MOSCOW & ST. PETERSBURG - A TALE OF TWO CITIES. The luxury hotels and markets of Russia s two capitals

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1 MOSCOW & ST. PETERSBURG - A TALE OF TWO CITIES The luxury hotels and markets of Russia s two capitals

2 2 The luxury hotels and markets of Russia s two capitals LUXURY IN RUSSIA FROM HISTORICAL TO PRESENT DAY AND BEYOND Luxury hotels are sexy people love to stay in them, journalists like to write about them and investors like to buy them. 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. There have always been luxury hotels in both cities the historic Grand Hotel Europe and Astoria Hotels in St. Petersburg and the Metropol in Moscow. Today they are joined by a number of recognizable global luxury brands those we consider to be the most luxurious in each city today. In Moscow Four Seasons (opening soon),ritz Carlton, Ararat Park Hyatt, Lotte, Metropol and Baltschug Kempinski. In St. Petersburg Four Seasons, Astoria, Belmond Grand Hotel Europe, Kempinksi Moika, W and Taleon Imperial. David Jenkins Head of JLL Hotels & Hospitality Group Russia & CIS +7 (495) david.jenkins@eu.jll.com Moscow and St. Petersburg are very different markets. 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. Both cities have a limited development pipeline of luxury hotels but are very much on the map for all global luxury operators. It will be crucial that new openings are spread out to allow each city to absorb supply. My thanks to all the hotels who participated in supplying material for this publication and I hope that you find it useful and enjoyable.

3 3 The luxury hotels and markets of Russia s two capitals CONTENTS Luxury in Russia from historical to present day and beyond... 2 Introduction... 5 Location of the selected hotels in Moscow... 6 Location of the selected hotels in St. Petersburg Moscow & St. Petersburg overview Historic trading performance Moscow Historic trading performance St. Petersburg The future of the luxury market in Russia... 22

4 2 The luxury hotels and markets of Russia s two capitals LUXURY IN RUSSIA FROM HISTORICAL TO PRESENT DAY AND BEYOND RITZ-CARLTON W ST. PETERSBURG BALTSCHUG KEMPINSKI

5 5 The luxury hotels and markets of Russia s two capitals TALEON IMPERIAL INTRODUCTION 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. 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. St. Petersburg can boast several quality hotels but as a market sits further behind Moscow in terms of maturity. 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. 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. 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. BALTSCHUG KEMPINSKI We hope this report covering the key properties and some market insight will prove to be of interest be you an investor, operator, guest or casual observer!

6 6 The luxury hotels and markets of Russia s two capitals LOCATION OF THE SELECTED HOTELS IN MOSCOW Tverskaya Tverskaya St. St. Garden Garden Ring Boulevard Boulevard Ring Ring Ararat Park Hyatt Staraya Basmannaya St. Krasna Presnya St. Kutuzovsky Ave. Lotte Noviy Arbat St. Metropol Hotel Ritz-Carlton Four Seasons Baltschug Kempinski Moskvoretskaya Emb. Moskvoretskaya Emb. Garden Ring Garden Ring Nikoloyamskaya St. Tagansk

7 7 The luxury hotels and markets of Russia s two capitals RITZ CARLTON Located just off from Red Square, next to the Kremlin, in the heart of the cultural and business center of Russia s capital, The Ritz-Carlton, Moscow features 334 guest rooms and suites. Opened in July 2007, the hotel offers a string of luxurious amenities including world-class dining options - O2 Lounge with summer terrace on the 12th floor with breathtaking panoramic views over the Kremlin and Red Square, Café Russe presenting Russian cuisine and international highlights, Pan-Asian restaurant Novikov Restaurant & Bar, a beauty salon, barber spa, Fitness Center and spacious full-service Spa by ESPA featuring 14 treatment rooms, as well as a heated indoor pool, hot tub, sauna and steam rooms. The Ritz-Carlton has more than 1,100 square meters / 11,436 square feet of meeting space including the Ballroom accommodating events of up to 700 guests. ARARAT PARK HYATT Located in the very heart of the city, within immediate vicinity of the Bolshoi Theatre, Kremlin, Red Square and the central business district, Ararat Park Hyatt Moscow offers privacy, personalized service and outstanding quality. The tastefully furnished 206 spacious and luxurious guestrooms include 32 suites with individual designs that project a cosmopolitan yet very residential feel. Ararat Park Hyatt Moscow s dining venues, lounges and bars promise to become a source of inspiration. Stylish conference rooms and beautifully decorated banqueting facilities are venues of choice for any occasion.

