OVERVIEW OF HOTEL REAL ESTATE MARKET. UKRAINE 2009

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OVERVIEW OF HOTEL REAL ESTATE MARKET. UKRAINE 2009 Powered By Docstoc
					OVERVIEW OF HOTEL REAL ESTATE MARKET
                             UKRAINE
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




The Economy of Ukraine                                              A number of foreign companies decided to leave
                                                                    Ukraine and focus on their native markets with
In 1H2008 the growth of companies’ profitability                    substantially lower risks, yet with respectively lower
in real and financial sectors and, of course, the                   return on their investment.
expansion of investment processes accompanied
positive dynamics of economy growth. According                      Nominal income of the population increased by
to the State Statistics Committee of Ukraine, the                   40.1% and real income by 11.4% year on year.
total volume of foreign direct investment in Ukraine,               Nominal wages grew by 18.6 % and real wages
as at January 1, 2009 reached $35.7 bn, being 20.9%                 decreased by 3% year on year. In the Kiev region,
more than the investment volume in the beginning                    real average wages increased by 0.6%. Related to
of 2008.                                                            the dollar the average fell by 21.7% to $259.8 in 2008.

       Volume of Foreign Direct Investment in Ukraine,              According to the State Statistics Committee of
   Progressive Total from the Beginning of Investment ($m)          Ukraine, exports increased by 35.9% and imports
                                                                    by 41.1% and accounted for $67 bn and $85.5 bn
                                                                    respectively in 2008. The largest export volumes
                                                                    were directed to the Russian Federation, Turkey,
                                                                    Italy, Poland, Belarus, USA, Germany. Among top
                                                                    countries that imported goods to Ukraine there were
                                                                    the Russian Federation, Germany, Turkmenistan,
                                                                    China, Poland, Kazakhstan and Belarus.
                                                                                       Foreign Trade Figures, $ billion




                 Source: State Statistics Committee of Ukraine

The major investor countries in the Ukrainian
economy were: Cyprus ($76.8 m), Germany
($63.9 m), the Netherlands ($31.8 m), Austria
($24.5 m), Great Britain ($22.7 m).
In 2008, GDP growth was 2.1% (in the first half year
6.5%), and inflation was 22.3%. A decline in GDP
growth was caused by a sharp decline in industrial                                        Source: State Statistics Committee of Ukraine
output (minus 3%), fall in demand for Ukrainian
metallurgical and chemical production. The state                    2008 gave a 18.6% rise of the legal entities’ retail
budget for 2009 supposed GDP growth to be about                     turnover in goods, which expanded to UAH 44.9 bn.
0,4%, but International Monetary Found forecasted
this index to reach 3%.                                             Kiev region enjoyed a 19.5% rise.

             Basic Macroeconomic Indicators                                                   Key Ukraine Statistics

                                                                                                2007       2008        2009*       2010*
                                                                    Population, mln.            46.7       46.4         45.9*       45.6*
                                                                    GDP, mln. UAH              720,731    949,864      956,427*   1,117,992*
                                                                    Exchange Rate
                                                                                                5.05       5.26         7.67
                                                                    UAH/US$
                                                                    Exchange Rate
                                                                                                6.91        7.70        10.31
                                                                    UAH/€
                                                                    NBU gold and foreign
                                                                                                32.5       31.5         24.9*       24.3*
                                                                    currency reserves, $bn.

                                                                    * consensus forecast of Ministry of Economics of Ukraine (July 2009)
                                                                                                                           Source: NBU

                                                                    On July 31, 2009 the international rating agency,
                                       * Forecast of IMF for 2010   Standard & Poor's, improved the sovereign rate
                 Source: State Statistics Committee of Ukraine
                                                                    of Ukraine from negative assessment to positive
Being the result of world global economic crisis the                and also reaffirmed the level CCC+/C for long
change of economy development tendencies in                         and short term ratings on commitments in foreign
2H2008 caused the slowdown of business activity.                    currency.
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




