Overview of Tbilisi Hotel Industry 2011

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KPMG in Georgia

Advisory

Overview of Tbilisi Hotel Industry 2011 / Advisory / August 2011

Overview of Tbilisi Hotel Industry 2011

About this publication

This publication is based on KPMGs research and the

survey conducted in April-May, 2011. It has been

prepared for the organizations which agreed toparticipate in the survey.

The purpose of the survey was to obtain primary

information about the hotel industry in Tbilisi, including

the factors driving changes in demand and supply of

hotel rooms, daily rates and occupancy rates,

demographic composition of the customer base, and

common services provided by hotels.

The participants of the survey were internationally

branded and local hotels, as well as travel agencies

operating in Tbilisi. In addition, KPMG met with officials

of the Economic Policy Agency from Tbilisi City Hall, theGeorgian National Investment Agency and the Georgian

National Tourism Agency.

14 hotels and eight travel agencies participated in the

survey. Six, out of the total interviewed hotels, were

internationally-branded hotels. The 14 interviewed hotels

had a total of 1,162 rooms available for stay at the time

the survey was conducted, representing around 38% of

the total supply of hotel rooms in Tbilisi.

COUNTRY FACTS

Capital Tbilisi

Population, 2010 4,436,400Currency Georgian Lari (GEL)

USD/GEL exchange rate, 2010 1.7826

Source: National Statistics Office of Georgia

KEY ECONOMIC INDICATORS

Real GDP, 2010 USD 7,172 million

Real GDP growth, 2010 -0.3%

Inflation, 2010 7.1%FDI, 2010 USD 553 million

FDI growth, 2010 -16.0%


KEY ECONOMIC INDICATORS


HORECA INDICATORS OF GEORGIA

Real GDP contribution, 2010 USD 231 million

Contribution growth rate, 2010 5.8%

Inflation, 2010 4.2%

FDI, 2010 USD 3.5 millionFDI growth, 2010 -90.7%

Turnover USD 186 million


-20%

-10%

0%

10%

20%

30%

0

2

4

6

8

10

2004 2005 2006 2007 2008 2009 2010

USDbillion

Real GDP GDP real growth (%, USD) (R ight hand scale)


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DEMAND

The hotel industry has been growing with the increase of

foreign investments in Georgia, the increase in the

number of foreign visitors to the country and decisions

on strategic development of the tourism sector at the

government level.

Profile

According to data provided by the Border Police of

Georgia, 2,032,586 foreigners visited Georgia in 2010.

This figure represents a 36% increase compared to the

previous year and in the last 5 years the number of

tourists has grown on average by 29% annually.

FOREIGNERS VISITING GEORGIA

Source: National Tourism Agency of Georgia

According to the data, 63% of foreign visitors to Georgia

in 2010 were from the Commonwealth of Independent

States (CIS) countries, 33% from the European Region

(including Turkey, excluding the CIS countries) and 4%

from other countries. The visitors from the CIS countries

were predominantly from Armenia, Azerbaijan, and the

Russian Federation and most of the visitors from theEuropean region came from Turkey.

BREAKDOWN OF VISITORS TO GEORGIA, 2010


According to a survey conducted by the National Tourism

Agency of Georgia, in 2009, roughly 23% of the total

number of visitors to Georgia stayed in hotels and other

hotel-type accommodations. Furthermore, 12% of the

total number of visitors to Georgia stayed in hotels and

other hotel-type accommodations in Tbilisi. Moreover,

53% of the hotel guests in Georgia were business

travelers, 29% were leisure travelers and the remaining17% visited the country for other purposes. The

breakdown for Tbilisi hotel guests in 2009 was as

follows; 68% - business travelers, 10% - leisure

travelers, and 22% - travelers for other purposes.

In 2010, business visitors to Tbilisi stayed in hotels on

average for 4.56 days compared to 3.99 days for the

leisure visitors, which both are lower than the average

length of stays in Georgia overall.

LENGTH OF STAY IN TBILISI HOTEL

Average visitor, 2010 4.43 days

Business visitor, 2010 4.56 days

Leisure visitor, 2010 3.99 daysSource: Survey of International Travelers at National Borders of

Georgia, National Tourism Agency of Georgia, 2010

Visitors staying in Tbilisi hotels spent, on average $151

per day on lodging, food and beverage in 2010; business

travels spent $198, while leisure travelers spent $95.

Furthermore, visitors from the CIS spent on average

$103 per day on lodging, food and beverage compared to

$202 for visitors from Europe (excluding CIS).

In 2010, 81% of visitors to Georgia were between the

ages 25 and 54.

DEMOGRAPHIC STRUCTURE OF VISITORS TO

GEORGIA

Source: Survey of International Travelers at National Borders of

Georgia, National Tourism Agency of Georgia, 2010

Drivers and Forecasts

If the political situation remains stable and the economy

does not face difficulties, survey participants expect 13-

14% annual increase in the number of visitors to Tbilisi in

2011-2020.

