Sliding global visitor numbers add to gloom for hotels

The number of tourists and visitors to Moscow is down, reflecting hard times faced by the global economy. Annually, tourism brings about 7% of the city's income, and despite the downturn more rooms are needed.

Overseas visitors account for about 40% of occupants at middle and top-end hotels in Moscow. In 2008, the city had over 4 million guests, and a 3% increase in foreign visitors.

But there's been a trend reversal from the end of last year. Occupancy in the first quarter of 2009 was down 10% on average according to Igor Roganovich, Consultant, Knight Frank, Moscow.

“Compared to 2008, it's actually declined quite significantly – both in terms of average rates and occupancy rate as well. Average rates in roubles have declined a little bit – I would say about 15% in 4 and 5 star hotels. In some categories – 2 and 3, there are some cases where the rouble rates have even been increased.”

Devaluation of the rouble has also affected room profitability in dollar-terms – resulting in a decline of roughly 40% compared to last year.

Currently, there are just over 9700 rooms in 33 hotels. Even though the financial crisis has hit Moscow's tourism industry, that hasn't changed the fact that there's a lack of space for guests in the city. One historic hotel near Red Square will add about 200 rooms once it opens its doors after renovation.

Cameron Sawyer, Chairman of GVA Sawyer, says that due to its low profitability relative to other real estate segments, Russia's hotel market was still a long way from saturation when the economy was still doing well.

"Moscow needs 10 or 20 years more of intensive hotel development before it has even a normal quantity of hotel rooms. None of the projects currently on the books is going to be enough to fulfil that shortage."

Smart investors are likely to look beyond the crisis in developing hotels, with market watchers expecting investment to recover in the near future.