarter of a new year is a nervous period for hotels and can provide a decent indicator of things to come over the rest of the year.

Last year saw the new properties of Lotte, Radisson Royal (Ukraine) and Renaissance Monarch complete their first full years on the market and this year we will see full impact of the Intercontinental and Courtyard by Marriott Vivaldi on their respective segments.

New openings are expected from Azimuth, Ramada and Novotel through 2012 to add to the already newly opened Mercure at Smolenskaya.

Overall the year has started well in Moscow for mostly all segments. The breakdown per segment follows, and overall the city is running 12% higher in Revpar than over Q1 in 2011. This comes from an 8% increase in occupancy and a 4% growth in ADR.

Average rates (ADR) per segment

It is interesting to look at the differences in average rates between the segments. The results in Q1 are quite similar to the full year results last year. The luxury segment trades at 15% to 18% above the upper upscale segment, which in turn is 37% to 40% above the upscale segment, which is a mere 2% to 5% above the upper midscale segment that runs 15% to 20% above the midscale segment.

Upscale hotels are still caught in a price battle with upper midscale hotels and are unable to close the considerable gap in price to the upper upscale segment. The gap from luxury down to upper upscale is reasonable as a percentage but could be higher and certainly the upper level of ADR in the city can grow further.

The Q1 results for the city, per segment, as compared to the same time period year by year are highlighted in the following tables;

The luxury segment is running flat to last year, with a 1% increase in occupancy and 1% drop in ADR. The results for the same period in 2011 over 2010 saw a similar picture. Typically the second quarter is far stronger for this segment which struggles to reach even 40% occupancy in January.

The upper upscale segment had a dip in performance at the start of 2011 due to the addition of new hotel stock to the group. This year has seen the result of a full year’s trading in 2011 for the new hotels added to an impressive growth in rate and occupancy. In fact the Revpar figure of RUR 6,300 is the highest in this segment for Q1 since 2007.

The upscale segment has posted the highest Q1 occupancy since we began tracking results. With rate flat to last year this has resulted in a Revpar growth in Q1 of 13%. Rate has still some way to go to reach pre crisis levels but with impressive occupancy the opportunity presents itself for some hotels to yield rate going forward. There is still quite some distance in ADR between the upscale and upper upscale segments (almost 40%). Until this segment manages to push rates, all hotels below will be unable to increase either. There clearly is a gap but not perhaps the appetite in the market as yet.

The upper midscale segment has had an impressive 8% Revpar growth in Q1 of 2012 over the same period in 2011. Continued growth in occupancy and well as in rate sees the actual Revpar running almost the same as that of the upscale segment and is almost the same now as in the peak year of 2008.

The midscale segment, as with the luxury segment has reported figures flat to the same period of last year, although the change in mix was more dramatic with a 9% drop in occupancy balanced by a 9% growth in ADR. It would appear that an aggressive rate strategy for the hotels in this segment has pushed some clients outwards to non-branded properties.

ST. PETERSBURG

The first quarter in St. Petersburg has seen a growth in occupancy across the segments but quite a dramatic drop in ADR.

Occupancy has continued to grow in the luxury/upper upscale segment since the drop in 2008/09. The growth though in rate seen in 2011 has been reversed this year. The result is an overall growth in Revpar of 8% owing to the 30% increase in occupancy.

The steady occupancy growth from 2009 has continued in this segment, with another 10% added to the numbers of Q1 2012. The issue here is that ADR was reported for the segment at only RUR 3,900 – a drop of 15% over the same time last year and the lowest figure for Q1 yet. The resulting drop of 15% in Revpar is somewhat concerning.

The midscale segment posted results flat to 2011 Q1, with a slight change of 4% more in occupancy and 2% less rate.

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