In our effort to identify the most important factors

considered by business and leisure hotel guests when

choosing a hotel, we found the top 5 to be the following

(listed from the most important to the least important):

BUSINESS GUESTS

Source: KPMG Survey, 2011

-

500,000

1,000,000

1,500,000

2,000,000

2,500,000

2006 2007 2008 2009 2010

33%

63%

4%

European Region (w/o CIS) CIS Other

10%

31%

30%

20%

8%

2%

0% 5% 10% 15% 20% 25% 30% 35%

16-24

25-34

35-44

45-54

55-64

65 +

Location

Friendliness of the staff

Reputation

Quality and cleanliness

Price

Level of Importance


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LEISURE GUESTS


In addition, the survey participants find the following 5

economic indicators to have the greatest impact on the

flow of visitors to Tbilisi (listed from the most influential

to the least influential):

ECONOMIC INDICATORS


Seasonality

Survey participants reported the high season in Tbilisi to

be the months of May, June, September November,

while the months of January February, and December

are considered low season, and March, April, July, and

August are considered shoulder season.

SUPPLY

Investments

The demand for hotel rooms has been growing in the

last 10 years in Georgia, which has stimulated

investments in the hotel sector. In 2006-2009

investments in fixed assets in the hotel, restaurant and

catering (HoReCa) sector in Georgia and Tbilisi totaled

USD 180 million and USD 136 million respectively.Additionally, for the period of 2007-2010, foreign direct

investment in the HoReCa sector in Georgia amounted

to USD 465 million. As a result, new hotels were opened

and the existing hotels renovated their facilities to

service the growing demand.

INVESTMENTS

million USD 2006 2007 2008 2009 2010*

Fixed Asset Investments,

HoReCa, Georgia10.3 48.5 36.7 84.8 n/a

Fixed Asset Investments,

HoReCa, Tbilisi6.6 38.5 12.5 78.0 n/a

FDI, HoReCa, Georgia n/a 242.1 181.9 37.5 3.5

* Preliminary data


Room Availability

As of 2010, it is estimated that there are 114 hotel and

hotel-type accommodation providers in Tbilisi with

various room capacities. Combined, these facilities offer

3,050 rooms with 5,280 beds. The six internationally-

branded hotels operating in Tbilisi represent 27% of the

total room supply in the city and almost all operate in the

midscale-upscale segments.

The latest deliveries in the market were Holiday Inn

(opened in 2010) operated by Intercontinental Hotels

Group with 126 guest rooms, Citadines Apart-hotel

(opened in 2009) operated by The Ascott Limited with 66

guest rooms, and Radisson Blu Iveria Hotel (opened in

2009) operated by Rezidor Hotel Group with 249 guest

rooms.

TBILISI HOTEL STOCK


The 14 surveyed hotels had a total of 1,162 rooms

including 826 rooms in the six internationally-branded

hotels and 336 in the eight local hotels. Most of the

hotels use different naming conventions for their roomsbased on the room features and sizes. As a result, five

main room categories were identified: standard single,

standard double, business, junior suite, and executive

suite. Furthermore, 46% of the rooms were standard

singles, 30% were standard doubles, 14% were

business, 9% were junior suites, and 2% were executive

suites. The room breakdown into categories was

different between the internationally-branded and local

hotels. In addition, junior suites and executive suites

were present in all hotels that we surveyed, regardless

of the star level of the hotel.

ROOM BREAKDOWN OF LOCAL HOTELS


Location

Price

Reputation

Friendliness of the

Quality and cleanliness

Level of Importance

FDI

International assistance

Business spending

Government spending

GDP growth92 113 114

0

1000

2000

3000

4000

5000

6000

2008 2009 2010

Number of hotels Number of rooms Number of beds

43%

39%

1%12%

6%

Single Double Business Junior Suite Executive suite


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ROOM BREAKDOWN OF INTERNATIONALLY

BRANDED HOTELS


For all main hotel room categories, the internationally-

branded hotels offered significantly larger rooms than did

the local hotels. The average size for a standard single

room was 23 sq. m. compared to 25 sq. m. for a

standard double room. Junior suites and executive suiteswere 50 sq. m. and 93 sq. m. respectively.

ROOM SIZES


Daily Rates

The daily rates for hotel rooms during the high season,

shoulder season and low season did not show significant

variation for the surveyed hotels. The seasonally-

adjusted average daily rates (net of VAT, breakfast

included) were:

DAILY RATES FOR INTERNATIONALLY BRANDED

HOTELSStandard single USD 213

Standard double USD 239

Business USD 264

Junior suite USD 321

Executive suite USD 792


DAILY RATES FOR LOCAL HOTELS

Standard single USD 90

Standard double USD 105

Business USD 138

Junior suite USD 154

Executive suite USD 190


Occupancy Rates

Based on our survey findings, the average occupancy

rate in hotels in Tbilisi was 56% in 2010. The rate was

60-70% during the peak season and 40-45% during the

low season. In general, the internationally-branded hotels

reported higher occupancy rates than did the local

hotels.

