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24.02.2012

Central Asia: Emerging Markets with High Growth Potential

Experts of Jones Lang LaSalle Hotels participated in the Central Asia & Turkey Hotel Investment Conference (CATHIC) 2012 in Istanbul. At CATHIC Jones Lang LaSalle Hotels presented the Central Asia hotel market research and focused on Baku - the most rapidly developing market of the region.

Highlights:

•  The hotel market in the region is still at early formative stages, with approximately 8,000 modern quality rooms in operation and about 9,000 – at various stages of development.

•  All major international hotel operators are already present on the Central Asian market.

•  Baku is the most actively developing market in the region. By the end of 2011 there were approximately 6,400 officially registered hotel rooms, of which less than one-third (1,700 keys) were of modern quality.

•  The market saw an unusual splash of activity in 2011, when the modern hotel stock nearly doubled. Over next four years the market expects its current room stock to double again and reach 3.4 thousand rooms.

•  At the same time, the trading indicators of the Baku hotels have been demonstrating negative dynamics the last several years. Urgent measures are needed to prevent the modern quality hotel market crash and the state should take a pro-active role in solving this problem.

What is Central Asia

Central Asia is a term usually referred to the Southern republics of the former USSR: Armenia, Azerbaijan, Georgia, Kazakhstan, Kyrgyzstan, Turkmenistan, Tajikistan and Uzbekistan. The territory it covers is vast (over 4 million sq. km) with about 80 million people living there.

In spite of the countries’ differences, their economies generally rely upon natural resources (mainly, oil & gas). Another special feature of the regional economics is that it is rather independent from the impacts of the global economy. That is why the majority of Central Asian countries (with the exception of Azerbaijan and Kazakhstan) had survived the 2008 economic slowdown rather well.




Hotel Market in Central Asia

The hotel market in all countries of the region is still at early formative stages, with approximately 8,000 rooms of modern quality in operation and about 9,000 – at various stages of development.

Marina Usenko, Executive Vice President, Head of Jones Lang LaSalle Hotels Russia&CIS, commented: “The Central Asian market is so young that there are still no professional domestic hotel operators, thus most modern quality properties are managed by the global hotel chains. All major international operators have entered the market with their key luxury brands – even those ones that do not have functioning properties in Russia. As a rule, high level hotels are concentrated in the capital cities, centres of gaming activity (Batumi, Georgia) or in places close to natural resource extraction areas such as Aktau and Atyrau in Kazakhstan.




Active development of the Central Asian hotel market provides the international chains with wide opportunities. While at the early stages of market formation some operators were prepared to invest to put up their flags in these new countries (e.g. the Hyatt hotels in Baku and Bishkek), now most of them prefer acting on the basis of straightforward management agreements.

Marina Usenko added: “Hotel operators should be prepared for the local market peculiarities and potential “surprises” including the need to co-invest in construction and share responsibility with the owners. The Central Asian market offers excellent opportunities in various hotel markets to operators who are ready to accept the local rules of the game and take risks”.

Baku: Story of a Market Which Exploded

The Azerbaijan economy greatly depends on oil & gas exploration – over 50% of the country’s GDP is formed by this sector. As a side note, Russia’s dependence upon its oil & gas extraction is less than half of that, but this still raises huge concerns of the government and the global economic advisors.

Considering the above, it is hardly surprising that in terms of demand, the main purpose of visitors coming to Baku is business-related. 46% of hotel-accommodated quests are officially there on business, in modern quality hotels that number may be twice as high. Nevertheless the official stats put the number of business-related visits only at 30%.

Marina Usenko noted: “Baku hotel business is very dependent upon international travel – domestic citizens are less prone to staying at hotels (preferring to lodge with their relatives). In terms of who is coming to Baku, the most important feeder markets are Turkey (21% of hotel guests in 2010) and Russia - 14%, with the 3rd place shared between the UK and USA. Most of them are business professionals working in oil and gas industry.”




The hotel market in Baku is rather small. Its total stock amounts to 6,400 officially registered hotel rooms, of which less than one-third (1,700 keys) can be considered modern quality. The majority of modern hotels in Baku were built mostly over the previous decade being managed by international hotel operators.

Marina Usenko said: “The Baku hotel market has seen an unusual splash of construction activity in 2011, when the modern hotel stock nearly doubled, having increased from 900 to 1,700 rooms. At the same time, however, hotel operating indicators were demonstrating negative dynamics. From the average of nearly 70% in 2005, hotel occupancies dropped to 40-45% in 2009-2010, with no change registered in 2011. The same negative dynamics was with the RevPAR indicator from the high of $130 in 2005 to $85-95 in 2009-2010.

What is alarming is the sheer volume of the hotel stock in the development pipeline. Between 2012 and 2015, the market expects its current room stock to double again and exceed 3,400 rooms - mostly through the arrival of 5-star quality properties with international brands. Urgent measures will be needed to prevent the quality hotel market crash.”




According to the experts of Jones Lang LaSalle Hotels, the state of Azerbaijan should take a pro-active role in solving of this problem. “The first-priority measure should be demand diversification. This can be achieved by focusing on the MICE segment and setting up a dedicated convention bureau which could organize large-scale exhibitions and cultural events that will allow Baku to become a new destination for international travelers. Eurovision 2012 and 2012 FIFA U-17 Women’s World Cup that will be held in Baku in 2012 will be the first step of this process. Moreover, it might be possible for Baku to turn itself into a leisure destination for the CIS citizens.

Besides, it is essential to continue modernizing the infrastructure (renovation/ expansion of the main gateway to the country – the Heydar Aliev International Airport - is in full swing now) to make it less expensive to get into Baku, - Marina Usenko specified. - All these measures are absolutely necessary for the stable work of the hotel business.”

/ Source: Jones Lang LaSalle



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