In spite of downturn, JLL predicts solid hotel growth for Russia, CIS

Moscow skyline

Despite economic and political concerns in Russia, JLL is predicting solid hospitality investment throughout the country and the Commonwealth of Independent States, as a whole.

A recent report suggests that 1,500 fewer rooms will open in 2016 compared to last year—"but most of the loss came from a more conservative forecast for the CIS countries," and several projects previously announced for 2015 openings got pushed back to 2016. Right now, Russia is poised to get 4,697 new rooms while the entire region is likely to get 7,361 rooms, with Kazakhstan (876 rooms), Armenia (549 rooms), Uzbekistan (533 rooms) and Belarus (414 rooms) all seeing solid development. 

2015 in the CIS
If these numbers pan out, they will be a significant improvement on 2015's numbers. In total, almost 6,500 new rooms entered the market in 2015, JLL noted, with Marriott getting the lion's share due to an Autograph Collection project in Baku with 818 rooms. Four new hotel projects opened in Ufa last year in preparation to the BRICS and SCO summits, two of them by Hilton (Hilton Garden Inn and Hampton by Hilton).  

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JLL noted that no new luxury hotels opened in 2015 throughout the entire region, and most of the rooms that did open were closer to the midscale segment, with "very few" in upscale. "This is most likely the result of the economic slowdown in Russia, which affects the neighboring economies also," the report suggested. 

After Russia, Azerbaijan followed with three internationally managed hotel projects with total room count of slightly below 1,200 rooms. Kazakhstan came in third with three hotel projects with 569 rooms in total, and Georgia was fourth with three hotel projects with 463 rooms.

More than 8,900 rooms were scheduled for opening last year, including 5,200 rooms in Russia, but the economy caused development to slow, Tatiana Veller, Head of JLL’ Hotels & Hospitality Group, Russia & CIS, said. “In some cases we witness the lack of funding necessary for project completion; in others, investors prefer to freeze their projects instead of continuing to put money into construction and fit-out without having certainty in future operational indicators.” 

Development hotspots
Of Russia's planned room increase for this year, nearly half will be in Moscow, with the "quality supply" of rooms set to reach 25,000 rooms. The largest project in Moscow this year will be the triple-branded project near Kievskiy railway station by Accor, with an Adagio, Ibis and Novotel bringing 701 rooms to the area. St. Petersburg, which did not see any new branded openings last year, is expected to get three new hotels: the city’s first Hampton by Hilton Expoforum and the country’s first Jumeirah and Wyndham. The hotels will have a total of 395 rooms. 

2016 Branded hotels in CIS
2016 branded hotels in CIS by number of rooms

“New branded openings are not expected in Ukraine for the second consecutive year,” Veller noted. “That market still has some way to go before it returns to pre-crisis indicators, and many investors hesitate to start new projects given the circumstances.” 
Other regional cities with populations larger than 1 million (excluding Moscow and St. Petersburg) are expected to get about 1,000 rooms. Two hotels with 360 rooms in total will open in Nizhniy Novgorod, while one project per city is expected in Voronezh (220 rooms), Novosibirsk (218 rooms), Volgograd (158 rooms) and Rostov-on-Don (81 rooms). 
Another 1,100 rooms are expected to open the smaller regional markets, with Krasnodar leading by a wide margin (three hotels with 684 rooms in total). Tyumen (195 rooms), Pereslavl-Zalesskiy (150 rooms) and Tver (65 rooms) are also expecting to get one new hotel each. 

As noted last week, Novosibirsk—Russia's third-largest city—is poised to get Siberia's first Marriott Executive Apartments. Alexander Boiko, who was behind the Novosibirsk Marriott Hotel from two years ago, will also develop the 110 serviced apartments. Marriott will also open a new 120-room Courtyard hotel with capacity for 1,650 meeting and event attendees in the city. The developments are part of a new new high-end "multifunctional residential complex" named Zhukovka.
“Considering the recent trends in demand patterns, developers today start focusing attention on lower segments; according to our estimations, almost a third of 2016 new supply will contribute to this category; that is about 2,400 rooms. It is worth mentioning that development of projects scheduled for this year started long before the ruble devaluation of 2014. Taking into account the length of an average hotel construction cycle (three to four years), the implications of the current economic situation will likely only show by a gap in supply in 2018-2019.”

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