Services and Facilities

12 out of 14 surveyed hotels operate at least one

restauranton the hotel premises. In addition, 83% of the

respondents reported that the restaurant is open to hotel

guests and outside customers. A customer on average

spends USD 21 per person in a hotel restaurant in Tbilisi.

13 out of 14 surveyed hotels have at least one baron the

hotel premises and 85% of the respondents reported

that the bar is open to hotel guests and outside

customers. A customer on average spends USD 12 in a

hotel bar.

13 out of 14 surveyed hotels have one or more

conference/meeting rooms. With an average of 4.6

conference/meeting rooms per hotel, the average

conference/meeting room seats 66 people in a theatre

setup. The large conference rooms are equipped with

audio/video equipment, such as projectors, microphones,

teleconferencing equipment, etc; however, it is not

uncommon to see projectors and microphones in the

smaller meeting rooms among the internationally-

branded hotels. The conference rooms are rented out for

a half or a full day. Nevertheless, it is a common practice

to charge a per person flat rate that will include breakfast

and/or lunch. Based on our survey, a typical rate that willinclude 2 coffee breaks and a lunch will cost USD 29-60

per person (net of VAT).

7 out of 14 surveyed hotels have a fitness room that is

open to hotel guests and outside customers. The fitness

facilities are free of charge for hotel guests, while the

other customers have to pay for this service.

5 out of 14 surveyed hotels have one or more swimming

pools. Generally, the swimming pools are open to hotel

guests and outside customers, while the outside

customers are charged a fee for using the facility.

The table below shows what percentage of surveyedhotels offered the following services, amenities and

facilities:

HOTEL SERVICES AND AMENITIES

Air conditioned rooms 100%

Heated rooms 100%

Telephone connection in the rooms 100%

TV with local and international

channels 100%

Safe (either in the room or the front

desk) 100%

24-hour security 100%

24-hour front desk 100%

Internet 100%

Laundry/dry cleaning services 100%

47%

26%

19%

7%1%

Single Double Business Junior Suite Executive suite

32 32

60

115

16 2036

50

0

20

40

60

80

100

120

140

Single Double Junior Suite Executive suite

Internationally-branded hotels Local hotels


5/55

HOTEL SERVICES AND AMENITIES

Luggage storage 100%

Shuttle services 100%

24-hour room service 93%

On-site parking 93%

Currency exchange 50%

Game room (including Casino) 43%

Sauna 43%Car rental 29%

Spa 14%

Store/Boutiques 14%

Beauty salon 0%

Childrens room 0%

Dedicated coffee shop 0%


Pipeline & Forecasts

Some of the high profile projects in the pipeline include

the 200-guestroom Kempinski Hotel Rustaveli, which is

expected to be delivered in 2013. According to survey

participants, the constructions of the InterContinental

Tbilisi and the Park Hyatt Tbilisi Hotel are unlikely to be

completed by 2015. There is an indication that three local

hotels with 115 guestrooms combined will be delivered

in 2012. In addition, some of the existing hotels are

planning to increase the number of the rooms, which will

increase the existing supply in the city by 330 additional

guestrooms by 2012.

ROOMS IN TBILISI

Source: National Tourism Agency of Georgia, KPMG Survey, 2011

Our survey participants indicated that they expect the

supply of hotel rooms to grow in Tbilisi by 10% annually

through the year 2020, thus, increasing the number of

hotel rooms to 7,910 by 2020.

If you would like more information about this survey or KPMGs services, please contact us.

Andrew Coxshall

Managing Partner

Southern CaucasusE: [email protected]

KPMG in Georgia

3rd floor, Besiki Business Center,

4 Besiki Street,

Tbilisi, 0108, Georgia

T: +995 (32) 93 57 13 / 93 56 95F: +995 (32) 98 22 76E: [email protected]

kpmg.ge

Eduard Avetisyan

Head of Advisory

Southern CaucasusE: [email protected]

The information contained herein is of a general nature and is not intended to address

the circumstances of any particular individual or entity. Although we endeavor to provide

accurate and timely information, there can be no guarantee that such information is

accurate as of the date it is received or that i t will continue to be accurate in the future.

No one should act on such information without appropriate professional advice after a

thorough examination of the particular situation.

2011 Tbilisi Branch of KPMG CIS Limited, a branch incorporated under the Laws of

Georgia, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of

independent member firms affiliated with KPMG International Cooperative (KPMG

International), a Swiss entity affiliated with KPMG International, a Swiss cooperative.

All rights reserved.

The KPMG name, logo and cutting through complexity are registered trademarks or

trademarks of KPMG International.

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Overview of Tbilisi Hotel Industry 2011