Hotel Shortage Could Spoil St. Pete's Birthday

APThe city's sights are well laid-out, but visitors to St. Petersburg for the 300th birthday celebrations may struggle to find a hotel room.
ST. PETERSBURG -- With less than a year to go before the start of St. Petersburg's 300th anniversary celebrations, the city is struggling to come up with enough hotel beds for the anticipated 6 million visitors.

"I just don't know if the city has enough space to handle all of these people," said Alexei Shaskolsky, a commercial real estate analyst with Colliers International property consultancy.

With a population of about 4.5 million, St. Petersburg has 160 registered hotels. It offers only a sixth as much accommodation as the average European city on a per capita basis, Shaskolsky said in a Colliers report this year. The total number of beds in city hotels has risen to more than 29,000 this year, but the number is still inadequate, the report said.

The U.S. Department of Commerce gave a different figure on its web site at www.bisnis.doc.gov/bisnis/bisnis.cfm, putting the city's total number of hotel beds at 20,713 -- with 10 percent in the four- or five-star category, 60 percent in the three-star range and 30 percent listed as unrated.

According to figures from the city administration's tourism committee, 2.6 million foreign tourists visited in 2001, a drop of about 10 percent from the 2000 figure of 2.9 million.

A Hole to Fill



One of the biggest problems in the St. Petersburg hotel industry is the doughnut syndrome: There's a big hole in the middle. The city suffers from a lack of three-star or tourist-class establishments.

In 2001, the opening of the Radisson SAS Royal Hotel brought the number of five-star locations to five. The other four are the Angleterre and Astoria, both managed by Britain's Rocco Forte group; the Grand Hotel Europe, managed by German-based Kempinski AG; and the Nevskij Palace, recently handed over to Malta-based Corinthia Hotels.

The new hotel boosted the share of beds in high-end hotels to about 15 percent, or 2,014 beds in 1,012 rooms. The estimated need in this class of hotels, however, is about 3,250 beds.

Shaskolsky said investors are hard to find for building new hotels, which do not promise quick returns.

"When you're talking about the hotel industry, you're talking about the long term, where it takes at least 10 years to recoup the original investment," he said.

Shaskolsky said the construction of a five-star hotel with 200 rooms in St. Petersburg might cost from $50 million to $70 million, while the construction of a middle-range hotel costs from $5 million to $15 million, with a period of about six years to break even.

A further barrier to investment is that companies that build hotels get little if no return, Shaskolsky said. "The operators end up making the money, while the developers don't," he said.

There is a trend toward improvement in the sector as a whole, but the nature of the growth may not be doing much to alleviate the situation, Shaskolsky said. A number of Soviet-era hotels have been trying to raise their rating.

"This is mostly the case of three-star locations moving up to four-star prices," he said. "The majority of people are satisfied with three-star hotels, so there is bound to be a deficit."

Pavel Ushanov, head of sales at Helsinki's Kaleva Travel, said the lack of three-star locations hurts the city.

"St. Petersburg should have more small, three-star hotels right in the center of the city, as this is what many tourists, including those from Finland, are looking for," he said.

Making Strides



Industry insiders say the city's hotel sector is making improvements, largely thanks to local money. All four- and five-star hotels in the city are owned and run by foreign firms, but development on the three-star market is different.

"I think that, for the first time, we're really starting to see local interest and involvement in hotel construction," Shaskolsky said. "The three-star market is where these groups are concentrating their work."

The local investment comes from companies not traditionally involved in the hotel sector. Eco Phoenix, a holding company specializing in shipping fuel, announced last year it was launching a project for a 200-room hotel; Moscow-based transport company Galis-Terminal is building a 265-room, three-star hotel; and St. Petersburg's Hotel Group, a subsidiary of a local home-improvement chain, is building an eight-floor complex with a mall and three-star hotel, to be completed in time for the jubilee.

Still Top-Heavy



Although more mid-range accommodation is being built, St. Petersburg's hotel industry will continue to be top-heavy as more high-end establishments are continually under construction .