8 8 The luxury hotels and markets of Russia s two capitals LOTTE The luxurious award-winning Lotte Hotel Moscow belongs to Korean hotel chain Lotte Hotels & Resorts. It is located on Novinskiy Boulevard in the very heart of Moscow and opened in September 2010 with 300 spacious rooms and suites, the largest Royal Suite in the city and restaurants Les Menus by the Michelin three-star Chef Pierre Gagnaire and MEGU, a trendy Japanese restaurant, The Lounge bar, six conference halls, an innovative Club Floor and Mandara Spa with a fitness center & a swimming pool. Lotte Hotel Moscow is a part of The Leading Hotels of the World. METROPOL HOTEL This historic hotel, located just off from Red Square and the Kremlin opened its doors in No other hotels in Russia except the Metropol could boast of hot water, refrigerators, elevators, and telephones at that time. During Soviet times it was the venue for any esteemed foreign guest. It was closed in 1986 for renovation (whilst in USSR), re-opening in 1991 in a new Russia. It was recently purchased and faces a full refurbishment programme to return it to the rightful place in the luxury segment.

9 9 The luxury hotels and markets of Russia s two capitals BALTSCHUG KEMPINSKI A classic European grand hotel, with a historic façade dating back to 1898, is situated in the very heart of Moscow, directly opposite the Kremlin, Red Square and St Basil s Cathedral. After its renovation in 2012, the legendary Baltschug Kempinski celebrated its 20th anniversary with a brand new look and feel. Today - after the upgrade - the hotel displays its full glory with even more renowned service throughout including the new Baltschug Grill restaurant, the redone lobby, the renewed Café Kranzler and the Lobby Lounge Bar. The new conference floor features boardrooms with panoramic views of the Kremlin and the Grand Ballroom. The hotel s 227 elegantly decorated rooms and 36 suites, include a unique collection of Design Suites. Additionally, there is a health club, 11 modern meeting rooms for events of any kind and the Beauty Centre Baltschug. FOUR SEASONS Four Seasons Hotel Moscow is a modern replica of the legendary Hotel Moskva, originally opened in the 1930s. While still paying homage to the original building, the interior design remains stylish and contemporary. This luxury Moscow hotel faces the beautifully landscaped Manezhnaya Square, which connects to the Alexandrovsky Garden, home of the Tomb of the Unknown Soldier. Red Square, the Kremlin and the State Duma are just steps away, along with the Bolshoi Theatre. Right at the corner is the start of Moscow s main shopping thoroughfare, Tverskaya Street. Five minutes away is GUM Moscow s most exclusive shopping complex. Boasting 180 luxury Moscow hotel rooms, including 41 hotel suites, as well as signature restaurants, chic destination spa and state of the art conferencing facilities, this five-star Moscow hotel is the perfect introduction to today s upscale Moscow.

