The Hotel Times - December 2008 - (Page 6)

IN THE NEWS Russia: In a position for profitability Times are tough globally, but Central Europe is not as bad off as most BY PAUL J. HENEY E D I TO R I A L D I R E C TO R Moscow–The Russian hotel market will not escape the current global economic crisis unharmed, but panelists at the Russia & CIS Hotel Investment Conference said it is better positioned than other areas of the world. Daniel Thorniley, SVP of The Economist Group, said 2009 would be “the worst business and economic year, globally, in the last 10 years, and perhaps the last 25, and perhaps the last 50. That depends on inter-bank lending.” “The best case [gross domestic product] for Russia in 2009 will be about 5.5percent [growth], the mid-case might be about 5 percent, and the worst case— depending on the world—might be just over 4 percent,” he predicted. Thorniley said a 4-percent GDP growth would be painful for Russia, but hoteliers need to realize that China’s growth will plummet from 10 to perhaps 7.5 percent, and even those numbers will be five to 10 times what Western Europe and the U.S. will see. Thorniley noted that profitability is good in Russia, and it is probably in the top three markets for premium pricing in the world. Arthur de Haast, global CEO of Jones Lang LaSalle Hotels, said this is because of strong demand and little supply. But he noted occupancy in Moscow is, at best, in the mid-60-percent range, so the city still has a lot of upside potential from the demand side. Red tape Erkan Erkek, CEO of Capital Partners, said a lot of red tape is involved when opening a new hotel in Russia. “Part of the process is very complicated and unclear. In any major city of the world, to do a project of this size [The Ritz-Carlton, Moscow], you would have some major challenges; but the challenge here is that you don’t know what is going to happen,” Erkek said. Patrick Fitzgibbon, SVP of development in Europe & Africa for Hilton Hotels Corp., said many governments provide tax incentives, but that’s not what is required in Russia. Speeding up the process so companies can finish developments on time is. There are no easy fixes, according to Erkek, who said the luxury market will stay strong for Russia and Kazakhstan. “You need a long-term vision. Return on investment in this market is seven to eight years if you are lucky and you don’t make mistakes,” he said. pheney@questex.com H&MM | PAUL J. HENEY Some regions, including Russia, should weather the economic storm better than most, conference panelists said. Pictured from left: Hotel Analyst’s Andrew Sangster, Jones Lang LaSalle Hotels’ Arthur de Haast and The Economist Group’s Daniel Thorniley. 6 The Hotel Times December 2008 www.TheHotelTimes.com http://www.TheHotelTimes.com

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The Hotel Times - December 2008 Business Outlook Contents In the News Where is the Bottom? Capital Outlook Timeshare Report In Closing

The Hotel Times - December 2008

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