One reason is that business travelers, whose expenses are covered by their companies, prefer five-star hotels.

Furthermore, demand for high-end accommodation is rising, Ushanov said. "There are more and more individual tourists from Finland who have the money to stay in five-star hotels," he said. "But during the peak season, especially during the White Nights, all of St. Petersburg's hotels are busy.

"It's not only the peak season for tourism, but for business and political activities as well."

Both the local and federal governments schedule festivals and conferences during this period, exacerbating the situation, hotel managers said, and President Vladimir Putin's penchant for entertaining foreign dignitaries in the city does nothing to ease this strain.

However, St. Petersburg's peak season is relatively short, lasting about six weeks from late May through June. During this time, almost all of the city's hotels are full and most of them are booked solid by February.

"Most of the city's three- and four-star hotels have an occupancy rate of 60 to 66 percent for the year, comparable to the world's leading tourist centers, and are fully booked during the tourist season," Colliers said in its report.

Furthermore, during the peak season, St. Petersburg hotels are able to meet only 45 percent of the total demand for accommodation, the U.S. Commerce Department said.

The four- and five-star sectors can look forward to new members, as there are a number of incomplete projects.

The recent sale of the Nevskij Palace is also slated to create more room in this market, as two buildings adjacent to the site are part of the deal between Corinthia and the city. Corinthia said it will use the buildings to increase the number of rooms at the hotel, as well as to open up retail space.

Another player that might appear on the St. Petersburg hotel market is the French group Accor, which is looking for opportunities to purchase or construct hotels under internationally known brand names. Accor operates about 3,600 hotels in about 90 countries and owns a third, with the Novotel hotel near Moscow's Sheremetyevo airport among them. In St. Petersburg, it plans to focus on the three-star sector and operate two to three hotels within three years.

The Home Team



One tourist segment often overlooked when investment in the industry is mentioned is that of Russian visitors. According to the city's tourism committee, last year about 600,000 tourists came to St. Petersburg from the other regions of Russia, and domestic travelers are expected to account for a large portion of the 6 million visitors expected in 2003.

While a certain number of these visitors sidestep the hotel question, staying with friends or relatives, they still represent a significant segment of the tourism market.

"Some clients prefer hotels of a higher class, like Astoria, [Grand Hotel] Europe, Radisson or Nevskij Palace, while some prefer cheaper, former Intourist hotels of a lower class," said Yelena Zakharova, the acting head of promotions at the Neva tourism company. "But those two categories do not represent the majority of our clients."

Happy Birthday?



What remains to be seen is how the city will deal with next year's anticipated flood of tourists.

"By the 300th anniversary, we are expecting a larger number of tourists and have already begun planning, although we're not announcing these plans yet," said Zakharova. "Since 1999, the city has been participating actively in international tourism exhibitions, and we'll see what the results are next year."

This summer may not see a return to the normal number of tourists due to the effect of the terrorist attacks on people's willingness to fly, Colliers' Shaskolsky said. However, the effects are likely to have worn off by 2003.

"You have to remember, this isn't the center of Europe. You pretty much have to fly here," he said.

Ushanov of Kaleva Travel said hotel-room supply and demand in St. Petersburg will eventually reach an equilibrium -- but that will not happen soon.

"Balance between the number of hotel rooms and the number of tourists will only be reached when the number of tourists grows to 10 million per year," he said. "As the annual increase has been from 8 percent to 10 percent, that balance will probably be reached sometime around 2010."

Of course, that would be too late for the jubilee, which kicks off next May.

"It's a question that has to be settled now and not a month before all of these tourists are supposed to show up," Shaskolsky said. "The city administration has begun to undertake initiatives to try to provide certain incentives for investors, but it's a little late."

City tourism committee spokesman Valentin Zakharov said there would not be enough hotel spots for all the visitors.

"Naturally the number of people to visit St. Petersburg will increase during the jubilee," he said. "But the city will come up with the necessary resources, as hostels, private apartments and hotels in the surrounding areas will help."