                             OVERVIEW OF HOTEL REAL ESTATE MARKET

Brief Market Overview                                      Supply

In 2008 1H2009 global hotel operators showed               In 2007 Hyatt Regency Kiev, first 5 hotel in Kiev
a big interest in hotel market of Ukraine offering         managed by international operators, was placed in
hotels management under their brands, and the              operation. Before this during 2 years only one world
quantity of signed agreements with development             brand, which is 4 Radisson SAS, was represented.
companies proved the high potential of this                In the beginning of 2007 4 hotel Riviera operated
segment. It made basis to realize joint projects on        by Yaroslaviv Val was put into operation. In 2008 the
hotel real estate development in the capital and in        single 4 hotel Visak was commissioned, it has 42
regions.                                                   rooms and is situated in Obolonsky district of the city.

Record number of international hotel networks              For the moment 112 hotel enterprises operate in
declared entering of Ukrainian market in 2008,             the capital and include 5,524. Moreover, hotels
because of:                                                positioned in premium segment are not completely
                                                           in line with present day international requirements.
     constant increasing demand for premium                Only 27 hotels has Ukrainian or international
     hotel rooms;                                          certificates.
     inability of functioning hotels to satisfy this;
                                                           The supply in Kiev is several times bigger than in
     limited assortment of hotel services;                 other biggest cities in Ukraine, nevertheless it’s really
     progressive integration of Ukraine in both the
     European and World community;                                                                        Visak Hotel

     increasing of political and networking event
     quantity;
     state assistance to units taking part in EURO
     2012 preparation program. These tendencies
     characterize also 2009.
Signing the agreement for management with an
international operator during the building period
helps Ukrainian developers to improve unit liquidity,
as it proves the stable financing, allows to use
effective marketing tools to promote the unit, to get
the access to the central booking system and help
in hotel rooms selling.

Since August 2008 the crisis impact lowered the
barriers for entering the Ukrainian hotel real estate
market for investors oriented to middle and long
term future. Appearance of proposals to sell units         low comparing to other European capitals. There
for adequate prices and low level of possibility           are 3 hotel rooms per 1000 citizens in Kiev whereas in
hotel market saturation of the capital and biggest         the cities of Western Europe there are 14 18 rooms.
regional cities till 2012 were the positive features of    Increasing of market saturation level by premium
the period.                                                segment will be possible only in 2012 2015 on
                                                           conditions that all announced units will be put into
Lack of free lots in the down town for premium hotel       operation in time.
projects realization is the factor restraining the hotel
segment development in Kiev.                               Within the frameworks of Euro 2012 preparations
                                                           Kiev City State Administration approved Scheme of
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




                                         Hotels Commissioned in 2008 2011

                                                                                                                  Quantity
  #     Name                         Address                                               Category
                                                                                                                  of rooms
                                                              2008
  1     Visak                        17 Obolonskaya Nabarezhnaya St.                             4                    42
                                                              2009
  2     InterContinental             2 A B. Zhytomirskaya St.                                    5                   270
  3     Slavyansky dvor              87 A Sorokarichya Zhovtnya Ave                              3                    24
  4     Hotel                        8 A Brest Lytovskoe Highway                                 3                    60
                                                          2010 2011
  5     Fairmont                     1 A Naberezhno Khreschatitskaya St.                         5                   257
  6     Obolon                       9 Obolonskaya Nabarezhnaya St.                              4                    42
  7     Hotel                        34 Konstantinovskaya St.                                    4                    42

                                                                                                             Source: DEOL Partners




                                                                             The Hotel Rooms Structure in Kiev, 2008 2009,
                                                                                       % of Total Room Quantity
hotels placement in Kiev till 2020. On the first level
(till 2012) 55 hotels are expected to be built.

Proceeding from UEFA standards total new hotels
area should be about 750,000 m2. In case of the
Scheme completion till 2012 Kiev will be provided
with 12 hotel places per 1000 citizens considering
that 4 m people will inhabit the city.




