EURO-2012. Hotel Business Development of Ukraine

In Chinese the word “crisis” has to meanings. First – dangerous, the second one is opportunity. Having overcome deep crisis in the 90- s caused by structural, political and economic changes of the country today Hotel market of Ukraine is investment attractive.

After the collapse of Soviet Union such world known companies as Hilton Hotels Corporation, Rezidor Hotel Group, Global Hyatt Corporation, InterContinental Hotels & Resorts, etc., showed their interest in Ukrainian hotel market. But only in 2005 in the capital the first hotel in Ukraine under international brand Radisson SAS was opened.

For the past ten years more than 150 projects in Kiev were not realized due to the absence of understanding and knowledge of the owners, accuracy and specificity of making hotel business as almost nobody professionally worked before on this market.       

2009 is a year of new possibilities. Ukrainian market is at its infant stage of development. Powerful players of the world hospitality market having financial possibilities can conquer Ukrainian market and raise it to the high level of competiveness. While efficient choice of the strategy and with support of consulting company – the local partner of  business development – it’s possible to get high profits and  safely get to the market.

As generally known the 2012 UEFA European Football Championship will be held in Ukraine and Poland. The main cities of the tournament in Ukraine are Kiev, Lvov, Dnepropetrovsk and Donetsk. Reserve cities are Kharkov and Odessa. 

State program of accommodation in Kiev to EURO-2012:

  • to build/renovate 32 hostels for 13 815 rooms
  • to create International youth centre for 15 000 rooms

Thus till 2012 in Kiev 28 815 rooms of alternative accommodation are planned to be built/renovated.

The General Plan for EURO-2012 of Dnepropetrovsk foresees renovation of 10 existing and building of 24 new hotels. Besides additional objects can be included which can enable to reach additionally 500 rooms of 5 stars, 296 rooms of 4 stars and 15 rooms of 3 stars hotels.

In Donetsk till the end of 2011 the building of 12 new hotels is planned among which 3 hotels – 5 stars, 9 hotels – 4 stars and one -3 stars, totally 2 836 (with existing one) elite rooms.  Mainly they will be reserved for UEFA inspectors, referees and teams. According to requirements of UEFA regarding 3 and 4 stars rooms Donetsk can exceed the plans (371 against 175 and 1 670 against 1 335). But there will be only 795  rooms in 5 stars hotels against 2 327 required.

 

In Kharkov for the 2012 UEFA European Football Championship 24 new hotels are planned to be built among which 6- 5 stars for 660 rooms, 8 – 4 stars for 1 200 rooms and 10 – 3stars for 2 500 rooms. And 14 existing hotels and 9 hostels of the leading Kharkov Universities should be renovated.

In Lvov 20 hotels are planed to be built for EURO - 2012.

 

The Municipal program for European Football Championship in Odessa foresees construction and renovation of 9 hotels. Besides the program of renovation of the passenger terminal was elaborated by Odessa sea port.  It enables ships to serve as the hotels.Ukraine and Poland approved number of laws and programs aiming for investor attraction. Due to EURO-2012 since the first of January, 2008 the City Council of Warsaw put exemption from real estate tax during five years for investment in hotels, boarding houses, tourist and sports activity. Due to such innovation Warsaw expects hotel increasing for 25-30 % till 2012. The tax exemption is also spread for excursion, tourist events organizers, guides, for stadiums, swimming pools, golf courses, tennis courts, bowling alleys, etc.

In turn in Ukraine is much spoken about exemption from the profit tax which belong to UEFA due to selling of marketing or media rights, import of goods and also preferential fiscal terms can be created for foreigners who are involved in EURO-2012 in Ukraine.  One more statement of the Government was assignment for Regional Administrations of the receiving cites to examine the possibility of part lowering of municipal taxes for the companies which participate in construction and preparation of the objects for EURO-2012.

It’s important to point out the Law of Ukraine “About organization and Holding of the Final Part of the European Football Championship 2012 in Ukraine”. According to the clause 5 item 3 while import of goods which are not produced in Ukraine or do not match international standards with the purpose of construction and modernization of sports objects which are included to EURO- 2012 entrance duty are not imposed. 

EURO-2012 is not the main factor of raised interest of local and foreign investors, the main one is demand which makes supply.

Profitability of 4-5 stars hotels in Kiev exceeds 40%. The average fulfillment is 60-85%.

Low pace of construction, demand for hotels jack up prices. According to Hotels.com L.P. the average cost of per room per night in Ukraine is 200 EURO that exceeds the costs in the hotels of New York, Paris, Rome and other cities.

Comparison table of pricing policy in Warsaw and Kiev:

In spite of investment attractiveness of hotel business Ukraine can not boast of considerable growth of this market and State program for EURO-2012 can be not done due to the absence of state influence on approved projects implementation.

To own the land plot and investment project – two big differences. Ukrainian businessmen often try to build the best hotel, putting unreasonable investments and think that in such way they can faster and more efficiently get the profits and raise the statues. To prove high prices for the rooms the owners use standard way of developing countries – stars raising.

As a rule marketing researches of the market and infrastructure are not made due to cost cutting and misunderstanding of its necessity. As a result the hotels are built on “cheaply bought” plots where often location doesn’t match the concept and desired stars. They make sketch projects on their wish without studies, rules and procedures of hotel business development and call it investment projects. The absence of qualitative business plan and researches is an obstacle for the project due to impossibility of financing attraction. Thereby the owners aiming to save money want to build the hotels by their own and as a result spend many years and incur losses.

Without understanding hotel business the owners of the projects involve foreign investors in the projects and as their local partners delay construction time and the projects become much more expensive.

The coming of foreign developers, investors with international management companies must considerably change existing situation on Ukrainian market. Only professionals who know the rules and procedures of hotel business development are able successfully realize hotel projects in Ukraine and conquer this market.