Northern Capital Prepares for Hotel Boom

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ST. PETERSBURG — With half the number of hotel rooms per capita than the European average, St. Petersburg is racing against time to close the gap before a yearlong party begins in 2003 to honor its 300th anniversary.

Investors in the St. Petersburg hotel industry are active like never before, and city officials say dozens of new hotels are scheduled for completion in time for the celebrations.

Currently, the city's hotel sector consists of 132 hotels with 16,472 rooms. Seventy of those, with 11,022 rooms, are hotels in the luxury, moderate or low classes. The remaining hotels are small administrative hotels and hostels. The State Standards Committee has rated 34 hotels using the star classification system.

The Grand Hotel Europe, managed by the Kempinski company, Nevskij Palace of ITT Sheraton, and Astoria and Angleterre of the Rocco Forte New Hotel's Group all received five stars. In June, a new five-star hotel will open, the Radisson SAS Royal Hotel. It is the first hotel built in St. Petersburg with the funds of private investors. The transformation of a 17th-century historical building into a luxury class hotel with 164 rooms has a price tag of more than $30 million.

The St. Petersburg city administration calculates that last year 413,000 foreigners visited 40 hotels that together have 70 percent of the city's hotel rooms. Including Russian tourists, the number of guests exceeded 1 million. Throughout the year, St. Petersburg hotels are on average 50 percent booked, but that number dramatically fluctuates, from 50 percent to 70 percent throughout the year. During the peak of the tourist season, May and June, hotels cannot meet the demand for rooms. In the dead season, December and January, several are only 30 percent to 35 percent booked. The seasonal character of the business is one factor that discourages investors, said Alexei Shaskolsky, the head specialist for corporate real estate at the Gamma Group company.

The situation has been steadily adjusting itself. In 2000, annual bookings at first-class hotels rose by 8 percent to 10 percent in comparison with 1999, and more of their guests were Russian. At the Astoria and Angleterre, 22 percent of the guests were citizens of the Russian Federation, 20 percent at Nevskij Palace and 16.8 percent at the Grand Hotel Europe.

The differences in the costs for hotel services is dramatic. At hotels in the luxury category, a standard single room costs $280 to $300 a night, but after corporate and other discounts, the real cost of a single room at Nevskij Palace was $160 a night in 2000, and $187 at the Astoria. Meanwhile, a single room at the Oktyabrskaya costs $44. At the hotel Rossiya, a single room costs 550 rubles ($19) or $26 for foreigners.

The city administration estimates 50 small hotels could open in St. Petersburg by 2003. The city hopes to receive financing from Tacis, the European Union's aid program for the former Soviet Union and Eastern Europe. The city authorities intend to offer investors preferential conditions to build a five-star hotel. A list has been prepared of other buildings to be specially designed as intimate family hotels including more than 80 addresses in the central region, the Petrograd district, Vasilyevsky Island and prestigious suburbs. The costs of such projects are not high, on average from $500,000 to $2 million.

The Europe Hotel company has several projects underway on Kamenny Island. One of them, with 11 rooms, will open by the end of the summer. Other projects are in various stages of planning. Moreover, Europe Hotel plans to reconstruct a building on Malaya Morskaya Ulitsa into a three-star hotel.

There is a shortage of investment plans with more serious budgets. For example, this spring, the construction of a shopping-hotel complex called Vladimirsky Passazh began at an estimated cost of $20 million. The investment group Hotel and the construction company Elis, the initiator of the project and the main builder, are the investors in the complex. The future three-star hotel will have 300 rooms. Another three-star hotel is being built by the holding Echo Phoenix at 89 Nevsky Prospekt. It will cost $10 million to build and have 160 rooms, according to the company.

At the same time, operating hotels have sufficient investment for modernization and are steadily adapting themselves to European standards. Large-scale reconstruction is taking place at the hotels Moskva, Pribaltiiskaya and Oktyabrskaya.

Practically all the new projects are oriented toward building hotels in the moderate class. Igor Galitsin, general director of the investment group Hotel, believes this market niche has not been entirely realized and has great potential.

Foreign operators have not yet found a single hotel in St. Petersburg that meets Western standards for a three-star hotel, he said. Specialists in the city administration's foreign relations committee predict the rise in demand for hotel rooms will require more than 7,500 new rooms by 2008, 5,500 of which will be rooms in the moderate class hotels.