Hotel business in Ukraine: market review | Sale of business

...this sector of entrepreneurial activity. In fact crisis — not eternal, as, however, prices falling at the hotel real estate market is not eternal as well.

An avidity ruins...

Hotel business come up to the crisis beginning in a successful enough form — after the removal of abundant skins from a basic resort and even (partly) so called «velvet» seasons, passing in 2008 on the former prosperity inertia. Nevertheless, already on December beginning, currency panic, general economic instability and related to these unpleasant phenomena, numerous refuses of winter rest, compelled the hotels proprietors to become very thoughtful.

There were only two exit ways out of the created situation: try to attract clients with additional discounts and bonuses or, while it was not late yet, propose business for sale. What about the first, even the 30%-e decreasing of hotels filling during Christmas vacations did not compel their owners towhip off prices substantially. It should be added further more, that such tendency — not to yield but also peak prices up, in order to compensate clients number diminishing, saved up to present time.

What about the hotels sale propositions, as InterCredit had already reported recently, from February up to beginning of May their number remained practically unchanging (9,0% - 9,5%) from the incurrence of the all business-objects offered for sale.

Then (after the traditional «vacations» of the first ten-day period of May), market came a little bit alive— having a presentiment of considerable reduction in summer, many owners of mini-hotels, situated out of resort areas ( in general, far from seas, rivers and lakes) and oriented, mainly, for business-tourism, proposed them for sale.

The general increase of such propositions in the second half of May — beginning of June, 2009, reached 1,5% and, so the hotel enterprises sector at the operating business market broadened to 11%. The least considerable still there was hotel business-objects increase in South-East, and South (coast of Azov and Black Seas, Crimea peninsula), and also in the Western Ukrainian regions (Carpathians, Trans-Carpathians, etc. ), and the most active — in the industrial East.

From the second half of June, the influx of the new sale propositions expectively went down till about a zero. Moreover, some owners of hotels, already proposed for sale, began to think seriously about postponing this activity to the end of resort season, with the proper price increasing. However the current hotels filling data in the South and Western basic resort districts (-35%-40% in the middle of May and -20-25% to the middle of June — as compared to the analogical indexes of the past year) does not give the grounded enough base for such optimism.

Thus, it is possible to expect further sale propositions growth in this sector already from the second ten-day period of August. However it`s could not be spoken about a substantial price-cutting — anyway, hotels will come up to the autumn with some financial «fat», successfully cooked from Ukrainians, looking for the rest despite of crisis.

Hotels: geography and price

As for the other business-objects, hotel prices are considerable dictated by the geography. However, it should not be supposed that sea or small, but personal lake absence straight under the windows , will undercharge them considerably.

It should be noted that most variants are presented by the objects of ekonomy+ and business-class or officially certificated as a 2-3 stars hotels. The market analysis shows, that small hotels so called «ekstra-economy» class — with the minimum comfort level — have greater vitality (and accordingly, are rarer offered for sale).

Exemplary picture of current prices could be got, familiarizing with this type company descriptions, verificated by the Intercredit company specialists. Costs of such objects, depending on a location and the comfort level, now are waving hesitates in the followings limits:

Southern regions — from $700 thousand (recreation base on the Arabatskaya cape, Crimea), up to $1 million 500 thousands – for recreation complex on the resort Sergeevka, Odessa region.)

South-Eastern regions — from $1 million 200 thousand (hotel in Zaporozhie), up to $1 million 600 thousands (hotel complex ashore of Azovsea , in Kirillovka, Zaporozhie region.

Western regions — from $480 thousands (the recreation base in Ivano-Francovsk region), up to $3 millions 200 thousands (hotel-health complex in Truskavetsk city, Lvov region)

North-East and East regions — from $600 thousands (the recreation base in Sumskoy reg.), up to $3 million (4-stars hotel complex in Krivoy Rog city).

As for hotel kompleksts in Kiev, here prices reached $10 million and higher.

To buy, or not to buy?

In an order to estimate the prospects of hotel business in Ukraine, we shall appeal to the past for a minute — to know, with what to compare. So, in the last pre-crisis (2007 year) the volume of services realization, given by the hotels and other objects for a short-term residence in Ukraine, made 2 milliards 47 million Uah (+ 35% as compared to 2006)

An average annual hotels load index in Ukraine was 30%. Thus, the minimum use of the hotels capacity — 9%, was fixed in Lugansk and Nikolaev region, and maximal — 78 % — in Sevastopol. In Kiev this index was 40-60%.

The preferences of foreign tourists were as follows: Kiev (36,1%), Crimea (10,4%), areas: Lvov (9,1%), Odessa (5,3%), Dnepropetrovsk (5, 3%), Kiev region (4,2%), Donetsk (4,0%). Mean time of one stay made in hotels: for business-tourists — 2,6 -3,0 days, for resort-recreation tourism lovers — 5,5 — 8,0 days.

A crisis corrected these figures, generally attractive for a potential investor. So, already from preliminary data for 2008 (which, as we marked already, practically did not touch the basic seasons of hotel business), 15-17% falling was fixed in this sector. However, the crisis isn`t eternal, and experience prompts, that with the beginning of economy stabilization (which most the optimistically adjusted experts predicted in the second half of 2010 ) recreation& entertainments industry (and direct-coupled with them hotel sector) are simply doomed to growth.

It is shouldn`t be forgot about the business- tourism, which is much less subjected by the seasonal vibrations, then resort&recreation tourism. On the average, corporate business-tourists maintenance brings hotels a to 40 - 50% profit and could lead to considerably increasing of their competitiveness.

Expected post-crisis investment flaws increasing in Ukraine, will stimulate the first class hotel complexes development, including the all infrastructure for the negotiations process. It should be noted, that the charges on the business trip, on average, are three times higher than the ordinary tourist`s expenses.

And, finally, Ukraine has all warrants for participating in Euro-2012 matches organization — that means on participating in event, which, at a successful coincidence, can become embodiment of any hotel`s proprietor all life odream.

Specialist comments...
«Now the complete lull is in the hotel business segment sales in Ukraine and a greater number of the new objects, arriving the market, could not be expected before autumn, — considers Valery Zeregelya, the director ofInterCredit company.

Дast months our company have got, mainly, the sale propositions from the proprietors of new hotel business-objects, put into an operation in 2008-2009, which had not time to provide oneself the produced clientele. Owners of other hotels, worked at the market longer, setting their sale aside till autumn».