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Global Hotel Market Sentiment Survey
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Hotels Are Getting Hot In Sochi How the hotel business is heating up in the Black Sea Resort of Sochi, Russia June 24, 2007 I recently returned to Moscow having attended the second annual Russian Federal Commercial Real Estate Awards from June 14th to 16th, with two new pieces of work for new 5 star hotels in the city. This in itself is not the core of this article of course, but indeed it is an indication of the speed and volume of interest in hotel development in the city of Sochi – a candidate city for the Winter Olympic Games in 2014. The decision on whether Sochi wins or not will be made clear on July 4th, when it faces off against stiff opposition in Salzburg, Austria and PyeongChang, Republic of Korea. The impact of winning this bid on Sochi, Krasnaya Polyana (the actual mountain resort where most of the alpine events will take place) and the general Krasnodar Region where Sochi lies has not been lost on the developers and investors frantically building elite apartments and new resorts in the area. Even if Sochi is unsuccessful in its bid, the ‘train has left the station’ as it were, and life in Sochi will never be the same again. With flags for the Sochi bid having been flown recently outside of Chelsea Football Club in London, it is clear that a wave of support from the very highest business levels in Russia and strong Presidential support will ensure that Russians are feeling positive once again about a city which was losing out to the more competitive international resorts in Turkey for the Russian rouble of late. Sochi itself has a combination of stunning Stalin area architecture (Primorskaya Hotel for example) and the typical Soviet sanatorium grey blocks from the 1970’s. With a sub-tropical climate, wonderful flora and snow-topped mountains it has huge tourist and incentive travel potential. 95% of all visitors are still Russian – more an indication that the visa regime is still prohibiting international visitors in any great number. Since the break-up of the Soviet Union, and with Russians having the money and ability to travel abroad, Sochi has been in steady decline. This trend has been reversing of late and tourist arrivals have increased almost 3 times since 2000. The airport reported an increase in arrivals of 57% between 2002 and 2006 – with a total of 1.3 million arrivals recorded in 2006. To put this in perspective, this is still only 30% of the volume of arrivals recorded during Soviet times. There are currently only two internationally branded hotels in the city of Sochi, the Radisson Lazurnaya Hotel (a franchise opened in 1993 and has basically held a monopoly in the market) and the 40-room boutique Grand Rodina Hotel operated by Stein Hotels, which opened in 2006. The city is crying out for alternatives and options – with visitors either needing to stay in these two hotels at inflated prices or needing to rent a private apartment or stay in one of the Soviet-era hotels where air conditioning would be considered a luxury. With land prices having grown at dramatic rates since the city announced its intention to bid for the Winter Olympics, most new hotel projects are being pitched at the upmarket and luxury end of the market, and often with an elite apartment aspect attached. These apartments are being sold from between $8,000 to $20,000 a square metre. The city can definitely support luxury hotels it just needs to avoid over-supply at the top end with no development for the mass market. There is definitely a nostalgic attitude to Sochi within Russia and many people are choosing to return to a resort they last visited as a child. What will not survive the nostalgic feel however is the quality of hotel, service and food on offer at present. Having travelled extensively, the Russian tourist will demand quality even in Sochi and will not tolerate Soviet era service and product. This allows investors and developers huge scope to acquire existing properties and convert them into international quality operations. For sure, all key operators are keen to establish a presence in the resort with mid-market up to luxury brands. Where the challenge will lie is in spreading the business throughout the year. At present, the high season is July and August. As few facilities exist for larger conferences, the Radisson pretty much has a monopoly – though the Zhemchuzhina Hotel, located beside the Winter Theatre has significant space but falls short on quality. Having recently spent 4 days in Sochi for a conference, with varying levels of quality and service, I would still return and this was the message I received from most other participants – where better to take a breakout session than at poolside? Sochi has a massive potential to develop as a MICE destination – and on a global scale. This will be the key area for development in all new hotel projects announced – significant conference space combined with quality spa centres, modern restaurant and bars and efficient service to suit both the tourist and business traveller. On a recent trip to Krasnaya Polyana to see the developments of the winter resort (again this is happening whether they win the bid or not) we were informed of over 6,000 rooms of an international standard planned for opening between 2008 and 2014 in a market currently offering only one quality hotel in the Radisson Peak Hotel. The calculation of potential future new room supply in Sochi itself will depend very much on the ability of investors to acquire existing buildings in the centre of the city in prime locations and convert to international standards. We certainly could see the development of at least 5,000 new or converted rooms between 2009 and 2012. It is definitely a boom time in Sochi, which will also help develop other Russian Black Sea resorts such as Anapa and Gelendzhik. There is no turning back now. David Jenkins Director Horwath HTL Moscow Russia |
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