  Breakdown of Hotels by Category and Quantity of Rooms



       Quantity of Hotels            Quantity of Rooms
                                                                                                             Source: DEOL Partners



                                                                     Demand

                                                                     Demand for rooms in 4 5 hotels in Kiev depends
                                                                     only on business activity, because their current
                                                                     target group are corporate clients and businessmen.
                                                                     Therefore the highest level of demand is observed
                                                                     on working days, but it decreases substantially on
                                                                     weekends. Hereby, the average year workload was
                                      Source: DEOL Partners          on the level of 70 72% in 2008 and 50 55% in 2009.
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




                         HOTEL REAL ESTATE MARKET OBJECTS


                                                    12
                                                              38


                            39



                                                 10
                                            29 404
                                 42          11
  34                                     36 13 1
                                                8
       24                                   2 30                                               20
                                           3     23                                       32
                                       6           7                                 28
                                       4          17                                      15
                             18         22 31                                   41
               26                                    9
       35                                 1
                                      25                  5
                                            14
                                                     21            27                    16
                     37
                       33




                                           19




                                                Hotels:                 5   4        3         2
                                            > 200 rooms                                        –

                                            50 200 rooms


                                            < 50 rooms                  –
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




1    Premier Palace               12     Visak                    23       Kreschatik                  33   Oberig
2    InterContinental             13     Impresa                  24       Prolisok                    34   Verkon
3    Hyatt Regency Kyiv           14     Rus                      25       Kooperator                  35   7 Dney
4    Opera                        15     Tourist                  26       Druzhba                     36   Andreevskaya
5    President Hotel              16     Slavutich                27       Salut                       37   All Plus Together
6    Radisson SAS Hotel Kyiv      17     Ukriane                  28       Adria                       38   Borisphen
7    Depr                         18     Lybid                    29       Domus                       39   Spartak
8    Riviera                      19     Mir                      30       Ghintama                    40   Dneprovskiy
9    Natsionalniy                 20     Bratislava               31       St. Petersburg Hotel        41   Comfort
10   Perlyna Dnipra               21     Sport                    32       Kozatskiy                   42   Kamelot
11   Podol Plaza                  22     Express




                      Development Projects Under the International Operators Management


                                                                                   Rooms
Hotel operator          Developer                    Brands       Category                             Address          Opened
                                                                                    fund
Hyatt Hotels         Industrialnyi Soyuz
                                                      Hyatt            5              234   5 A Tarasovoy St.              2007
Corporation              Donbassa
Fairmont Hotels                                                                             1 A Naberezhno
                       Yaroslaviv Val               Fairmont           5              251                                  2009
& Resorts                                                                                   Khreschatitskaya St.
Rixos                       SKM                       Rixos            5              209   24/39 Proreznaya St.           2009
Accor Group             ХХІ Century                  Sofitel           5              290   14 B Lyuteranskaya St.         2010
Hilton Hotels         International
                                                     Hilton            5              420   28 30 Schevchenko Blv.         2011
Corporation        Development centre
                                               InterContinental        5              272   2 A B. Zhytomyrskaya St.       2009
InterContinental       Yaroslaviv Val,           Crowne Plaza          4              225   Korolenkovskaya St.            2011
Hotels Group              ІТТ Plaza                                                   192   79 Antonovycha St.             2011
                                                   Holiday Inn         3
                                                                                      209   79 Antonovycha St.
Starwood                                                                                    21 Naberezhno
                                                    Sheraton           5              370                                  2012
Hotels & Resorts     Melviks, DeVision                                                      Khreschatitskaya St.
Worldwide                                          Le Meridien         5              200   Koncha Zaspa
                      IFD Capital, NEST,         Radisson SAS          4              255   Yaroslavov Val St.             2005
Rezidor Hotel
                     Dubl W, Kyivzhytlo          Radisson SAS          4              344   Borispol                       2009
Group
                    investmenegement               Regent Park         4              440   37 B. Vasylkovskaya
Accor               Universal investment               Ibis            3                    28 30 Schevchenko Blv.         2010
Hospitality                group                      Etap             2                    25 hotels network in Ukraine
Wyndham               Ukrainian hotels                                                agreement to develop 15 hotels during
                                                    Ramada             3
Hotel Group           (Astron Ukraine)                                                              10 years
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




