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The Russia-Ukraine conflict has stymied hotel investment and performance .
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Russia ’ s hotels are seeing performance metrics drop , and hotel development projects are being put on hold as international travelers and investors are rattled by the conflict with Ukraine . But even as economic growth stalls , given Russia ’ s lack of branded supply , hotel companies expect to continue expanding in the country once the conflict ends .
“ The last thing hotel investors , hotel companies or consultants need is a conflict like this — it makes everyone ’ s life difficult ,” says Michael O ’ Hare , managing director , co-founder and partner of Horwath HTL Hungary and Russia , Moscow . “ However , this is very much a temporary situation in Russia . This is one of the great markets in the world that is left . There is such a great imbalance of supply and demand , and there are only 100 internationally branded hotels in Russia , 24 years after communism .”
Hotel valuation , which has not recovered to pre-2008 levels in Russia , is expected to decline this year . “ Hotel values in Russia will be depressed for the time being by the perception of there being additional risk in hotel investment , and if visitor demand is also reduced as
Unmarked Russian troops march into a Ukrainian military base in Perevalne , Crimea .
a result of the crisis , this will have a knock-on effect on hotel profitability , which then causes a double-whammy on hotel values ,” says Russell Kett , chairman , HVS London .
Hotel performance this year in Russia has been hit with a triple whammy of a worsening national economy , a minimal boost outside of Sochi from the Olympics and the Ukraine conflict .
Russia is now the worst-performing economy among the BRICs . In April , Russia ’ s economy ministry projected only 0.5 % gross domestic product growth for 2014 , down from 3.4 % in 2012 . Meanwhile , the country is seeing stagflation as the central bank hiked already high interest rates to prop up the volatile ruble . Russia is seeing large-scale capital flight ; as in other crises , investors are holding off on real-estate projects and instead are sitting on their money .
While the economic decline started before the Ukraine conflict arose , Russian hotels were
10 HOTELS June 2014 www . hotelsmag . com