Mini-Hotels: Future of Smaller Accommodation
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Despite the fact that the first accommodation facilities situated in residential houses emerged in Russia as far back as 15 years ago, their legal status remains undefined: the first amendments to the Russian Civil Code that could legalize these businesses are only slated to be reviewed in the second half of 2014.
Since the moment such accommodation facilities first appeared, there have been multiple attempts to both legalize and ban their activities. The last ‘attack’ on the ‘small’ hoteliers have occurred just recently, when an LDPR member Sergei Katasonov introduced a bill to the State Duma that required all mini-hotels and hostels situated in residential houses to close. The rationale behind his initiative was based on complaints about noise, poor safety and about higher utility bills, all of which, according to neighbors, go hand in hand with these accommodation facilities. Despite the fact that the bill was rescinded, the situation did not get any better: this kind of accommodation had long been ‘stranded’ outside the applicable Russian law.
Scope of the problem
There are no precise figures: many hosts of ‘rooming houses’, which is how people often call these facilities, still prefer to lay low and not get a mini-hotel or hostel status. However, this accommodation has already become widespread not only in St. Petersburg, but in Moscow, Krasnodar Krai, Kazan, Yaroslavl, and Yekaterinburg.
“Dynamic development of smaller accommodation, which for many years Moscow was accused of not having, has become a bellwether trend during the last few years,” says Chairman of Moscow Tourism and Hotel Industry Committee Sergei Shpilko. “Upon seeing that the city is developing tourism, small businesses stepped up their investments in mini-hotels and hostels. As of today, there are already 235 of them, with 12 thousand rooms total. These facilities are being created more and more frequently, with new variations emerging all the time. For instance, a capsule hotel in Tverskaya-Yamska
The beginnings of the small hotel market in St. Petersburg can be traced back to the 1990s, but the segment experienced truly booming growth only during the eve of the city’s 300th anniversary in 2003. Right now St. Petersburg remains the undisputed leader in regard to the number of small hotels, since there are about a thousand mini-hotels and hostels in the city. The number of hostels is growing the fastest – it has reached 200 during the last few years (with about 4.8 thousand rooms).
It can be safely said that more than 2 thousand mini-hotels and hostels are operating throughout the country, which are serviced by no less than 10-15 thousand people. Considering the fact that in Russia’s big cities these facilities constitute about 10% of all tourist accommodation, while easily competing with any other kind of it, their problems can hardly be ignored any longer.
Is there demand?
The fact that there is high demand for mini-hotels and hostels can easily be proven with figures.
The analytical research by the company Jones Lang LaSalle shows the continuing and steady growth of accommodation prices in St. Petersburg. For instance, the growth of the average tariff in the luxury segment of St. Petersburg’s hotels was 14% in 2013 (reaching 11.3 thousand rubles – $316), while prices in the middle-range segment increased 14% (reaching 2.7 thousand rubles – $75.5). During the last year earnings per room grew 16% and 17% in the luxury and middle-range segments respectively.
As for occupancy, the results here are far more modest: on average during 2013 St. Petersburg’s luxury segment was occupied only 53%. The trend is clear: the lower the accommodation price – the higher the demand. According to last year’s analytical research of Biz-Bank (Bank of Ready Businesses), the average occupancy rate of St. Petersburg’s hostels is about 70% a year. During the high season they are easily occupied 90%, while small rooms (up to 4 people) have the average yearly occupancy rate of 82% and enjoy the 76% occupancy even during the off-season. The reason is simple: the average price for accommodation in St. Petersburg’s hostels during the high season is only 750 rubles a day. A hostel turns profit once its occupancy rate reaches 57%, and their average yearly profitability level is 31%, which is something many prestigious hotels could hardly dream of.
Experts of the hotel booking service Viahotel.ru emphasize: mini-hotels and hostels enjoy very high demand among tourists, since they offer good conditions for a reasonable price. Up to 80% of the service’s booking requests are for mini-hotels and hostels. Thanks to a large concentration of such accommodation facilities in the center of St. Petersburg, visitors do not have to stay in expensive chain hotels, while also being able to find accommodation even during the high season.
