MOSCOW—Around 30,000 hotels and hostels employing nearly 77,000 workers could be shut down in the top-20 most attractive Russian markets following the introduction of a law prohibiting owners of apartments in residential buildings from providing hospitality services, according to sources.
Yana Babina, president of the Russian Small Property Guild, said the ban could shut down 40% of hostels in Moscow and 80% in St. Petersburg and incur 16 billion rubles ($251 million) in losses in yearly tax revenue for regional and federal budgets.
Enacted on 1 October, the law, commonly known as the Khovanskaya law for the name of one of its authors, could in theory wipe out a large part of Russian hospitality accommodations, said Vladimir Efimov, VP of the Russian Hotel Industry Association.
“With the anticipating reduction in number of mini-hotels and hostels located in residential houses, with no doubt, a part of guests would shift to (branded) hotels, which with the use of comprehensive and flexible tariff policies would be able to make their assets more attractive for this new segment of customers,” he said. “Besides, their present capacities allow them to do that, since the average occupancy of hotels in Russia is only slightly above 50%.”
Wrong side of things
Average daily rate likely would increase, sources said. However, currently Russian hoteliers are primarily interested in first boosting occupancy, Efimov said.
There is no doubt, though, that a notable number of potential visitors will have to look for alternative accommodations options, or not come at all, sources said.
“There are quite a few hotels and hostels in residential buildings in Russia,” said Yevgeny Nasonov, a board member of the nonprofit association League of Hostels and a member of the board of the Moscow Council of Opora Russia, a non-governmental organization of small- and medium-size businesses.
“As a rule, they are located at the territories of congregative living facility or so-called ‘kommunalkas,’ a type of apartment widespread in Soviet times where residents had to share common WCs and kitchens with other families,” he said.
“Most of these hotels would be requested to be shut down. This is a problem, because for their owners there is no other option … with these assets to earn money on them,” he said.
“They obviously could not be turned back into ‘kommunalkas’,” he added.
Many of the threatened businesses operated lawfully until the new law came into effect.
“The law has been approved in favor of big hotel business, which was lobbying for it, (and) serious damage would be inflicted to sound companies operating in this field. For many, this business is the only way of getting means for existence for them and their families. We expect to see a particularly concerning picture in Sochi, Crimea and small Russian cities,” said Vladimir Vasiliev, president of the St. Petersburg Association of Small Hotels.
One of the main consequences of the Khovanskaya law will be the increase in ADR, at least in the short term, likely to be seen in the beginning of the next tourist season, he said.
ADR could be offset by new supply, Vasiliev said.
“For example, in St. Petersburg the withdrawn offer would be compensated with apart-hotels. This segment shows a pace of growth of a 1,000 new rooms per year,” said Kirill Agapov, CEO of hotel industry consultancy Umbrella Hospitality CIS.
“There is no doubt that many hotels in Russia are about to be closed, but there is a big question what would happen with them next. These hotels would not be able to offer hospitality services any longer, but there is still an option to offer rooms for rent,” he said.
Agapov said he doesn’t foresee, at least in the near term, a huge withdrawal of offerings, although certain cities—most likely the most well-known—might see large changes.
“The future tightening of control (from) the (Khovanskaya) law may significantly lower the hotel room capacity in Russia, especially in Moscow and St. Petersburg,” he added.
Some experts warn that many hotel owners would opt to continue operating unofficially.
“It is impossible to force people to carry something round and to roll something square. There is no other way for hotel owners to use these spaces, so they would keep offering them to their guests. The only possible way to prevent that is to place a law enforcement officer next to every particular hotel,” Nasonov said.
In theory, sources said, hotel owners falling under the requirements of the new law would be able to continue operations if they re-registered properties as nonresidential spaces, but they added that for most this would prove difficult if not impossible.