10 10 The luxury hotels and markets of Russia s two capitals LOCATION OF THE SELECTED HOTELS IN ST. PETERSBURG Makarova Emb. Makarova Emb. Dvortsovaya Emb. Kempinski Moika Liteyny Ave. Universitetskaya Emb. Four Seasons Lion Palace Taleon Imperial Voznesensky Ave. W St. Petersburg Rocco Forte Astoria Grivtsova Grivtsova Ln. Ln. Nevsky Ave. Sadovaya St. Belmond Grand Europe

11 11 The luxury hotels and markets of Russia s two capitals BELMOND GRAND HOTEL EUROPE Open since 1875 in the heart of historical St. Petersburg, the hotel offers 265 breathtaking rooms and suites, including 10 themed historic suites, including Dostoevsky Suite, Romanoff Suite, Pavarotti Suite and others. The hotel is unique in having their own Russian vodka sommelier in their Caviar Bar & Restaurant offering over 50 vodkas and holds tastings. In 2014 the hotel is to complete an extensive refurbishment project. Work includes the conversion of 19 rooms into six ultra-luxury suites, a new food and beverage concept and updated conference and event facilities. One of the six new suites is the Presidential Suite which at 300 sq meters will be the largest suite in St Petersburg. ROCCO FORTE ASTORIA The Hotel Astoria was built in 1912 as the most luxurious hotel in the city. Many of St. Petersburg s main attractions, such as Hermitage Museum and the Mariinsky Theatre, are within walking distance of Hotel Astoria. Guests can discover contemporary Russian cuisine at Astoria Cafe, enjoy freshly made blinis and afternoon tea in the elegant Rotonda Lounge, drink a cocktail in Lichfield Bar or simply unwind at the spa. 169 rooms and suites at Hotel Astoria have breathtaking views over St. Isaac Square. The Hotel Astoria has extensive conference and banqueting facilities which include the renowned Winter Garden and Ballroom for up to 450 people and six meeting rooms.

12 12 The luxury hotels and markets of Russia s two capitals KEMPINSKI MOIKA Kempinski Hotel Moika 22, opened in 2006, has a unique location in the very heart of St. Petersburg opposite the renowned Hermitage Museum and Palace Square. It occupies the building in Art Nouveau style built in The hotel offers 200 rooms and suites and features the panoramic Bellevue Brasserie restaurant with a breathtaking view over the main historical attractions of the historical city center. The hotel has 3 bars, 4 meeting venues for up to 200 guests and a fitness area. W ST. PETERSBURG Luxury meets cutting edge cool in Russia's newest luxury hotel. W St. Petersburg is located in the historical center next to St. Isaac's Cathedral, a stone s throw from the lavish Winter Palace with the famed Hermitage Museum. The 137 guest rooms and suites offer vivid views of St. Isaac's Cathedral or the tranquil courtyard. Additional facilities include the bliss spa, signature restaurant mix, inspired by Alain Ducasse, rooftop terrace and bar mixup and the Living Room lounge.

13 13 The luxury hotels and markets of Russia s two capitals FOUR SEASONS LION PALACE Known among city residents as the House with Lions, the palace holds a fascinating history. Historical records show that it opened to public as apartments in The architecture of the palace is a fine example of High Classicism. Twin lion sculptures guard the mansion s entrance. The lions were immortalised in Alexander Pushkin s poem, The Bronze Horseman, written in During the Soviet era, the building housed a hostel, a school and a state-owned architectural bureau. Today, the grand lobby, the ceilings, granite columns and plaster details are the original decorative elements, carefully restored. The magnificent staircase leading to the first floor is one of the jewels of the palace, and the steps of the staircase are the original granite. With 183 rooms and suites, an additional 5th floor added, views over St. Isaac s, 4 dining and bar options and an extensive spa, this is the newest luxury addition to the city, having opened in summer TALEON IMPERIAL Completed in 1771 the former Chicherin House, as it was known in the 18th century, was acquired by the merchant family - Eliseevs in In 1993 the Taleon company began a reconstruction of the buildings. Today the Taleon Imperial Hotel unites the buildings at 15, Nevsky Prospekt ( ) and 59, Moika Embankment ( ) and the wing at 14, Bolshaya Morskaya Street ( ). The total floor area of the complex is 27,000 square meters, most of which are grand halls and staircases, atriums and hallways. The Taleon Imperial is the only luxury club hotel in Russia, a member of the Leading Hotels of the World and Virtuoso groups. All 89 rooms (40 of which are suites) meet the highest international standards, with round-the-clock butler service, interactive television and Internet access. Each room s architectural design and décor are unique and exclusive. Guests staying at the Taleon Imperial Hotel appreciate the atmosphere of true palace life, and enjoy the historical aura in combination with all modern comforts.