The demand for hotel services decreased because          In spite of crisis some hotel operators, especially
of cancelation of planned events and business trips      economy class ones, tried to follow announced
reduction etc.                                           development plan. Developing 3 hotel chain 7
                                                         days, Ukrainian operator Clubhouse Group Holdings
In middle term future the demand will shift from         regards the possibility to buy land for hotels building
4 5 to 3 hotel projects and niche boutique               and finished units which fits the requirements.
hotels.
                                                         By 2012 the Senator Apartments network operated
Prices                                                   by DEOL Partners is supposed to be enlarged in
                                                         the biggest regional centres: Kiev, Kharkiv, Lviv,
According to all European practice the prices for        Odessa by means of buying buildings and their
hotel rooms are formed for 1 year and changes            refurbishment.
occur rarely.

In Ukraine the prices in 2 3 hotels are in national                             Senator Apartments Executive Court
currency and in 4 5 hotels in euro. Taking into
consideration the devaluation of national currency
and the fact that dollar rose against euro, the
prices in dollar will decrease by 13% in all hotels in
Kiev, and by 11% in 4 5 hotels by the end of 2009
comparing to the costs before crisis.

In 4Q2008 crisis impact influenced pricing on hotel
real estate market forming the following tendencies:

     flexible special offers in premium hotels;

     price reduction in economy class hotels.

Investments and development

In 2001 2009 seven international hotel networks
declared their entering of Ukrainian market: Accor
Group, Hilton Hotels Corporation, Fairmont Hotels
& Resorts, Starwood Hotels & Resorts, Marriott           The factors of hotel real estate units’ investment
International, Kempinski Hotels, Wyndham Hotel           attractiveness are:
Group.
                                                              placement in historical or business centre;
In 2008 Wyndham Hotels and Resorts sold the rights
to open new network, which will include fifteen
                                                              correctly developed conception based on
3 Ramada, to Astron Ukraine. Ukrainian Hotels,
                                                              the market research, analysis of demand
member of Astron Ukraine, made a contract with
                                                              quantity and structure;
Swiss managing company Sophos Hotels S.A.
about hotels projects preparations, their launching,
                                                              effectiveness and singularity of conceptual
marketing and operation. French hotel operator
                                                              and architectural solutions;
Accor and Universal Investment Group signed the
agreement according to which companies will
                                                              facade area with good visibility and attractive
                                                                 ,
build 25 2 hotels Etap in Ukraine till 2012. Being the
                                                              landscape;
owner of buildings and land, Universal Investment
Group declare to invest about 100 m euros in
development, finance and building of the hotels.              high level of infrastructure development
                                                              around the object, access to the main
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




     transport corridors, junctions and to airports                                              InterContinental
     and railway stations as well;

     availability, type and currency of agreement
     on operation.

Forecast

The selling of hotel rooms to private persons on the
building level can become a new tendency on
the hotel real estate market in Kiev. This format of
contract allows for a reduction in the recoupment
period by 2 3 years, but it increases the risks because
of lack of hotel condominium development
practice in Ukraine.

In 2008 2009 the main customers on the hotel real
estate market became hotel operators, but not the         regional development and building of Ukraine will
investment banks. This tendency can be observed           simplify the procedure of entering the market for
in future in Ukraine also, but owners should make         international hotel operators.
concessions regarding hotel project cost and taking
into consideration that business ownership is not the     The main tendencies of Ukrainian hotel real estate
priority for hotel operators.                             development are:

The growth of prices should be expected in the                developer’s interests will shift to projects of
segment of budget hotels (2 3 ) because tariffs               boutique hotels and average price category
of public services for corporate bodies increased,            hotels;
these expenses are a third of the room cost in this           reconstruction of existent hotel fund, because
segment.                                                      of land shortage, investment volume
                                                              decreasing and short recoupment period;
To attract new guests, operators will develop and
propose special offers, thereby stimulating the               entering the market by new hotel operators
loyalty of clients.                                           and enlargement of existent networks.
                                                          Development companies will file amendments into
In the mid term future the growth of price for hotel
                                                          their strategies on hotel projects development. If
services will continue, because of supply shortage
                                                          they are not core, the companies will postpone
and dissatisfied demand for qualitative hotel
                                                          putting the units into the operation or cancel it.
services and their measured assortment as well.
                                                          The current strategy will foresee the concentration
                                                          on priority directions, elaboration of project
Growing competition, increased requirements of
                                                          documentation, market analysis and marketing
visitors, entering the market by international hotel
                                                          support to projects.
operators will cause the increasing of new projects
quality.

