The FINANCIAL — Georgia is missing midmarket and budget internationally branded hotels, HVS Global Hospitality Services told The FINANCIAL. The company, which monitors the global hospitality business, says there is great potential for hotel development in both the sea and mountain resorts of Georgia.
According to HVS, the development of midmarket and budget hotels is the key opportunity in hotel development in Georgia and the CIS. All hotel brands which are not currently present in Georgia are potentially interested in entering the market. High demand and low supply remains the key reason for the high room rates in the country. HVS suggests that a price reduction will happen automatically once more hotels open up.
“Investors are discussing Georgia as an interesting country for business due to its very pro-western outlook and approach, plus being very good for doing business, as well as its high tourism potential,” Alexey Korobkin, Senior Consultant at HVS Consulting and Valuation, told The FINANCIAL.
HVS Global Hospitality Services is a consulting firm based in Mineola, New York, that specializes in providing services to the hospitality industry.
“CIS and Georgian markets will see many new hotels open in 2014,” Korobkin said.
According to him, private investors and groups in Georgia have a tendency to first build luxury and upscale hotels, partly due to the “ego” factor. There is a concern that if the upscale and luxury segments become oversupplied this will affect the whole market by putting pressure on both ADR and occupancies. “In general oversupply for such a small market like Georgia will lead to a decrease in operating performances,” he concluded.
“Currently the Georgian hotel market has quite a strong performance; the lack of international hotels allows the few players to achieve good results. As new supply enters, there will be some pressure on the operating performance,” he said.
“Despite the economic turmoil in Russia, the CIS and Georgia and continued crisis in the Euro zone, hotel development in this region continued in 2012,” said Korobkin.
Rezidor continues to be at the top with almost 20% of all proposed hotels in the region. Accor, Hilton and Marriott remain in the same places as 2011 and, together with Rezidor, represent almost 60% of all proposed hotels in Russia, the CIS and Georgia. IHG, Starwood and Kempinski follow with proposed hotel stock of more than 2,000 rooms each. The total proposed room stock for the region in the medium term is almost equal to the existing one. “This means that if all the projects are realized, the existing hotel market capacity of international quality accommodation for the entire region will almost double in the next few years,” HVS research reports.
The list of large scale developers incorporate: RHC, Mospromstroy, Osnova, Akfen, Polis Service Development (Transstroybank), Amtel Properties, Pasha Group, Capital Partner.
HVS could not calculate the total volume of investments in the hotel business in CIS countries as investors often keep their investments private and there is no way to know the development costs of a given hotel.
According to the HVS 2013 report regarding the trends and opportunities of Russia, the CIS and Georgia, the development of midmarket and budget hotels is the key opportunity in hotel development in the region.
“As hotel markets become more price sensitive, the high-cost operations of luxury hotels will become harder to sustain. That is not to say that in the right location a luxury development will not be successful, but across the whole region, where the average rate potential of many markets is limited (often lower than desired by luxury hotel operators), midmarket and budget hotels will prosper. This is partially backed by the announcement of large-scale deals in recent years, which have all taken place in the midmarket and budget segments,” the report estimates.
“The region is characterized by many dated assets, which are currently under performing owing to their economic obsolescence. An opportunity exists for investors to purchase these assets and renovate them into international quality hotels. This will be faster than developing a new hotel and often cheaper. Hotel brands, on the other hand, should encourage conversion as this will allow them to expand faster in the region,” HVS summarises.
According to the report, the past two years have witnessed some high-profile hotel transactions, albeit all in the upscale and luxury segments. As hotel markets mature and more hotels become operational, opportunities to purchase operational assets will become more common.
In general, HVS estimated the hotel development in CIS and its borders as quite a complex process. “Investors are looking to get back into hotel markets, admittedly with greater caution. Land acquisition; zoning, planning and permits; brand standards versus local market needs; asset positioning; architecture and design and construction – are the main bottlenecks of hotel development in Russia and CIS countries.
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