14 2 The luxury hotels and markets of Russia s two capitals KEMPINSKI MOIKA METROPOL HOTEL ROCCO FORTE ASTORIA TALEON IMPERIAL W ST. PETERSBURG

15 15 The luxury hotels and markets of Russia s two capitals MOSCOW & ST. PETERSBURG OVERVIEW Moscow is the largest economic, political, and scientific centre of Russia. Moscow is Europe s largest city in terms of population, and ranks alongside London, Paris, Istanbul and The Rhine-Ruhr region as one of Europe s four Mega-Cities. As of 1 st January, 2013 the City had an official population of 12 million, with a further 7 million housed in the surrounding Moscow Region, creating a greater metropolitan region of 19 million inhabitants. RITZ-CARLTON Moscow has three international airports, Domodedovo, Sheremetyevo and Vnukovo with a combined passenger turnover in 2013 of 71.4 million (up from 44 million in 2008). We predict a continual 10% annual growth over the next several years. St. Petersburg is the so-called second capital of Russia, the Venice of the North and a centre of culture and developing new industries such as car manufacturing and technology. The official population of the city is 5 million as of October The new terminal of Pulkovo Airport opened in 2013 and official passenger turnover as of that year was 12 million with a forecast to grow to 16 million by FOUR SEASONS LION PALACE

16 2 The luxury hotels and markets of Russia s two capitals RITZ CARLTON FOUR SEASONS LION PALACE BALTSCHUG KEMPINSKI

17 17 The luxury hotels and markets of Russia s two capitals HISTORIC TRADING PERFORMANCE MOSCOW The historic trading performance for the luxury segment is tracked back to We see today that 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. There is also a trend in the city for best available rates to be significantly higher than average rates, 60% higher. 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. 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 RUB % 65% 60% 55% 50% 45% 40% ADR RevPAR Occupancy BALTSCHUG KEMPINSKI

18 18 The luxury hotels and markets of Russia s two capitals 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. 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. There is a very specific luxury zone in the city 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 we 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. METROPOL HOTEL LOTTE

19 2 The luxury hotels and markets of Russia s two capitals TALEON IMPERIAL BELMOND GRAND HOTEL EUROPE BALTSCHUG KEMPINSKI LOTTE W ST. PETERSBURG

20 20 The luxury hotels and markets of Russia s two capitals HISTORIC TRADING PERFORMANCE ST. PETERSBURG 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. RUB % 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% ADR RevPAR Occupancy ROCCO FORTE ASTORIA

21 21 The luxury hotels and markets of Russia s two capitals 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. ROCCO FORTE ASTORIA The city would gain substantially from any review of the visa regime, and this would benefit the luxury hotels possibly most of all. The city offers a range of luxury options now, from historical classic hotels through to modern lifestyle hotels, with more to come. All hoteliers and owners would admit that the key way to boost performance is to drop the visa system. W ST. PETERSBURG

22 2 The luxury hotels and markets of Russia s two capitals RITZ-CARLTON BALTSCHUG KEMPINSKI FOUR SEASONS LION PALACE

23 23 The luxury hotels and markets of Russia s two capitals THE FUTURE OF THE LUXURY MARKET IN RUSSIA Moscow and St. Petersburg will remain the focus of luxury hotels in Russia. Both cities still offer opportunities for new brands in the right locations. There does though need to be caution in regards to the upside of both markets 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.

24 2 The luxury hotels and markets of Russia s two capitals LUXURY IN RUSSIA FROM HISTORICAL TO PRESENT DAY AND BEYOND 2 Letnikovskaya St. Bldg. 1, (495)