Investors Hesitant To Put Money Into Central Asian Hotels Despite Positive Trends

Investors Hesitant To Put Money Into Central Asian Hotels Despite Positive Trends

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Several Central Asia countries — sometimes collectively referred to as The Stans — have rolled out ambitious tourism industry development programs, hoping the region can gain a foothold on the global travel map.

But the future of the hospitality industry in most parts of the region remains vague due to a mix of political, infrastructural and environmental challenges.

Kazakhstan, Central Asia’s largest economy, saw significant changes in the domestic hospitality industry over the past two years, said Alexey Vishnevsky, front office manager of the Dostyk Hotel, in the country’s capital Astana.

In addition to a steady growth in occupancy and average daily rate, forward bookings have gone from being only seven days or so out a few years ago to 50 or even 60 days in 2023, Vishnevsky said.

Several factors contributed to the positive trend.

“In general, the post-pandemic period saw a hike in interest in people’s traveling … people who spent two years locked in their homes,” Vishnevsky said.

He added that the Silk Road that goes through many of the Stans’ capitals and major cities remains an iconic, epic travel itinerary for many adventurous guests.

In the region, hotel occupancy has been spurred by Russia’s war with Ukraine, Vishnevsky said. According to Kazakhstan’s government officials, Russia’s mobilization forced approximately 400,000 Russians to flee to Kazakhstan, he added.

By 2025, Kazakhstan plans to attract 2.5 million tourists per year, compared with 1 million in 2022, said Talgat Amanbayev, chairman of the government agency Kazakh Tourism.

During the first nine months of 2023, average occupancy of branded hotels in Kazakhstan stood at 60.1%, up from 52.5% over the same period in 2022, according to hospitality data from CoStar, the parent company of Hotel News Now. Average daily rate in the period jumped to €94.50 ($102.22), while revenue per available room increased to €56.76.

It’s too early to say whether hoteliers in Kazakhstan are bracing for a bright future, but positive demand trends should linger.

“Among the factors affecting the hospitality industry, general economic instability should be mentioned immediately,” said Askar Rubilov, general manager of hotel Altyn Eco Park, which is also located in Astana.

In January 2022, Kazakhstan was hit by major unrest sparked by outrage over a huge spike in gas prices, Rubilov said. During several days of rioting, administrative buildings were burned down, businesses and banks plundered, the airport occupied and even an arms depot looted.

Political turbulence remains common in Central Asia, which makes half of the region difficult to penetrate for the global hotel industry.

Neighboring Kyrgyzstan potentially could be a highly attractive market for hoteliers, but sidelining it are frequent changes in leadership, said Marina Smirnova, head of the hospitality and tourism industry department at Commonwealth Partnership, a Moscow-based consultancy.

Turkmenistan has promise as a tourism destination but remains largely closed to the outside world, Smirnova added.

“It is unlikely a large number of foreign players will queue up to pump money in most countries of Central Asia until local government establish ‘transparent and permanent rules of the game’,” Smirnova said.

She added restrictions on the purchase of land and real estate for foreign citizens need to be lifted for the hotel industry to start unraveling the region’s potential.

Occupancy figures in Kazakhstan remain solid, primarily in Almaty and Astana. In recent years, authorities have actively promoted its Caspian Sea coast among foreign travelers, although with little success, Smirnova said.

“The Caspian Sea has a number of disadvantages, a muddy bottom, a specific water color and, in addition, frequent cases of E. coli infection,” she added.

Tourism growth opportunities are looking much more optimistic in Uzbekistan. It is Central Asia’s second-largest economy and, according to Svetlana Balakina, general manager, Dilimah Premium Luxury Hotel in famed Samarkand, its most-visited tourism destination.

Balakina said her hotel enjoyed 62% occupancy in 2023, slightly higher than pre-pandemic levels, while the hotel’s ADR has climbed 10% to 15% in year-over-year numbers.

Under its tourism development plan, Uzbekistan is targeting 9 million international visitors by 2023, up from 5.2 million in 2022. The government said it will invest in transportation infrastructure, which remains the Achilles heel of the regional tourism sector.

“The cost of [air] tickets to Uzbekistan are exceptionally high for tourists from Europe and America,” Balakina said.

In Samarkand, Uzbekistan, direct flights from several new destinations were launched in 2023 after a new airport opened. That initiative triggered what local market players said has been boom for hotel construction.

“Many hotels of different categories have been opened, as well as chain hotels,” Balakina said.

She said that in addition to traditional feeder markets of neighboring Stan countries, hoteliers have gladly seen more visitors from Arabic countries.

Unlike Kazakhstan, Uzbekistan historically was a popular tourism destination during the Soviet era, its Silk Road cities well known to foreign tourists, Smirnova said.

During the first nine months of 2023, hotel occupancy in Uzbekistan fell to 53.7%, but ADR in that period increased to €123.14 and RevPAR increased to €66.18.

“Hotel occupancy is lower than in Kazakhstan, owing to a stronger seasonality factor, and, besides, the number of hotels in Tashkent has recently expanded, international-standard hotels have been built in Samarkand and there are projects under construction in Khiva,” Smirnova said.

The inflow of new investors in the Uzbek hotel industry is so strong there is even a risk of oversupply on the market, Balakina said.

“Business is rushing to capitalize on the anticipated rise in the number of foreign travelers, and there is a risk that sometimes [investors] forget to properly invest in maintaining services at high levels,” she added.

Read more news on Hotel News Now.

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