Hotel business expanding in Ukraine

Recent trends in Ukraine’s hospitality industry suggest that although the shortage of quality hotels remains an issue, the industry has been exhibiting strong signs of growth. In addition to several international operators that successfully entered the market last year, small privately-owned hotels have also been proliferating, especially in western Ukraine.Lyudmila Meshcherskykh, the head of the State Tourism Administration, said that more than Hr 2 billion ($400 million) was invested into improving and widening Ukraine’s network of hotels in 2005, a 40 percent increase from the Hr 800 million ($160 million) invested the year before.



Contributing to this growth in investment was the opening of several large four- and five-star hotels in 2005, most notably the Radisson SAS in Kyiv, the Rixos Hotel Prikarpatye in Truskavets (Lviv region) and the Opera Hotel in the city of Lviv.



Radisson SAS opened a four-star, $57.3 million hotel with 235 rooms in what is known as Kyiv’s diplomatic district in 2005. The Turkish hotel operator Rixos opened its five-star Prikarpatye hotel complex with 370 rooms and a diagnostic medical facility in the spa town of Truskavets the same year. Lviv’s Opera Hotel opened in March 2006.



These openings have added to a growing network of higher-end hotels that includes the Donbass Palace in Donetsk and Kyiv’s Premier Palace, both considered five-star. Premier Palace is part of Ukraine’s first national hotel network, Premier Hotels, which comprises the Oreanda in Yalta, the Dnister in Lviv, the Star in Mukachevo, the Londonskaya in Odessa and the Kosmopolit in Kharkiv, all being four-star.



Last month, Hilton International announced that it would open its first hotel in Ukraine on Tarasa Shevchenka Boulevard in Kyiv. The $70-million, five-star luxury hotel is slated to be completed in mid-2009 and will offer 257 rooms, suggesting that this niche of the hotel market will continue to expand in the near future. According to the hotel chain’s April 20 press release, Hilton will operate the hotel for 20 years under agreements signed with International Business Center Ltd and its wholly-owned subsidiary, Hotel Business Development Company. International Business Center is the owner of the assets in the Hilton Kyiv project.



With their first-class accommodations and range of services, including wireless Internet, executive suites and conference halls, the clientele of these hotels is largely comprised of business tourists and travelers who do not find their rates prohibitively high. At the Opera Hotel, for example, prices range from about $84 a night for a standard single room to $305 a night for a two-room deluxe suite. Prices at the Radisson SAS range from approximately $306 for a standard guestroom to $580 for a one-bedroom suite.



The hotel market for travelers with more modest budgets is also growing, according to Meshcherskykh, although its scope is nearly impossible to measure. She noted that the growing number of small hotels is hard to gauge because they often don’t report their revenues, expenditures, or how much they’ve invested in expansion to government agencies.



The occupancy rate for Ukraine overall was roughly 20 percent in 2004, based on the State Tourism Administration’s statistics available for 2005. In 2004, Kyiv’s occupancy rate was 56 percent, said Meshcherskykh. This figure fluctuates monthly, depending on the season, and by large conferences or events held in the city, like Eurovision-2005, when reports of hotel shortages were legion. The statistics are based on figures reported by legal entities, and thus reflect only a fraction of Ukraine’s hospitality industry, she added.



Officially, there are about 1,192 hotels in Ukraine. However, the number of unregistered providers of hospitality services makes the unofficial total much higher. Meshcherskykh noted that in Crimea alone the State Tourism Administration estimates that about 2,958 informal hotels operated as of 2004.



The number of tourists coming to Ukraine continues to rise, and a projected 19.6 million visitors are expected to come to Ukraine in 2006, the Administration reported on its website. Meshcherskykh said “the Schengen visa zone is right on Ukraine’s border,” and with EU nationals no longer needing visas to Ukraine, the number of visitors from neighboring countries should continue to grow. The tempo of building new and often smaller hotels was the fastest in western Ukraine and Transcarpathia in 2005, she said.



Roman Motychak, the head of the external communications department at Optima Group, a holding which owns Optima-Capital, an asset-management company that invested approximately $3 million to $4 million into the Opera Hotel, said that the average occupancy rate for Lviv’s hotels is around 65 percent, quite high given the national average of 20 percent. The demand for the 51 rooms at the Opera Hotel, which opened in March 2006, has doubled in its first two months.



The hotel has the exclusive rights to use the Lviv Opera House’s image in the development of its brand, and with its furnishings and interior design, has capitalized on Lviv’s architectural richness.



However, Lviv’s city infrastructure is sorely in need of repair and continues to have problems with its water supply and sanitation and transportation systems, said Motychak. For example, to provide its clients with a continuous water supply, in a city where the water is shut off for most of the day, the hotel has had to develop its own infrastructure and operates “entirely autonomously,” Motyshak said. The hotel also recently bought a power generator for the same reasons.



Without significant investment in improving Lviv’s infrastructure and public utilities, a growing number of tourists with more modest budgets will be hard-pressed to find clean, inexpensive hotel rooms with basic services.



The western Ukrainian resort town of Truskavets, known for its mineral springs, sanatoriums and medical treatment facilities, is another example of the rapidly expanding hotel market in the region. The Turkish-owned Rixos Prikarpatye Hotel complex, which opened in September 2005, already reports a 60-80 percent occupancy rate, reaching close to 100 percent around the New Year, according to Pavlo Perevozchikov, a spokesman for Prikarpatye.



Like the other six hotels Rixos operates in Turkey and the one in Astana, Kazakhstan, the Prikarpatye, which opened in September 2005, has health and spa facilities that include a fitness center, indoor pool, Turkish baths, saunas and jacuzzi. The hotel’s health center also has diagnostic and medical facilities that are not offered at any of Rixos’ other hotels and are the five-star hotel’s primary attraction. The Prikarpatye is currently expanding its treatment center, during which the hotel will be closed from mid-May to July 15, reopening with 370 available rooms for the summer season.



The Prikarpatye’s clientele consists primarily of business tourists and visitors from Russia and the CIS who’ve long come to Truskavets for medicinal reasons. Perevozchikov noted that the hotel has already held 30 conferences for a number of large Ukrainian and international companies, and has several planned for July.



Rixos opened the hotel in Truskavets because the “tourist potential” of the town is growing rapidly and because of the Naftusia mineral waters, though not as well known as some Swiss brands, are as, if not more, curative, he said.



Language barriers and limited medical coverage have kept visitors from Western Europe, the U.S., Germany, Poland, Israel and the Middle East few in number.



Although there are currently approximately 20-30 sanatoriums in the spa town, Perevozchikov added that “there is a lot of building going on in Truskavets,” mostly small privately-owned hotels, some of which offer just four or five rooms. He sees this as a sign that quiet Truskavets is quickly developing into a prime tourist location.