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News Release

Moscow

The Luxury Hotels and Markets of Russia’s two capitals


​Moscow, 15 July, 2014 – JLL’s Hotels & Hospitality Group presents Moscow and St. Petersburg luxury hotels market report​.

David Jenkins, Head of JLL’s Hotels & Hospitality Group, Russia & CIS, said: “The only two cities in Russia that have been able to successfully develop a luxury hotel market are the ‘two capitals’ of Moscow and St. Petersburg. Interestingly the market of each city is quite different. Moscow is the business centre of the country with little in the way of high-end luxury leisure travel. St. Petersburg has a light corporate market and a very strong summer leisure business – especially in the luxury market. Both markets suffer from the visa regime. For Moscow this would bring valuable weekend city break business from Europe – helping to boost not only annual occupancy but ADR too. In St. Petersburg it would help spread seasonality from only the summer months to weekend break business throughout the year – bringing valuable additional occupancy to the city. It would also certainly help boost MICE business to both cities.”

Moscow

According to JLL estimation, 40% of Moscow’s branded hotel supply today is in the upscale to luxury segments. “In terms of total number of branded hotels, there are today only 2 recognized branded economy hotels from a total of approximately 60 hotels of quality. The market is very much top-heavy in supply of upscale and luxury hotels.” – David Jenkins mentioned. – “There is though a significant difference between the luxury market in Moscow and that of more mature and established luxury markets such as London and New York. Whereas the top ADR in Moscow sits at approximately RUB 15,000 to 17,000 (GBP 260 to 300), the same market in London sits at around GBP 650, with New York at USD 930.”

The historic trading performance for the Moscow luxury segment is tracked back to 2007. The segment itself performs in a very stable manner, with little movement following the return to form in 2010 after the impact of the economic crisis. Occupancy for the group of hotels sits at 65% annually with the ‘star performers’ hitting just above 70% - really the peak of what is achievable.

There are three top performers in the city in terms of ADR – being Ritz Carlton, Park Hyatt and Lotte hotels. The other hotels sit in varying steps below. Hotels trade in local currency so in terms of international guests, hotels have suddenly become cheaper by 17% due to the shift in ruble exchange rates to the key global currencies since the start of 2014.

“We see two trends in Moscow luxury segment. First of all, there is a trend for best available rates to be significantly higher than average rates, 60% higher. Also the midweek performance of hotels is significantly better than the weekend. In essence there is hardly any weekend business in Moscow at any level, and this is especially so at the luxury end of the market. Where cities such as London and Paris are able to optimize ADR through weekend FIT business, the luxury hotels in Moscow are unable to drive their own fate for weekend business and are in the hands of the travel agents.” – David Jenkins commented. – “Weekend rates in the luxury segment at weekend can drop as low as 50% of the annual ADR and the volume of such business is limited. It leads to hotels at every level, mid-scale to luxury, competing for the same weekend business – especially centrally located hotels.”

Moscow luxury hotels trading performance

Moscow-luxury-hotels-trading-performance_15072014.jpgSource: JLL

There is a very specific ‘luxury zone’ in Moscow and other than Lotte, they are all more or less in walking distance to the Kremlin. There has been talk for years about the upside for the city in driving tourism if they dropped the visa system. As much as it is recognized that indeed it would be a great boost – JLL’ experts don’t see any indication of it happening any time soon – especially as it would need to be a reciprocal arrangement with EU, UK and US. Nonetheless, the city offers a good variety of luxury hotels from established and local operators. The luxury hotel development pipeline for the next few years includes brands such as Fairmont, Sofitel and Delano (Morgans). In addition most of the global luxury brands have targeted Moscow as a key market to be in.

​St. Petersburg

Russia’s ‘second capital’ has a much broader range of brands operating in the luxury segment than in Moscow, including W, Four Seasons, Belmond, Corinthia, Kempinski and Rocco Forte. There is also one non-branded luxury hotel named Taleon Imperial.

“Whilst corporate demand dominates in Moscow, St. Petersburg is a highly seasonal leisure market, with strong business peaks in the summer months and a growing internal weekend business driven mostly from Moscow. Luxury hotels in the second capital achieve 25% less annual occupancy than Moscow, and 16% less annual ADR. In the key summer months, St. Petersburg hotels outperform those in Moscow by over 20% in terms of rate. The period from May to September is when hotels optimize performance in St. Petersburg – and especially the luxury segment. Within this 5 month period, the month of June is especially strong as it is the time for the annual ‘White Nights’ arts festival in the city – a period when demand is at its highest and hotels can more than double their annual average rate.” – David Jenkins said.

St. Petersburg luxury hotels trading performance

StPetersburg_luxury_hotels_trading_performance_15072014.jpgSource: JLL

Unlike Moscow, where the luxury hotel performances have been quite stable since 2010, the hotels in St. Petersburg are prone to more severe fluctuation as a consequence of a limited corporate segment and strong dependence on leisure tourism – both high-end groups and individuals. At the same time, the market has had to absorb two new luxury hotels in the past two years – W and Four Seasons, with openings anticipated from Jumeirah, Intercontinental and Mandarin Oriental in the coming 3-5 years.

“The drop in occupancy from 2008 to 2009 was dramatic and it took until 2012 for occupancy to recover. The trend in the past 3 years has been positive though any hint of a crisis can undermine this growth.” – David Jenkins noticed.

The future of the luxury market in Russia

“Moscow and St. Petersburg will remain the focus of luxury hotels in Russia. From the perspective of the investor, there are still opportunities to develop luxury hotels in both cities, but certainly in the knowledge that both markets are somewhat restricted in their own ways.” – David Jenkins commented. – “We can see a limit to occupancy and rate that can only really be overcome by an increase in prime demand. In terms of Moscow this needs to be high-end weekend business from Europe and for St. Petersburg a combination of the same weekend break business and a stronger corporate segment. It will be crucial that new openings are spread out to allow each city to absorb supply.”

He added: “From the perspective of the operators and brands, there is a strong desire, and in some cases a need, to be present in Moscow and to a lesser degree St. Petersburg. The Russian outbound luxury market is growing and is a significant audience for global brands, so a presence in the main cities can help grow their Russian business across the globe. For the potential guest, a good choice of luxury brands offers variety and more value for money and for the two cities themselves a variety of luxury brands operating very much helps boost city image both internally and externally.”


About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. With annual fee revenue of $4 billion, JLL has more than 200 corporate offices and operates in 75 countries worldwide. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 3 billion square feet and completed $99 billion in sales, acquisitions and finance transactions in 2013. Its investment management business, LaSalle Investment Management, has $48.0 billion of real estate assets under management. JLL is the brand name of Jones Lang LaSalle Incorporated.

In Russia and CIS JLL has offices in Moscow, St. Petersburg and Kiev. JLL, Russia & CIS was voted Consultant of the Year in 2004, 2006, 2007, 2008, 2009, 2010, 2011, 2012 , 2013 and 2014 at the Commercial Real Estate Awards, Moscow; Consultant of the Year at the Commercial Real Estate Awards 2009, St. Petersburg and The Best Real Estate Consultancy in Ukraine at the Ukrainian Property Awards in 2013.

For further information, visit www.jll.ru