Mr. Nikolay MaygerIn the Ukraine, the hotel sector still stays one of the most promising branches of the country economics. Positive dynamics of development of this sector is conditioned, firstly, by the rapid growth of the Ukrainian services industry. In 2006 Ukrainian services industry enterprises realized services to the amount of 103,8 billion UAH, which is 12,3% higher than the same index in 2005. The average amount of the realized services in Ukraine at one worker of the branch was 59 000 UAH. The highest amounts of the realized services were recorded in Kyiv (134 200 UAH), Odessa region (76 400 UAH) and Crimea Autonomous Republic (51 900 UAH). Development of the hotel industry is also directly influenced by positive dynamics in the tourist sector. In 2006 Ukraine was visited by 18,9 million foreigners. This figure shows that the entering tourist flow increased 7%, as compared with 2005. Despite such favourable conditions the indices of development of the Ukrainian hotel sector may be characterized as quite contradictory.
In 2005, the amount of capital investments in hotel industry came to 0,18 billion UAH, while in 2006 this index was almost twice as high. Meanwhile the number of hotel places for 1 000 citizens in Kyiv, foe example, is twice smaller than in Moscow, and 7 times smaller than in Paris. According to the incomplete official statistics there are 1232 hotels in Ukraine, though these figures shouldn’t be misunderstood. According to the European standards, only 8 500 hotel places in Kyiv (out of the total number of 15 000) meet the requirements of 3-5 star hotels. Of course, this fact strongly attracts foreign investors to the Ukrainian market. In 2007, the Ukrainian hotel market announced a record number of projects. However, will all of them be realized?
According to the Regional Development Department of the State Tourism and Resorts Service, at present there are 1 232 functioning hotels and 3 245 health centres in Ukraine, 1 064 of them are certified.
In Ukraine, there are 6 five-star hotels, 29 four-star, 74 three-star, 43 two-star, 41 one-star and 872 hotels without a category. Two of the five-star hotels are in Dnipropetrovsk, two are in Kyiv, one in Donetsk and probably two in Odessa (this uncertainty is caused by the discrepancy between the national and the international classifications; different sources declare Otrada Hotel and Arcadia Plaza Hotel as 5-star hotels). Nine of the 4-star hotels are in the Odessa region, six are in Kyiv, four in the Dnipropetrovsk region and four in the Lviv region, three in Crimea, three in the Donetsk, Zakarpattya and Poltatva regions.
Though the demand for the high-quality hotel service still greatly exceeds the supply, the year 2006 showed that the pace of development of the hotel industry is much lower than it had been expected. Out of all the announced events in Kyiv only one was realized – setting into operation the Opera Hotel, financed by System Capital Management.
According to the information of the State Tourism and Resorts Service, at the beginning of 2007 there are 2 five-star and 6 four-star hotels working in Kyiv. The level of fillability of these functioning hotels came to 60% last year, at the average room price about 300 euros for 24 hours. In 2006, the amount of this market segment was valued at 80-110 million USD. Kyiv will need at least a dozen of new hotels (3-star and higher) with the total number of about 2500-3000 rooms. If Ukraine wins the tender to host the European Football championship in 2012, there should be no less than 10 five-star hotels in the capital. Such famous international hotel operators as Radisson SAS, Intercontinental Hotel Group, Hayat, Hilton, Rixos, etc have confirmed their interest in the Ukrainian hotel market. At present, there is only one hotel network in Ukraine – Premier Hotels (Premier International Ltd.). It includes Premier Palace Hotel (Kyiv, the first five-star hotel in the country), Oreanda Hotel (Yalta), Dnister Hotel Complex (Lviv), Star Hotel (Mukachevo, the former residence of the Austro-Hungarian Earl von Sherborn), Cosmopolit Hotel (Kharkiv), four-star Londonskaya Hotel (Odessa).
As well as the lack of luxury hotels, the problem of quality of services stays quite relevant. Only 50 of 170 Kyiv hotels (most of which are in state or community property) provide high-quality services that meet the requirements of the national classification. The rest of them are not certified. However, even in certified hotels the number of stars meets neither the national requirements, nor the international standards. For example, Radisson SAS Kyiv meets the four-star international standard, while Dniepr Hotel, Zhemchuzhina Dniepra, Natsionalny Hotel and President Hotel Kyivsky are rated as four-star hotels according to the national requirements. The latter may not completely meet the international standards. However, the quality lower than it is claimed is usually the feature of two- and three-star hotels. It is caused by the fact that the Ukrainian system of hotel certification has a number of drawbacks. Officially, in Ukraine there is the Ukraine-adapted European hotel classification. In fact, however, the methodology of evaluation is different for every particular situation. The requirements as for quality of equipment, as well as for the level of personnel training, are not always taken into consideration. The authorized agencies usually play an important part in this process: every region has its own standardization and certification center, as well as bodies accredited in the UkrSEPRO Quality Certificates System.
In 2007 it is scheduled to set into operation in Kyiv five high-capacity hotels, including Svyataya Sophia Hyatt Regency Kyiv (5-star), Zolotie Koupola (5-star), International Hotel Complex (four-star). In 2008 it is planned to set into operation two more high-capacity hotels: Hilton (270 rooms and 150 apartments), an international class hotel complex at 14-B Luteranskaya Str.(four-star hotel, 104 rooms).
