Market review of Moscow hotel real estate , 2011

Brief market review Moscow hotel real estate, 2011

Обзор рынка офисной недвижимости Москвы за 2011 г. Декабрь 2011 г.

January 2012 Prepared by GVA Sawyer © 2012

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Market review of Moscow hotel real estate , 2011

Hotel real estate market Table 1. Main indicators of Moscow hotel real estate following the results of 2011 Source: GVA Sawyer Main indicators

Highest quality (4-5*)

Medium quality (3*)

Quantity of rooms following the results of 2011

10 391

10 440

Delivery of rooms in 2011

920

223

Average occupancy rate in 2011, %

65

64

390

180

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Average daily rate at the end of 2011 (ADR ), $/day 1

ADR – average daily rate, is calculated by dividing the average rental income per occupied rooms by the number of rooms sold

Supply In 2011 Moscow’s room stock increased by 1 143 rooms, that is twice less than in the previous year. In 2011 the following hotels were opened in Moscow: • Radisson Blu Belorusskaya Hotel (5*, 264 rooms); • Intercontinental Moscow Tverskaya (5*, 203 rooms); • Crowne Plaza (5*, 149 rooms); • Courtyard by Marriot Moscow Paveletskaya (4*,170 rooms); • Ramada Moscow Domodedovo (4*, 134 rooms); • Aminyevskaya (3*, 223 rooms). In 2011 the main increase of supply was accounted for high-class hotels (4-5*). According to the estimations of GVA Sawyer, in the beginning of 2012 the volume of quality room stock accounts to 20.8 thousand rooms. Quality supply is currently geographically differentiated, the main room stock prevails in CAD (45.4% from volume of supply).

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Chart 1. Distribution of room stock by the districts, hotel rooms. Source: GVA Sawyer

During 2011 several big deals were closed in the market of hotel real estate. Among the most significant it should be noted the purchase of hotel Ritz-Carlton by investment company ‘Verniy kapital’ from ‘Capital Partners’ for 700 million dollars. Hotel ‘National’ has been sold for 155 million dollars to its new owner ZAO ‘Smart Finance Group’. ‘Sistema Gals’ has purchased hotel ‘Pekin’, according to preliminary estimations the transaction value did not exceed 60 million dollars. God Nisanov and Zarakh Iliev have purchased hotel ‘Soyuz’ from the Ministry of Defense, transaction value is confidential.

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Market review of Moscow hotel real estate , 2011

The analysts at GVA Sawyer call attention to rising interest from the hotel operators to airports zones. In 1Q 2011 brand ‘Ramada’ opened its hotel complex ‘Ramada Moscow Domodedovo’ near Domodedovo Airport. Hotel complex located in close vicinity to Vnukovo Airport (DoubleTree by Hilton Moscow Vnukovo Airport, 4*- 442 rooms) is announced to open in the beginning of 2013. Openings of several hotels announced in 2011 were postponed to the beginning of 2012. For instance, hotel operator Accor has postponed the opening of first Moscow hotel under the brand ‘Mercure’ - Mercure Arbat (4*, 106 rooms) to February 2012, the opening of hotel ‘Azimut’ (3*, 134 rooms) is also expected in 2012. Among the most important news was the statement of Moscow Authorities on opening the hotel ‘Moskva’ after its reconstruction in 2013, the total area of the hotel may grow up to 185.5 thousand sq.m. Therewith, according to Moscow Authorities, in 2012 around 14 hotel projects for more than 3 thousand guests are slated to open in the Central Administrative District, however, it is unlikely that all these plans will be fully implemented. Several frozen hotel projects are expected for renewal of construction in the short term perspective, as for example hotel ‘Four Seasons’ at Golden Island. Alfa Group structures have signed a contract with DB Development to work on the project involving construction of a hotel with 100 rooms.

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In 2011 several international hotel operators announced plans on expanding their chains in Russia. For example, by 2015 hotel operator ‘Accor’ intends to open 32 hotels in Russia and CIS. In particular, hotel ‘Novotel’ in Moscow International Business Center ‘Moscow-City’ is slated to open in 2012. InterContinental Hotels Group intends to open about 100 new hotels in Russia and CIS, mostly in Moscow and St.Petersburg. Chart 2. Dynamics of quality hotel real estate delivery Source: GVA Sawyer

According to the estimations of GVA Sawyer, in 2012 more than 1.5 thousand hotel rooms will be delivered to Moscow hotel market, thereby, by 2012 the volume of quality room stock will amount to around 22 thousand rooms.

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Market review of Moscow hotel real estate , 2011

Demand According to preliminary data of Rosstat, for 9 months of 2011 the international tourist flow in Russia has grown by 12% in comparison with the same period of 2010. The volume of international arrivals to Moscow was less significant. According to data complied by Moscow Committee on Tourism and hotel industry, 3.4 million foreign tourists visited Moscow for 9 months of 2011. For the same period of 2010 the international tourist flow amounted to 3.1 million people. Thus, the increase amounted to 10% in comparison with 2010. According to the forecasts of this Committee, number of tourists will grow up to 20 million per year. The State Program ‘Development of leisure and tourism industry in 2012-2016’ has been passed to perform this task. According to GVA Sawyer, this figure will not be achieved within the given time limit.

The experts at GVA Sawyer call attention to shift of demand for low quality hotels to 4-5* hotels and associated with it change of supply’s structure. Business tourists are the main consumers of hotel services. This tendency will continue during the next year. Chart 3. Average occupancy rate in 3*-5* hotels, 20082012. Source: GVA Sawyer

Following the results of 2011 the occupancy rate in 3* Moscow hotels amounted to about 64%, 4-5* - 65%. Comparing to 2010 the occupancy rate has increased in all segments. Experts at GVA Sawyer have predicted slight increase of occupancy rate by 1-2% in 2012 due to the increase of tourist flow.

Financial terms Following the results of 2011 average daily rate (ADR) for the room in Moscow hotels amounted to $180 in 3* hotels, $390 in 4-5* hotels. In comparison with the same period in 2010 the average daily rate has decreased by 8% in 3* hotels, and increased by 6% in 45* hotels. The rising cost of daily rate in premium class hotels comes from more expensive new supply in this category.

Chart 4. Average daily rate for the hotel rooms, $/day, 2008-2012. Source: GVA Sawyer

Experts at GVA Sawyer expect 5-10% growth of accommodation costs in Moscow hotels in 2012, thus in 3* hotels it will amount to $200-210, in 4-5* hotels – around $400-430.

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