Moscow, 23 April, 2015 – JLL Hotels & Hospitality Group announces the Q1 2015 Moscow hotel market results.
Moscow as whole is 6% down in RevPAR for the first 3 months of 2015. Some segments are doing better than others and the market is behaving in quite an unpredictable manner. The upscale segment again seems to be the worst impacted – these typically larger hotels are more prone to drops in occupancy and events. We have seen some upside for the upper upscale hotels with guests likely upgrading themselves based on ‘affordability’ in their local currency.
“What is clear is that the results of this first quarter are not yet an indicator for how the rest of the year will operate. Quarter 1 in 2014 was a mere 1.5% down on 2013 yet the year closed at 11% down on RevPAR year on year. The economic and geopolitical crisis only really took hold in Moscow from the second quarter in 2014 so we will start to see like for like comparisons from April onwards. It is hoped that if we can see the gap narrowing then at least the hotel market can be seen to be stabilising, if not yet recovering.” - David Jenkins, Head of JLL Hotels & Hospitality Group, Russia & CIS, said.
What is clear is that a drop in ‘blue chip’ corporate clients is impacting hotels that have typically relied on such guests for large parts of their occupancy. Those hotels that have had a larger share of ‘local corporate’ clients are now feeling less stress on occupancy. It is though near to impossible for such hotels to increase prices given the reliance on Russian ruble paying clients. “Online prices that were increased in January this year have not filtered through to average rates.” – David Jenkins mentioned. – “The market is still very reliant upon contracted rates and companies are unwilling to re-negotiate especially as they have a wide choice of hotels in all parts of the city in all segments to choose from.”
We have also seen new hotels entering the market (Marriott Novy Arbat opened in Q1), so of course an increase in supply will impact overall performance in a market that is contracting.
“Inflation and reducing RevPAR is hitting hotel GOP levels. In the past, Moscow hotels were viewed as global leaders in GOP percentages (above 60% in some cases pre-2009) but now we are seeing them coming down closer to mainland Europe levels – many now even below 40%.” – David Jenkins noted. – “In terms of hotel development, there has certainly been a slowdown as investors take stock of the current situation with the ruble. Again we are seeing the market re-adjust and re-align – with hotel IRR’s of 30% and above in Moscow currently not achievable.”
Moscow Hotel Market in details
Luxury
A drop of 5% in terms of occupancy was balanced by a growth in ADR of 9.5% - coming mostly from the influence of the Four Seasons and some rate growth within the segment as a whole. ADR is at the highest point for the first quarter since 2008 which at least is an encouraging sign. Any segment rate growth is positive especially at the top end.
Upper Upscale
This segment has seen a growth in occupancy so far this year of 6.5% with ADR remaining flat. “This has come about with international guests ‘upgrading’ themselves from a lower segment – so staying in a higher graded hotel for the same price (in foreign currency) as having stayed in an upscale or upper midscale hotel in the past. This is purely a consequence of the exchange rates and a ‘better value for money’ proposition.” – David Jenkins commented. – “ADR in this segment has barely moved since 2009, quite a static and stable level close to RUB 10,000. We still do not see any evidence that this rate can grow, but at least there is a boost in occupancy.”
Upscale
The upscale segment continues to suffer, with a year to date RevPAR drop of 11.5%, coming from a drop in occupancy of 5% and a reduction in rate of 6.5%. “These larger hotels, with 300 rooms and more really feel the pinch during a downturn and those that have a mostly foreign corporate base are hurting the most. Such an ADR is likely to remain the level for the upscale hotels but they need to be able to find a way to drive occupancy – and this seems challenging.” – David Jenkins added.
Upper Midscale
This segment seems to have taken some occupancy from the segment below (from the midscale segment) as again guests are upgrading. The 6% occupancy growth mirrors the same drop in the lower segment. At the same time, ADR has dropped 4% so overall the segment is flat to last year – the hope being that this can turn into a positive from Q2 onwards as the gap closes.
Midscale
A drop of 6% occupancy aligned to a 4% drop in ADR leaves the segment down by 10% RevPAR so far this year. This segment was flat in Q1 2014 compared to the year before – so the hope is that the gap can narrow as the year progresses in a like for like comparison.