In 2009 it is scheduled to set into operation four multi-seater hotels: Leipzig (five-star hotel, 209 rooms), a five-star hotel complex at 21, Naberezhno-Khreschatitskaya Str. (371 room), the administrative hotel complex Pan Ukraine (104 rooms), a hotel-residential complex 92-B, Glushko Avenue (100 rooms).
The important thing to notice is that the above-mentioned projects are going not only to increase the volume of the Kyiv hotel services, but to improve the level of their quality as well.
Despite the fact that the Kyiv market of luxury hotel services is forecasted to be satiated in 7-10 years, the territory of the Kyiv region is still being actively examined by hotel operators: Radisson SAS are planning to build a five-star hotel not far from the Boryspil airport; Hares Group are going to build a hotel in the Kozin village (Obukhiv district of the Kyiv region).
Besides the numerous projects in the capital, the plans of setting into operation new hotels were announced by the largest regional centers: Zolotoy Kolos company have informed the public about their intentions to create a hotel complex Gostinny Dvor in Dnipropetrovsk. At present, according to the information of the official Dnipropetrovsk web-site, there are 10 four- and five-star hotels in the city.
The southern region stays one of the most promising in the sphere of the hotel business development – favourable climate and developed infrastructure of the southern region provide constant tourist flow and, correspondingly, make its hotel sector very attracting for investors. In Crimea there are about 50 hotel enterprises today, in Odessa there are about 30 of them. London Hotel, positioning itself as a four-star hotel, was opened in Odessa in October 2006.
Speaking about the western region, the leader of the development dynamics of the hotel industry is Lviv. In April 2007 the presentation of the Leopolis Hotel took place in Lvov; Orbis SA company, having already a hotel network in Poland, have announced the opening of two three-star hotels in Lviv in 2007-1009.
The important thing to mention is the fact of the constant struggle of hotels for foreign and well-off Ukrainian tourists. As for tourists of modest means, their demand can be fully satisfied by the networks of mini-hotels, which Ukraine lacks the most. At the same time, any European city provides a sufficient number of mini-hotels, as well as large hotels.
It is obvious that these days the projects of reconstruction of old hotels and creation of new ones have activated greatly in Kyiv and in regions. Though, in this sector of commercial real estate there was no such boom as it could be observed in the development of trading and office infrastructures.
As for the reasons of such a slow pace of development of the Ukrainian hotel market, they are numerous. Among such reasons there is government control, which is far from perfect, out-of-date technical equipment, low quality of services, lack of qualified staff. The absence of the sufficient financing of the state property objects also affects badly the whole process of development. Today, some of the foreign companies are interested in investing in the projects of hotels construction, though they face numerous problems, such as the lack of constructible land, lengthy procedures of land allotment and permitting, as well as hotel tax which amounts to 20% in the capital.
It is obvious that the Ukrainian hotel sector goes further and further in its development. After examining local market conditions for a long time, foreign investors step forth with their projects of hotels of various categories, while Ukrainian hotel operators, becoming experienced enough in the mini-hotels sector, provide decent competition to the participants of the world hotel market. And now it is possible to say that if the Ukrainian authorities make advance to local and foreign investors, the Ukrainian hotel market will soon reach its bloom.
In general, such Ukrainian regions as Kyiv, the Carpathians, Lviv, Odessa, and Crimea are the most promising areas for the hotel business development. The highest development rate is in Kyiv. In 2005 there was an opening of the first network hotel Radisson; Opera Hotel was opened in December 2006. In March 2007 it is scheduled to set into operation HYATT, though it may be as well opened in Autumn. The Intercontinental Hotel is now in the process of construction just opposite the Sophia Square in Kyiv. Hilton and Accor networks are also very interested in Kyiv – they consider investing in the capital of Ukraine to be profitable. As for other regions, the Lviv city administration have provided seven land areas in the centre of the city for the hotels construction. It is probable that the appearance of new hotels depends greatly on the future legislative basis of Ukraine. At present, most of the investors are held back by the lack of coordination in the legislative basis, as well as the nonsystem of its development. Investors are afraid of the probability of sudden changes that may happen after they have entered the market with their investments. If that’s the case, they may face the threat of great losses. If the Ukrainian legislation is loyal to the foreign capital, it is the hotel business development that will have the largest number of investments.
Nikolay Mayger is the founder and the president of Mayger Consulting Company, a Ukraine-based firm established in 2000 by highly skilled team of business and finance experts. The company is a member of the International investment forum "Ukraine-Germany", as well as the founder of the audit company "Ukrugaudit" Ltd. He serves as a member of the Ukrainian Union of industrialists and businessmen, and represents the Ukrainian Business Assistance Network and the Federation of employers of Ukraine. Mayger Consulting Company is an affiliate of the Fin Group. Mr Mayer serves as the Chief of the supervisory board of Commercial Bank, and is President of the Regional Agency of the Ukrainian National Committee of International Chamber of Commerce. He can be contacted at +380-482-343-333 or commerce@maygerconsulting.com
