The Olympics are coming … but at what cost to supply and demand?

Stephanie Ricca

Stephanie Ricca

Stephanie Ricca

As this issue of Hotel Management goes to press, the world is preparing for the 2014 Winter Olympics in Sochi, Russia. In an interesting twist, this issue and its supplement, IHIF Insider, also includes stories about the U.K. hotel environment, both from an investment perspective ("Fundamentals line up in Europe," on page 6 of the supplement) and an operations one ("London GMs talk rate, trends and innovation" on page 1). What’s the common thread there? The Olympics. The activity surrounding massive global events like an Olympics or a World Cup is fascinating when you consider it from a lodging perspective. Talk about highs and lows that are inevitable: Demand is high, supply has to be added pretty quickly, hoteliers have to maximize rate and occupancy while the proverbial sun shines … and then what? Well, look at London for example. Even in an international gateway city with plenty of inbound tourism, hotels suffered a slow post-Olympic year in 2013.

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So what can we expect to see in Sochi from a hotel perspective? Already in late January we have seen that rate hikes for Sochi hotels a month out are steeper than pre-London games in 2012. Trivago’s Denise Bartlett told the Telegraph in January that “the maximum increase during London 2012 was 84 percent, from an average of £185 during July 2011 to £340 during the games. However, this was when booking three months in advance. Closer to the event, hoteliers dropped their prices to fill up remaining availability and the increase amounted to just 14 percent.”

At press time that hasn’t happened yet in Sochi, but that’s probably because the supply and demand ratio there isn’t quite the same. Right now room availability in Sochi is on the low side, so perhaps we won’t see the last-minute discounting like we did in London.

But what will happen in Sochi and the Krasnodar region next year when the post-Olympics lodging letdown sets in? Is Russia as a whole as attractive to hotel investors as London is now? That interest may not be on the same scale, but it’s there. The number of hotels in Russia, the CIS and Georgia grew by 10 percent in 2012, according to HVS, and 6,400 guestrooms are scheduled to open in Moscow alone by 2018, a growth of 37 percent. Regional organizations are working hard to keep the business momentum going in Russia, so we’ll keep an eye on that.

Mega-events like these remind me of how fascinating the hotel supply and demand picture is—and how intensely local it can be at the end of the day. Here’s an example: Consider the city of Broken Bow, Nebraska. It’s about as far away from Sochi as you can get. A new Cobblestone Hotel & Suites opened in Broken Bow last year (Cobblestone is a Wisconsin-based new-build midscale brand in case you’re not familiar with it.). The hotel has 36 guestrooms and an small convention center attached (see "Small towns drive considerable demand" on page 12). Why did this particular hotel go up in this particular place? Because there was demonstrable demand for it. There’s demand in Moscow; there’s demand in Broken Bow. Yes, it’s a different type of demand (one big draw in Broken Bow is the annual pheasant hunt), but it’s up to owners and developers in both cities to be able to assess that demand, look at supply and see what that means for rate and investment. Any seasoned hotel investor will tell you that the demand part of that equation is not a one-time calculation; instead, it must be considered long-term. Yes, the pheasant hunt is tomorrow and the hotel is full, but what about two years from now? Yes, the Olympics starts next week and Sochi will be full, but what about next June? And so the story of supply and demand continues, around the world and down the street. 

Corrections

In the profile of Rockbridge's Jim Merkel in the January 2014 issue, the location of the Westin Portland Harborview was incorrect. The hotel is located in Maine.

In the operations section of the January 2014 issue (page 38, “Sustainability, savings tips, laundry services”), UniMac was misidentified. The company manufactures on-premises laundry equipment.

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