Adoption of new state building norms for hotels,
according to European standards, by Ministry of
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




                                                 ANNEX #4

                              KEY CHARACTERISTICS OF KIEV'S HOTELS
                                          Prepared by DEOL Partners




       #                 Hotel name                           Address         Quantity of rooms


                                                5 star hotels

       1       Premier Palace            5 7/29 T. Shevchenko Blv.                  289
       2       InterContinental          2 A B. Zhitomirskaya St.                    272
       3       Hyatt Regency Kyiv        5 A. Tarasovoi St.                         234
       4       Opera                     53 B. Khmelnitskogo St.                     138

                                                4 star hotels

       5       President Hotel           12 Gospitalnaya St.                        363
       6       Radisson SAS Hotel Kyiv   22 Yaroslavov Val St.                       255
       7       Depr                      1/2 Kreschatik St.                         186
       8       Riviera                   15 Sagaidachnogo St.                        80
       9       Natsionalniy              5 Lipskaya St.                              75
       10      Perlyna Dnipra            10 A Naberejno Kreschatitskaya St.          62
       11      Podol Plaza               7 A Konstantinovskaya St.                   57
       12      Visak                     17 Obolonskaya Naberejnaya St.              42
       13      Impressa                  21 Sagaidachnogo St.                        17

                                                3 star hotels

       14      Rus                       4 Gospitalnaya St.                         437
       15      Tourist                   2 Raisy Okipnoi St.                         418
       16      Slavutich                 1 Entuziastov St.                          400
       17      Ukriane                   4 Institutskaya St.                         372
       18      Lybid                     1 Pobedy Ave                               300
       19      Mir                       70 Goloseevskiy Ave                         300
       20      Bratislava                1 Malyshka St.                             246
       21      Sport                     55 A Vasilkovskaya St.                      172
       22      Express                   38/40 Shevchenko Blv.                      143
       23      Kreschatik                14 Kreschatik St.                           128
       24      Prolisok                  139 Pobedy Ave                             120
       25      Kooperator                53/80 Saksaganskogo St.                     113
OVERVIEW OF COMMERCIAL
REAL ESTATE MARKET
UKRAINE 2009




       #               Hotel name                       Address           Quantity of rooms

       26      Druzhba                5 Zheleznodorozhnaya St.                  111
       27      Salut                  11 B Yanvarskogo Vosstaniya St.            66
       28      Adria                  2 Raisy Okipnoy St.                        46
       29      Domus                  19 Yaroslavskaya St.                       30
       30      Ghintama               9 Trehsvyatitelskaya St.                   23

                                             2 star hotels

       31      St. Petersburg Hotel   4/1 Shevchenka Blv.                       106
       32      Kozatskiy              1/3 Malyshko                               105
       33      Oberig                 25/16 Krasnozvezdniy Ave                   57
       34      Verkon                 63 Pobedy Ave                              40
       35      7 Dney                 4 Geroev Kosmosa St.                       36
       36      Andreevskaya           24 Andreevskiy Spusk St.                   35
       37      All Plus Together      3 Krasnozvezdniy Ave                       31
       38      Borisphen              5 Park Druzhby Narodov                     27
       39      Spartak                105 Frunze St.                             24
       40      Dneprovskiy            10 A Naberejno Kreschatickaya St.          20
       41      Comfort                4 Raisy Okipnoy St.                        12
       42      Kamelot                4 Melnikova St.                            11
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This report is intended as general market overview and based upon information in our possession which we believe to be reliable. While every effort has been made to ensure
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