By Irina Podsushnaya

Vladivostok is Russia’s largest port on the Pacific Ocean and home to the Russian Pacific Fleet.

The hotel industry in the city of Vladivostok is expected to expand dramatically in the next several years. This growth will be driven by three major factors that will require increased and updated hotels and services: 1) the 2012 APEC (Asia-Pacific Economic Cooperation) Forum will be held in Vladivostok, 2) the steady growth in the number of tourists to the Russian Far East, and 3) the revival of economic cooperation between Western and Eastern regions of Russia. The Vladivostok city administration is looking for hotel management companies and hotel chains to provide hotel operational and management services for 3-, 4-and 5-star classes of service.

Vladivostok

Vladivostok is Russia’s largest port on the Pacific Ocean and home to the Russian Pacific Fleet. With a population of 605 400, and total territory of 561 500 sq. meters, it is one of the largest cities in the Russian Far East. It is the administrative center for the Primorsky territory. Vladivostok has been identified as the host city for the 2012 APEC Forum. The Russian Government has launched a comprehensive plan to redevelop the area and its infrastructure in preparation for the Forum.

Vladivostok is one of the major urban cities in the Russian Far East; there are nine universities with 70 500 students, four theaters, five museums, 30 libraries, 33 hospitals with eight thousand beds, and 148 clinics. Its top three employment sectors are retail, transport, and construction.

In 2007 the average income was 15 thousand roubles (535 USD) per month; in the beginning of 2008 total number of unemployed was 2 700 (women accounted for 68.4%, young people between the ages of 16 – 29 accounted for 33.6%).

In the beginning of 2008, unemployment among the male population accounted for 282 400 or 46.6% of the total population, while the female population accounted for 323 000or 53.4%). Men between the ages of 0-16 years old accounted for 14.5% of the total male population, those between the ages of 16-59 years old accounted for 73.7%, and those older than 59 accounted for 11.8%.

Women between the ages of 0-16 years old accounted for 12% of the total women population, those between the ages of 16-54 years old accounted for 61.1% and those over 54 years of age accounted for 26.9%.

31 600 foreign tourists visited Vladivostok in 2007, 86% were tourists from China, 6.5% from Japan, 5.7% from the United States, and others were from Korea, Singapore, Thailand, Australia, and European countries.

2012 APEC forum

As already noted, the next APEC Forum will take place in November 2012 on Russky Island, just off the coast of Vladivostok.

According to the Vladivostok city administration, this event will bring approximately 12 000 travelers from foreign governments, press agencies, businesses, and tourists to the region.

According to the federal program “Development strategy of social-economic development of the Russian Far East and Zabaykalye up to 2013” and “Development of Vladivostok as a center of Asian-Pacific business” the Government is allocating 100 billion roubles (USD 3.71 billion) from the federal budget, 10.8 billion roubles (USD 357 000) from the local budget, and the rest from private investments to build and reconstruct 54 projects in Vladivostok and Russky Island.

The program is aimed at integrating the Russian Far East into the Russian and international economy and making it a prosperous region.

The program includes reconstruction of the Vladivostok airport (international terminal and runway), construction of a bridge from Vladivostok to Russky Island and across the Golden Horn Bay, construction of modern Western style hotels, business centers, a federal university, as well as reconstruction of roads, the sewage system, in addition to sports and cultural facilities. It is anticipated that bridges and other infrastructure projects will be completed by 2012 in time for Vladivostok to host the APEC summit.

According to the media, the Russian government has recently approved doubling the federal budget to 203 billion roubles (USD 7.25 billion).

Market demand

According to the Vladivostok city administration, there are currently 37 lodging facilities in Vladivostok offering 2 508 hotel rooms. The regional hotel industry includes hotels ranging from the very expensive ones with the full range of services to the less expensive hostels. Vladivostok, as the Primorsky Territorial administration center and a regional business hub, has the highest number of comfortable hotels in the Russian Far East, including three and four-star hotels.

Although it is used worldwide, the internationally recognized “star” classification differs from country to country in the level of service, room furnishing, location, etc. In Russia, star-rated hotels emerged in 1995, after the adoption of a GOST (State Standard) hotel classification system.

