The Lotte Hotel Moscow on Novinsky Boulevard, which recently opened its doors in the heart of the city, is likely to be a successful project that highlights, yet again, how construction of luxurious hotels remains more attractive to developers than that of mid-range hotels.

Earlier this month, Lotte Hotel Moscow, built by South Korea’s Lotte Hotels & Resorts as part of a plan to launch between five and six hotels in Russia, had its "soft opening". The hotel is set to enter full operation mode in the autumn of 2010.

"It is not just that we offer merely a luxurious hotel, which is nothing extraordinary for Moscow. We introduce a completely new product aged on European traditions but based on Eastern hospitality principles," Arie Aizenshtat, General Manager of Lotte Hotel Moscow, said in a statement. "We have tried to take best from both of the worlds and route a new hospitality niche, superior to the custom five-star level."

Experts are mostly enthusiastic about Lotte Hotel Moscow’s prospects.

"The new hotel is to be a good addition to the existing upper segment hotels, like Ararat Park Hyatt or Ritz Carlton," Alexei Mogila, director of the commercial property department at Penny Lane Realty, told The Moscow News. "Lotte Hotel is managed by one of Asia’s leading transnational corporations, Lotte Group, which guarantees quality of construction and high standards of service."

"This project is probably going to be fairly successful given the fact that the Moscow hotel market is still undersupplied," Maxim Mokeyev, executive director of Evans Property Services, told The Moscow News. "Even taking into account the global economic problems of the last couple of years, Moscow has some of the lowest vacancy rates in the world."

According to Mogila, the hotel segment remains attractive to developers both in Moscow and in Russia’s other cities. "The arrival of new projects is going to boost competition in the segment", he said, adding that in a situation when supply is limited, there is high demand for quality hotels.

"The main target demographic of Moscow’s five star hotels are Russian entrepreneurs from the country’s other regions," he said.

Mid-range hotels have little appeal to developers, as construction and maintenance costs are comparable, while return on investment is lower and the recoup period longer.

"Building a hotel in Moscow is expensive, not in the least due to rather large amounts of ‘unofficial’ payments that are required to receive all the necessary documents and permissions," explained Mokeyev. "Therefore, most developers opt for building high-range hotels to ensure that their investment is recouped within a reasonable time frame."

"Maintenance costs of a three-star hotel and a five-star one are comparable, while the price of a room at a five-star hotel is substantially higher, so profits are to be higher," Mogila added.

Source: The Moscow News