Issue 1, 2013. February-March

   

SUPPLY, DEMAND, AND TOURISTS: A SNAPSHOT OF THE TBILISI HOTEL SECTOR

The 2012 GREMO report on the hotel and hospitality sector by Jones Lang LaSalle and IPM highlighted steady growth in occupancy rates for Tbilisi hotels, and supply falling increasingly short of demand. Investor.ge spoke with hotel managers in Tbilisi about their experiences in 2012, and their expectations for 2013.

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2012: A bumper year for hotels?

The steadily growing number of foreigners traveling to Georgia is stimulating growth in the hotel sector, according to two recent reports on the industry.

Two hotel sector studies - the GREMO report by Jones Lang LaSalle/IPM and the monthly review by KPMG Georgia - both found that the number of guests is increasing, as is investments in the sector.

"According to the data provided by the Border Police of Georgia, 4,389,256 foreigners visited Georgia in 2012 - representing a 56 percent increase compared to 2011," noted the KPMG report, which cited better visa regimes with Turkey and Russia for some of the increase.

"If the political situation remains stable, a 10 percent annual increase in the number of visitors to Tbilisi in 2012-2016 is expected."

While the GREMO report noted that only 30 percent of the total number of tourists arriving in Georgia register in hotels, that number is steadily growing - meaning higher occupancy rates for hotels in 2012.

"In the past five years, the number of registered guests in accommodation facilities has almost quadrupled and reached 853,049 in 2011," it stated.

Hotels in Tbilisi note 2012 was an even better year, with occupancy rates as high as 80 percent for hotels like the Sheraton Metechi Palace Hotel, according to General Manager Andreas Heidingsfelder.

An estimated 75 percent of the Sheraton's guests are business travelers, but Heidingsfelder is optimistic about an increase in tourists, as well.

"If the political situation is stable and there is no big change, and it goes smoothly further, the tourists will come," he said. "There is so much advertisement for Georgia - unexpected advertisement, not done now by the Department of Tourism or the Ministry of Economy - it is done for the interest of country. For example in November there was one week of Georgian focus on German TV...They see that people are interested in Georgia."

More rooms, even more guests

The Holiday Inn, the newest chain hotel on the market - and the largest, was quick to find a niche in Tbilisi for its 252 beds, noted Oto Berishvili, the hotel's business development manager.

"We opened our hotel at the end of 2010... we grabbed our market share because the quality and standards and service we have is really in proportion with the price we have," he said.

"Of course, there was a huge increase in 2012 compared to 2011, because it was already our second year and we already had a lot of accounts and a lot of satisfied and loyal guests and companies."

Steady growth is bolstering demand for hotel rooms in Tbilisi, according to the Jones Lang LeSalle/IPM and KPMG reports.

The Jones Lang LaSalle/IPM report, published in December 2012, found that the number of guests staying in hotel rooms increased 140 percent over the past three years, from 2009 to 2012. By comparison, new hotel rooms have been slow to hit the market, with the number of beds growing by just 38 percent over the same period.

KPMG reported the growing demand for hotels has inspired a steady increase in investment in the sector over the past decade: there are currently five hotel projects in the works including a Hilton Garden, Intercontinental, Rixos Hotel and the Golden Tulip.

"In 2007-2011, investments in fixed assets in the hotel, restaurant and catering (HoReCa) sector in Georgia totaled $228 million," the report noted.

"Additionally, for the period of 2007-2012, foreign direct investment in the HoReCa sector in Georgia amounted to $516 million."

Based on those projects, KPMG predicts the number of hotel beds in Tbilisi will grow by eight percent annually over the next four years.

"To be honest, I think there is [room] for more hotels...I have got a feeling that the demand will grow further because it is great to do business here. If you step in, you see how many big companies have settled down here, big international global players," Heidingsfelder noted. "I believe the demand for hotels will grow."

But while the increase in tourists has been good for the industry, the sheer volume of hotel beds set to hit the market could have an adverse affect on all the hotels, Steve Johnson, the owner of Betsy's Hotel, warned.

"In 2011there was 68 percent occupancy, in 2012 a 82 or 83 percent [occupancy rate] and we really had to work hard; we have 57 rooms," he said.

"The rates are going down, down, down...With the government pushing three stars to come in, it is just going to kill everybody who is above a three star because they are going to charge $60, $65 - they are going to go to European rates."

A traveler's market

With more hotels to choose from, travelers' preferences will shape the future of the Tbilisi market.

KPMG found that out of five factors for choosing a hotel room (friendliness of staff, cleanliness of rooms, location, image/reputation, and price), travelers put more importance on the staff than any other single indicator.