Will China help solve Russia's World Cup hotel shortage?

The Expo Real 2015 ended in Munich today with a notable observation from Russia's head of corporation, Vladimir Koshelev, who noted that international hotel brands are missing from large Russian cities with "significant" local and foreign tourism numbers. 

This agrees with a recent comment from Russia's Sports Minister Vitaly Mutko, who said that the upcoming 2018 FIFA World Cup, to be held throughout Russia, would face a lack of hotel accommodation for teams and officials.

Mutko said that "the most severe problem is related to accommodating guests of the World Cup, with the hotels," in comments reported by Russian agency Tass.


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He added that four of the 11 host cities--Volgograd, Rostov-on-Don, Saransk and Nizhny Novgorod--are behind on plans to increase hotel accommodation in time for the tournament. In December, the AP notes, Russia's Federal Tourism Agency said only five of the 11 cities so far had enough accommodations for supporters.

As noted in July, in 2010 when Russia won the right to host the finals, the country promised to provide 100,000 guestrooms for visiting fans. FIFA, football's governing body, only requires 60,000 rooms to be provided, but Russia was on a mission to wow the world. Now, an economic downturn, falling oil prices and Western sanctions due to the crisis in Ukraine are prompting Russia to redraw its plans.

In April, the country canceled plans for 25 hotels, saving roughly $475 million, and then reduced its limit on total spending for the tournament to $11 billion, saving $530 million on accommodation. Boats have been discussed as being used for alternative bed spaces. The biggest drawback for the fans is that the World Cup takes place across 11 cities, meaning fans will have to travel sometimes thousands of miles on match days. 

Three years ago, 4Hoteliers.com notes, the Russian Federation was a hotbed for international hotel development. Global brand hotel groups such as Hilton, IHG, Accor and Rezidor as well as other smaller brands were focusing their efforts in developing budget and first-class hotels in Russia's large provincial cities. According to TopHotelProject publication in March 2012, Russia had nearly 160 new upcoming hotels. In between then and now, development of some hotels was stopped in mid-construction by the developers due to lack of bank funding, while other developers decided to hold their plans and wait for the economy to improve. Furthermore, hotel specialists from Western Europe and the U.S. have found it increasingly difficult to get business visas to come to Russia to move projects along. 

Can China help?
But the site also offers an intriguing solution to this challenge: Chinese companies, "drawn by its communist past," may sweep in and take over from local developers or enter into joint-venture agreements with government companies. The opportunities extend to construction companies, Chinese banks and insurance companies for funding. 

This concurs with observations from analysts at CBRE, who back in the spring suggested that Asian investors might increase their investment in Russia’s real estate market to $500 million in 2015 versus $445 million in 2014—an increase of approximately 12 percent. "Asian investors did not show noticeable systemic activity on the Russian commercial real estate market until 2014," the report said. "Closure of Western capital markets for Russian companies forced government and corporates to strengthen Eastern direction of development. These efforts brought their results and led to increasing interest of Asian investors to the Russian market," CBRE said, and as reported by Russia & India Report.

Whatever changes take place between now and 2018, they need to get started now to meet ever-growing demand. According to Jones Lang LaSalle, Moscow alone recorded "an unparalleled increase" in operational performance of most hotel segments. The hotel market as a whole showed an almost 10-percent year-over-year increase in occupancy level, to 74 percent, resulting in a 9-percent growth in revenue per available room.