This means that demand for inexpensive accommodation facilities (which mini-hotels and hostels belong to) in St. Petersburg and in the country on the whole is not just high – it is simply untapped. “In St. Petersburg and in many other Russian regions there is a pronounced lack of inexpensive, yet relatively good accommodation,” believes Director of St. Petersburg’s branch of Russian Hotel Association Alexey Musakin. “That is why a large number of clients, being surrounded by high prices, are ready to save some money by opting for hostels.”
In search of a status
It took a long time to classify mini-hotels and hostels in Russia. The thing is that the Russian classification system of hotels and other accommodation facilities attempted to ‘accommodate’ them in its structure as small hotels (i.e. hotels with fewer than 50 rooms). This is also the way they are classified in the new classification, which is pending approval. In reality, mini-hotels and hostels in St. Petersburg have long been seen as including the so-called ‘residential’ type accommodation (no more than 15 rooms), which is most often situated in residential houses.
“The problem of legalizing mini-hotels and hostels in St. Petersburg has been superseded by that of classifying them,” says Yevgenia Pimenova, General Director of hotel booking service Viahotel.ru. “It manifests itself in the fact that, despite the new documents that regulate the activities of the smaller accommodation facilities, it is often pretty hard to determine which kind of accommodation a mini-hotel belongs to. In spite of house residents being worried about living next to a mini-hotel, our service has not received any complaints about noise or bad behavior of guests – this attitude towards mini-hotels can most probably be attributed to stereotype.”
Being located in residential houses is what causes two main problems for smaller accommodation. The first one is the issue of the real estate. More often than not these are communal apartments scattered throughout the center of the city and having the status of a residential property (according to experts’ estimates, about 70% of St. Petersburg’s mini-hotels and hostels are still located in residential houses and are registered to private persons). These apartments must be re-registered as non-residential properties in order to get the status of a hotel. However, few actually attempt that, in light of high costs, higher taxes, and a complicated registration procedure. But the law does not prohibit leasing flats under a contract. However, in this case it does prohibit the owner from naming the accommodation a hotel, which, consequently, causes promotion and classification problems.
The second problem is a multitude of issues that arise if a mini-hotel or a hostel is opened in a residential house. Obsolete fire safety and sanitary standards, as well as GOST (State Standards) and building code, have only tenuous connection to today’s conditions, but leave plenty of room for unfounded claims from various inspectors.
Course of action
“Many small hotel owners view these facilities not as just another business, but as a welcoming, homelike place, where clients are treated as guests,” asserts Vladimir Vasilyev, President of ‘St. Petersburg’s Small Hotel Association’ non-profit partnership. “That means that their activities can hardly be measured with the same ‘stick’ that is used for large chain hotels.”
The Ministry of Culture has officially proposed amendments to Articles 288 and 779 of the Russian Civil Code, which solve the main problem of ‘residential’ facilities and allow opening mini-hotels without re-registering residential property as non-residential. The Ministry believes that these amendments will not only eliminate the main obstacle to legalizing such facilities, but also ‘bring to light’ those who have been operating unofficially. The Ministry’s propositions have already found support with many a government office, but they will be reviewed no sooner than the second half of 2014.
“As long as changes to the law are not approved at the federal level, attempts to ban the activities of mini-hotels and hostels that are situated in residential properties may continue,” said Vladimir Vasilyev at the meeting of the Community Council for Small Business Development presided by St. Petersburg’s Governor. “Now is the time to create an index of organizing and functioning recommendations for mini-hotels and hostels, as well as an official registry of these accommodation facilities.”
St. Petersburg’s Governor Georgy Poltavchenko advised hotel owners and organizers to use one building only, so as not to inconvenience neighbors and cause complaints. What he did not say was how to do it…
Yevgenia Pimenova, General Director of hotel booking service Viahotel.ru, believes that the once booming hotel segment, which combines St. Petersburg’s mini-hotels and small hostels, will continue to grow and stabilize thanks to the consolidating legal norms that regulate the activities of smaller accommodation facilities.
“As far as investors are concerned, these facilities remain an attractive option for long-term investments, since they cover the deficit of the economy-class hotels and enjoy high demand,” she asserts.
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