The commercial real estate market in Russia, thanks to the influx of private investors, is showing steady growth. Facing a colossal increase in domestic tourism, capital owners are increasingly paying attention to the hospitality industry. What do you need to know and take into account as an investor seeking to start working in the hotel sector or planning to develop in it next year?
Rising competition, five seas and loghutting are key hospitality industry trends
At the moment, the sphere is actively developing – new hotel projects are being built throughout the country. At the same time, competition is intensifying. And if this is good for the market as a whole, since, competing for a client, hotels will strive to increase the level of service, then hotels against the background of the trend should concentrate as much as possible on uniqueness. Only due to it and a really high level of service will the hotel be able to join the growing rivalry, stay on the market and make a profit.
The second strong trend is the development of remote locations: in Kamchatka, Sakhalin, Sheregesh. Tourist activity is also growing in the Kaliningrad region. In addition, in 2025, large-scale investment projects will be announced creating federal marine year-round resorts “Five Seas and Lake Baikal”. Moreover, during the Direct Line, the President spoke about the upcoming creation of a four-lane highway around the Sea of Azov.
The third trend is the growth of authentic projects under the general name “loghutting” (Rus. “izbing”) They imply the accommodation of tourists in villages from traditional Russian log cabins. Izbing is already actively pushing glamping as tourists’ choice. Starting from the project in Ples, this direction is actively developing and expanding.
What to expect: what economic and social factors can affect the Russian hotel market in the coming years
Labour shortages are the key factor, no doubt. This is especially true for line personnel. In the coming years, it is planned to open hotels with a total number of about 50 thousand rooms. And in each such facility you need accommodation staff, maids, cooks, waiters, and cleaners. Facing this and the shortage of line personnel, one should expect an increase in the salaries of such employees.
Also, if two or three years ago investors wanted to build exclusively “five-stars”, now the number of requests for three-star hotels is growing. Moreover, high-quality objects of this category in Russia are sorely lacking.
In addition, the country is actively recovering the MICE segment. Accordingly, hotels with a developed conference component are again becoming very attractive and promising for investors.
How tourists’ requirements for hotel services have changed and what hotels need now to attract guests
It has long been known that the Russian tourist is very capricious. He is well acquainted with foreign hotel brands and wants the offers of domestic hoteliers to be at least as good. Therefore, the requirements of guests for accommodation facilities will only grow. Moreover, if earlier, for example, restaurants in a hotel were considered exclusively as food outlets at a hotel, now they should be self-sufficient establishments with a well-thought-out menu and really tasty food.
The necessary minimum to attract customers to a city hotel now is the presence of a pillow menu, a high-quality mattress and a hearty breakfast. In addition, business tourists in million-plus cities speak well of the possibilities of self-registration, that is, taking place without the participation of Reception employees.
Country facilities should have the widest possible infrastructure, including conference facilities, SPA, children’s animation and authentic tourist routes near the hotel.
Actual investments in the hotel business in 2025: trends, risks and recommendations
A key factor contributing to the growth of interest in hotel investments is concessional lending to investment hotel projects. Here, without a doubt, the state is doing a lot. This applies to both concessional lending to large – more than 120 rooms – hotel investment projects, and prolongation of the zero VAT rate until 2030. Taking into account the operation of the concessional lending program, two areas will continue to develop – the construction of new hotels and the reconstruction of historic buildings for hotels.
The key risk is the rising cost of building materials. Also, given the fact that the size of the preferential interest rate on large investment hotel projects is tied to the key rate of the Central Bank, an increase in the key rate of the Central Bank quite strongly affects the interest burden of the investment project. It is important to note here that in the investment phase, interest is paid at the expense of the investor, so it is important to synchronize the calculation of interest with the forecast of the Central Bank at the key rate.
The main operational risk remains the already mentioned shortage of personnel. At the same time, it is important to understand that the load growth will not be forever. In the long term, loading will stabilize at levels probably below current levels. Therefore, the bank’s loan repayment schedule must be built on the basis of a conservative forecast of operating activities
Given the fact that the payback period for hotel investment projects is very long – eight years or more – it is necessary to consider the concept of the future hotel very carefully. It is important even before the start of construction to understand clearly who exactly is the competitor of the object, what is the load and ADR of competitors, what objects are planned to be built in your location in the next three to five years, what are their advantages and disadvantages. Detailed marketing analysis allows you to find the uniqueness of the project. Already at the start it is recommended to decide how the future hotel will be managed – by its own management team or with the involvement of a hotel operator.
It is also important to be careful in calculating the amount of investment expenses. Do not forget that in addition to construction costs there will be the so-called pre-opening expenses associated with hiring and training employees 3-5 months before the opening of the hotel, for the purchase of consumables in all departments, software, equipment and furniture for employees. In addition, an important item is the cost of promoting the hotel. All this must be done much earlier than the official opening. And only after taking into account these nuances, make a decision on investing in the project.
By Alexey Pryaslov, founder and managing director of PFM, specialist in consulting and investment in the hotel business