During the first international conference “Hotel 2006” held in Kyiv several weeks ago Ukraine was described as the most promising European country in terms of the hotel business. However, this has nothing to do with positive qualitative changes that have occurred in the domestic segment of tourism. On the contrary, Ukraine earned this title because of the near total absence of starred hotels.
Meanwhile, our country’s quantitative progress in this sphere is unquestioned. Last year two million more tourists were accommodated than in 2004. All told, 17.6 million foreigners visited Ukraine. In the next couple of years, if Ukraine wins the tender for hosting the 2012 UEFA Cup Finals, experts predict a real tourist boom. But unless the government takes appropriate steps, soccer fans will find themselves homeless during the championships.
There are 5,218 hotels registered and operating in Ukraine, mostly private ones, as well as 3,200 resorts. Kyiv has 117 hotels with 8,700 beds. Over a million people use hotel accommodations every year, one-third of whom are foreign visitors. Statistics indicate that the situation is lamentable. Experts insist that demand is three times larger than supply, or ten times in the upper segment (quality hotels).
Most hotels in Ukraine are old and designed in the strict Soviet minimalist style. Whereas we are accustomed to this kind of “luxury,” foreigners spoiled by comfort may be scared away by them forever, and no tourist attractions, whether historical monuments or resorts, will help. Meanwhile, prices for shoddy hotels are quite steep: 30 hryvnias a day for the cheapest room that can hardly be described as a hotel room, and 2,000 hryvnias at a five-star hotel in Kyiv or Donetsk.
In most cases services are lamentable. I know this from my own experience acquired during a journalistic experiment. At a hotel near the Odesa airport, guests coexisted comfortably with rats. In the average hotel hot water can be found only in a glass, after you use a compact immersion heater. Foreign guests find this indispensable object of the Soviet lifestyle especially amusing.
But not everything is that bad in our home. Lately decent hotels have appeared in Ukraine. There are only six four-star hotels and one five-star hotel in Kyiv. By world standards our capital should have more than 20 such hotels. Thus, private citizens who rent out their apartments at lower or equal rates are successfully competing with the hotel business. No one controls their activities, although there have been cases when landlords have swindled their tenants and the other way around.
Despite these shortcomings, international hotel operators and investors are preparing to access the Ukrainian market with full rights. Here they will find enough space to maneuver. Competition is practically nonexistent (the number of hotel beds available is too small for a population of 48 million) and hotel service is not advertised. Ukrainian hotel owners will find themselves in a difficult situation. Evidence of this is the experience of such “monsters” as Premier Palace and Radisson SAS. Giants like Hilton, Intercontinental Hotel Group, and Hyatt are already here. They are prepared to make investments however they can: with money, a brand name, or topnotch experts.
Anatoliy Pakhlia, head of the tourism and resort service at the Ministry of Culture and Tourism of Ukraine, who also took part in the Kyiv conference, estimates that in 2005 the sum total of investments in the tourist infrastructure of Ukraine topped 1.8 billion hryvnias. But he says this is not enough, citing the high level of corruption among Ukrainian bureaucrats as the reason behind the lagging hotel business. Foreign guests attending the conference had to agree. Christof Harle, executive vice-president of the Munich office of Jones Lang LaSalle Hotels, noted in his paper that the share of tourism in Ukraine’s GDP is a mere three percent.
“Look at Spain or Austria, where the share of tourism reaches 6.7 percent. It means that this country has great potential,” he said. The main thing that attracts foreign hotel operators to Ukraine is a desire to cater to their regular customers wherever they are. But here they encounter three purely Ukrainian problems; from the standpoint of investment attractiveness, the hotel business is not as good as the trade and office sectors. The minimum recoupment period for a four- or five-star project is at least 7-8 years. For office and trade real estate this term is shorter by 2-3 years. In other words, office and trade real estate is more attractive to an investor. Also, it does require as much care.
In contrast, foreign experts believe that the hotel business is fragile. Here one has to keep an eye on personnel and constantly upgrade design, furniture, and security systems. Andriy Nazarenko, head of Erns & Young’s real estate consulting department, notes another trend: foreign hotel operators are wary of investing in Ukraine’s unstable economy. However, they are prepared to take risks.
While foreigners look for ways to access the Ukrainian hotel market and for lots in Kyiv’s historical center (where there are hardly any left), domestic owners have no intentions to upgrade anything in their businesses. They are perfectly content with the current situation: the absence of competition and a choice for visitors to Ukraine. I wonder whom they will blame when an ambitious foreign investor appears and builds a chain of hotels in Ukraine, like the Hilton or Sheraton.
