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. Last Updated: 07/27/2016

The Advent of Cheaper Hotels Remains Distant

For MTThe Holiday Inn at Sokolniki, one of a few midrange hotels existing in the city.
The dearth of cheap and conveniently located hotel beds is one of the most long-standing and widespread gripes for both tourists and businessmen visiting Moscow.

Attempts by the city to develop its tourist industry and turn Moscow into a global financial capital are hamstrung by the lack of midrange and budget accommodation.

As cheaper, larger Soviet hotels, including Rossia, Intourist, Moskva and Minsk have been pulled down over the past few years to make way for five-star hotels like the Ritz-Carlton, room availability have slumped.

And for the ordinary visitor to Moscow, this means that average prices for a bed for the night have skyrocketed.

Nowadays, one can expect to have to shell out from $250 to $350 per night for a room in some of the major internationally branded midrange hotels, said Stephane Meyrat, associate director of the valuation and consulting department at Colliers International.

"Hotels in other major cities around the world ... are much more reasonable," Meyrat said.

Marina Usenko, senior vice president for Jones Lang LaSalle Hotels, said there was "a bit of an inflation problem" with Moscow's midrange hotels, as internationally branded hotels are often shifted up to four-star status.

"Three star are typically Russian-managed and not internationally branded hotels," she said.

In the first quarter of 2007, there were around 15,000 three-star rooms and 9,900 budget one- or two-star rooms in the city, according to statistics from Becar Commercial Property Moscow. This compares with 2,400 luxury five-star rooms and 5,600 fours-star rooms. Overall, there were 212 hotels working in Moscow with 34,700 rooms available.

Despite the fact that this means that 44 percent of the available space was given over to midrange, three-star hotels, they are by far the most in demand among tourists visiting Moscow.

Occupation rates for midrange hotels were a steady 72.5 percent last year and rose to 75.7 percent for low-range hotels, Colliers International said in its Real Estate Review 2007.

In their attempts to resolve the problem, Moscow officials have now become increasingly optimistic in their predictions for the rate of three-star hotel development in the capital.

In late April, the Moscow city government ratified changes to its hotel development program, boosting the number of hotels to be built over the next few years, said Yury Bai, the head of the Moscow city commission for hotel development. According to the new proposals, 353 sites will now be developed by 2010, a rise of more than 100 on the previous target of 248. Of the 15 hotels slated to open their doors in 2007, 11 will be two- or three-star standard establishments and four of them will be four- or five-star hotels.

Bai said the lack of three-star hotels was a long-standing problem for the city and widely recognized as such.

"In Moscow, this subject has been discussed and discussed and to tell you the truth it is already wearing quite thin," he said.

Despite, optimism from local government, analysts were skeptical that the rate of hotel development for 2007 would be enough to plug the gap.

"It is very wishful thinking. From what we are seeing in all sectors, there are always delays in every sector," Usenko said, citing the lack of experienced developers as a key problem.

As investors rather than government now have a greater influence on the rate of developments, officials are limited in their efforts to affect the situation, Meyrat said.

One major problem is that the surviving Soviet-era hotels, classified as three- or four-star by Russian standards, have seen a rise in prices that outstrips the quality of service they supply.

One well-known and more affordable international chain that has set up in Moscow is the Holiday Inn, which has a number of outlets around the city charging from $225 per night.

"Moscow is a very important city for us and we are very keen to develop our presence in the city," said Michael Cooper, vice president for strategic development at the InterContinental Hotels Group.

As usual with cheaper hotels, these are often situated just outside the center, near the Third Ring Road, however.

While the Holiday Inns at Sokolniki and on Sushchyovsky Val may be an enticing option for businessmen and tourists, the ensuing trips on the metro often stretch the Russian of most foreign visitors.

Furthermore, development outside the center will continue to grow as sites closer to the center become an increasing rarity, Meyrat said.

Developments for budget hotels will be squeezed outside the center, into the periphery or near the MKAD, he said.