The GOST standard also includes a classification by size. The hotel business practice classifies hotels into four major categories – small hotels with less than 150 rooms, middle-size hotels with 151-300 rooms, large hotels with 301-600 rooms and hotel-giants with over 600 rooms.

Only nine hotels in Vladivostok have a star category. Though there are enough budget style hotels, there is a general lack of modern, western-style 3– to 4– star hotels and no 5 star hotels at all.

List of Vladivostok hotels:

Hyundai hotel. Superior Business. Business-style hotel located downtown, has a fitness center, pool, sauna, 2 restaurants, coffee-shop, bar, business-center. Offers conference facilities and offices for rent. Built in 1997, renovated in 2007. 234 rooms. Managed by Hyundai corporation (Korea).

Versailles hotel. Business. Business-style hotel located in a historical building in the heart of downtown. Has a restaurant, coffee-shop, art gallery, business center. Offers conference facilities. Built in 1908, renovated in 2007. 42 rooms.

Akfes Seiyo Hotel. Moderate Tourist. Business-style hotel located 20 minutes from downtown. Has a restaurant and offers conference room facilities. Built in 1978, renovated in 1993. 35 rooms.

Gavan hotel. Moderate Tourist. Business-style hotel located 10 minutes from downtown. Has two restaurants, bar, fitness center and pool. Built in 1993, renovated in 2006. 57 rooms.

Vladivostok hotel. Moderate Tourist. Tourist hotel located in the heart of downtown. Has restaurant, bar. Built in 1975. 419 rooms. Part of the “Azimut” network of hotels.

Visit-Vladivostok hotel. Moderate Tourist. Is located on the 4th floor of the Vladivostok hotel. Renovated in 2005. 35 rooms.

VIad Inn hotel. Business. Business-style hotel located outside of the city in a recreational zone, 45 minutes from downtown. Has restaurant. Built in 1993, renovated in 2002. 45 rooms. Managed by a Canadian.

Shale hotel. Business. Business-style hotel located 5 minutes from downtown. Has coffee-shop. 18 rooms.

Renaissance hotel. Business. Business style hotel located 10 minutes from downtown. Built in 2001, renovated in 2005. 27 rooms.

Story hotel. Superior Budget.Budget hotel located in 20 minutes from downtown, outside of the city. Has sushi-bar. Built in 2004. 20 rooms.

Albatros hotel. Superior Budget. Budget hotel located outside of Vladivostok in recreational zone. Has restaurant. 18 rooms.

Ostrovok hotel. Superior Budget. Budget hotel located 15 minutes from downtown. Has restaurant and coffee-shop. Built in 2003. 51 rooms.

Ekvator hotel. Superior Budget. Budget hotel located in downtown. Has restaurant, offers conference facilities. Built in 1988, renovated in 2007. 130 rooms.

Moryak hotel. Superior Budget. Budget hotel located 5 minutes from downtown. Has a coffee-shop, sauna. 100 rooms.

Amursky Zaliv hotel. Superior Budget. Budget hotel located in downtown. Has restaurant, offers conference facilities. Built in 1988. 215 rooms. Part of the “Azimut” network of hotels.

Korona hotel. Superior Budget. Budget hotel located 10 minutes from downtown. Has restaurant. Built in 2002. 29 rooms.

Meridian hotel. Superior Budget. Budget hotel located 15 minutes from downtown. Coffee-shop, sauna, and pool. Built in 1979, renovated in 2007. 140 rooms.

Primorye hotel. Superior Budget. Budget hotel located in downtown. Has restaurant, sauna. Built in 1964, renovated in 2005. 113 rooms.

Lesnaya Polyana hotel. Superior Budget. Budget hotel located in 30 minutes from downtown in a recreational zone. Has restaurant and coffee-shop. 25 rooms.

Soyuz hotel. Superior Budget. Budget hotel located 30 minutes from downtown in a recreational zone. Built in 1976, renovated in 2008. 69 rooms.

Rial hotel. Superior Budget. Budget hotel located 15 minutes from downtown. Has coffee-shop. Built in 2006. 25 rooms.

