Read the text about Moscow hotel market.

Moscow hotel market

Russia currently receives up to 40 million tourists per year, and this number is anticipated to rise in both its domestic and foreign component. According to Moscow City Government estimates, the current number of tourists visiting Moscow is around 2.9 million per year, and this is estimated to reach 5 million within the next decade. By year 2020, Russia is expected to be among the 10 top most visited countries in the world, attracting 3 percent of the world’s tourist market.

Some experts estimate the Russian hotel market at 2 billion dollars a year. The highest level of unfulfilled demand is for quality three star and economy hotels. To date, the market of mid-scale and budget hotels has not developed to satisfy the demand of both Russian and foreign middle-class business travelers and an ever increasing number of tourists. Part of the clientele that stays at upscale hotels would move to less expensive properties if supply were offered.

Moscow and St. Petersburg market are in the focus of attention. The Moscow City Committee on Tourism and Hotel Industry makes a forecast that by 2025 a tourist flow to Moscow will reach 14,8 mln a year. For this reason, it is necessary to expand a hotel infrastructure. 42 hotels for about 7,000 rooms have been put in operation in Moscow for the last six years.

The Moscow hotel market is comprised of approximately 175 hotels able to accommodate about 72,000 guests.

Moscow currently boasts 40,373 hotel rooms, with international hotel chains managing 27 percent of the rooms, or 40 hotels. Over the last two years, Moscow saw a consistent increase in new hotel rooms operated by international hotel companies.

The middle class and economy class hotel niche offers the most promising perspectives throughout Russia and it is expected to boom in the next several years. This is due also to the fact that some of the old Soviet-time hotels have either already been demolished or closed, thus significantly decreasing Moscow’s total room inventory.

Reduction in the mid-range due to the elimination of old room stock is not compensated by new hotel supply additions. That’s why about 40 percent of new hotels to be built in the near future will be in the two- and three-star classification.

Alternative solutions for the lodging industry, offered by hostels and private apartments for rent, are increasing their market share and becoming alternatives for traditional hotels in specific tourist segments. The supply for alternative accommodation is evolving, thus we can observe new global trends for the segments:

- Hostels are becoming more trendy and in demand and offer an alternative to traditional hotels all over the world.

- Private apartments for rent are gaining in popularity and can be viewed as an alternative to economy segment hotels for certain groups of tourists.

The last two trends indicate that demand for lodging is getting more personalized. Hostels and private apartments are making the market more flexible and can easily satisfy changing customer needs.

These trends can be observed in major cities of the world as well as in Russia. Since Moscow represents more than 37% of the branded hotels room inventory in Russia, the trends also apply to the Moscow market, both for traditional hotels and for new market sectors such as hostels and private apartments for rent.

Moscow hotels can be divided into two major groups: Western-style and Soviet-style hotels.

Western-style Hotels

Among the 175 hotels presently open in Moscow, no more than 30 offer Western-style accommodation. These properties are distributed among upper-scale class, mid-scale and economy. Most of them are concentrated within the center of the city (Central Administrative District), and the majority falls into the 4 or 5 star category. Currently, the hotels in the highest demand are the small and budget properties.

This segment includes three-star small hotels providing quality service (currently less than 10 percent of the market) and 1–2-star budget hotels. While occupancy rates in three-star hotels are almost the same as in the upper-scale, occupancy rates in the budget category are over 80 percent. Despite the fact that this segment underwent the highest rate of growth in average prices, these hotels remain the most affordable tourist accommodation in Moscow and therefore have no difficulty in reaching close to full occupancy.