Chayka hotel. Superior Budget. Budget hotel located 10 minutes from downtown. Built in 1972. 100 rooms.

Slavyanskaya hotel. Superior Budget. Budget hotel located 10 minutes from downtown. 44 rooms.

Granit hotel. Superior Budget. Budget hotel located 10 minutes from downtown. Built in 1989, renovated in 1994. 88 rooms.

Zolotoy Drakon hotel. Superior Budget. Budget hotel located 10 minutes from downtown. 70 rooms. Mostly occupied by Chinese tourists.

Lesnaya Zaimka hotel. Superior Budget. Small budget hotel located 35 minutes from downtown in recreational zone. 5 rooms.

Zarechnoye motel. Superior Budget. Small budget hotel located in 35 minutes from downtown in recreational zone. Built in 1971, renovated in 2002. 24 rooms.

Bely Lebed hotel. Superior Budget. Budget hotel located15 minutes from downtown. Built in 1971.46 rooms.

Rus hotel. Superior Budget. Budget hotel located 20 minutes from downtown. Built in 1989. 45 rooms.

lzumrud hotel. Superior Budget. Budget hotel located 20 minutes from downtown. 52 rooms.

Malenkaya Venetia hotel. Superior Budget. Budget hotel located 5 minutes from downtown. 33 rooms.

Gostinitsa na Gaidamake hotel. Superior Budget. Budget hotel located 5 minutes from downtown. Built in 1957. 42 rooms.

Hotel by Primoravtotrans company. Superior Budget. Budget hotel located 15 minutes from downtown. Built in 1978, renovated in 1996. 40 rooms. Belongs to Primoravtotrans transport company.

Ararat Hyatt hotel. Superior Budget. Budget hotel located15 minutes from downtown. Renovated in 2005. 10 rooms.

Strannik hotel. Superior Budget. Budget hotel located 15 minutes from downtown. Built in 1974, renovated in 2003. 15 rooms.

Sadko hotel. Superior Budget. Budget hotel located 15 minutes from downtown. Built in 2003, renovated in 2008. 17 rooms.

Yakor hotel. Superior Budget. Budget hotel located in 15 minutes from downtown. Built in 1969, renovated in 2005. 30 rooms.

Market trends

According to official statistics provided by the Primosrky branch of the Russian state statistics committee, in 2007 business travelers accounted for 59.3% and tourist travelers for 29.8% of visitors to Vladivostok. Remaining travelers visited Vladivostok for medical treatment (0.1%) and other purposes (10.7%).

78.6% of all travelers to Vladivostok came from Russia and 21.4% from abroad.

Top Russian and foreign business travelers prefer to stay at the only 4-star hotel and business center, Hyundai. Though considered expensive with a single room rate of USD 220, the room occupancy rate even during low season is no less than 70%. The hotel offers the biggest conference and seminars facilities in the city.

Versailles hotel, located right in the heart of downtown in a historical building, close to the main city attractions gets the attention of a big number of business travelers as well.

Akfes-Seiyo and Gavan hotels both compete with Hyundai and Versailles hotels by offering moderate prices, fitness and conference room facilities. These hotels are often used for various negotiations, presentations and seminars.

Budget business travelers and tourists choose more affordable hotels like Primorye, Vladivostok, Amursky Zaliv, and Ekvator. These hotels were built during Soviet times and have been recently renovated, offering better service and rooms.

VIad Inn, managed by a Canadian citizen offers a modern Western-type motel, situated outside Vladivostok in a clean recreational zone. The hotel is usually occupied by foreign tourists and runs a very popular restaurant.

Recently built hotels, like Ostrovok, Rial, and Story, attract budget business travelers and tourists. Even though there are enough hotels for all types of tourists, all hotels face a problem of occupancy rate which is 95% during high tourist season (May-October) and 40% during low season (November – April). The most occupied hotels are 2– to 3– stars with an average room rate USD 45 –

USD 150. However, high prices in comparison to Western budget hotels, poor interior, bad technical condition and lack of qualified personnel are constraining factors for tourist flow to the region.

Bed and breakfast hotels

Recently, new private bed-and-breakfast-style hotels, usually 2-3-stars (such as Renaissance or Shale) were built offering affordable prices for their guests. These B&Bs are flexible to customer needs and have a system of discounts. These B&Bs are comfortable, have good food and are clean and safe. However, their remoteness from the city center, busy traffic and limited room availability leads to low volumes of sales. Because of competition, lodging rates cannot be easily increased. In order for these small-size properties to be competitive, there will need to be an industry consolidation and small hotel chain development across the whole region. The rate for a single room in these hotels ranges from USD 100 to USD 160 per night.

Competition for customers

In order to survive and compete for guests, hotels offer additional services to clients, such as business centers, sports, and recreational facilities. Web-sites and an opportunity to reserve rooms on-line are also effective tools in attracting customers. Good restaurants are also crucial especially during low seasons. A number of Vladivostok hotels have web-sites both in Russian and English.

Currently, there is another trend of transforming housing complexes into hostels that provide accommodations for 15-20 people, requiring less operating expenses. Demand for this type of lower-quality and low-cost lodging is high among some socio-economic groups.

Foreign influence

The most comfortable hotels in the region were built with the assistance of foreign capital. These hotels strive for an international standard of services. As previously noted, some examples are the Canadian VIad Inn hotel located in the suburbs of Vladivostok, and the Korean Hyundai hotel, which also offers offices for rent and facilities for holding conferences. The Hyundai’s suitable location in downtown makes it a destination for business travelers, international businesses, such as DHL and Mars, as well as a popular place for briefings, presentations, and seminars.

Azimut management group is the first Russian hotels management operator that manages its own chain of business-type hotels in major Russian cities, like Astrakhan, Vladivostok, Kostroma, Murmansk, Samara, St. Petersburg, and Ufa. Two local Vladivostok hotels, “Amurskiy Zaliv” and “Vladivostok” are members of the Azimut group hotels.

New developments

While today Vladivostok hotels generally satisfy the needs of incoming guests, there are not enough rooms available to host the expected number of participants during the 2012 APEC meeting.

It is expected that Vladivostok will build five 5-star hotels and seven 3– and 4-star hotels with a total capacity of 500-1000 rooms accommodating about

12 000 visitors. Officials also expect that the number of incoming tourists will increase by three to four times within the next five years and by 2015, will reach 1 million tourists.

Here are two sample hotel construction projects the city administration is planning to implement:

4-star hotel at Burniy Cape for 300 guests

Project Investments: – 0.5 billion roubles

Time of construction: 2007-2012

Financing: private investments (85%) and Vladivostok municipal budget (15% – by land as an asset investment)

Hotel and business center on Komarova street

Project Investments: 0.11 billion roubles

Time of Construction: 2008-2012

Financing: private investments (90%) and Vladivostok municipal budget (10% – by land as an asset investment)

Unfortunately, Vladivostok’s short and rainy summer and a lack of cultural and tourist attractions in the region make it a difficult to attract some tourists. Construction of multi-functional entertainment complexes, aquariums, stadiums, concert halls, and museums should be the next step in infrastructure development, not to mention tailoring tours for the one billion-person market in China, just across the border.

Need for management services and training

The regional hotel market remains a risky sector for investment due to changing legislation, corruption and political uncertainty. A low margin in the hotel business is also one of the main constraints. However, city leaders appear determined to make APEC a success and to use APEC not only to improve and add infrastructure, but to fundamentally change the character of the city. Despite the global economic situation, the Russian economy will recover and there will continue to be a need for more hotel services. Provision of training, consulting and hotel management services may be a safe market entry strategy and can provide good margins given lack of competition. Existing hotels will need personnel and other types of training, as well as consulting services to bring the service standards to the level which foreign tourists and affluent businessmen expect.

Opportunity for U.S. hotel chains

Well-known U.S. hotel chains like Marriott, Hilton, and others have an opportunity to increase their presence in the Russian Far East. Mid-priced U.S. hotel chains have excellent reputation with Russian business travelers and will undoubtedly find a market in Vladivostok during and after the APEC meeting. This growing market offers many opportunities for suppliers of goods and services to the hotel industry. Hotels under construction and renovation will require a wide range of equipment from beds to glassware.