KPMG in Georgia Advisory

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 to participate 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, the Georgian 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 Population, 2010 Currency USD/GEL exchange rate, 2010
Source: National Statistics Office of Georgia

KEY ECONOMIC INDICATORS Real GDP, 2010 Real GDP growth, 2010 Inflation, 2010 FDI, 2010 FDI growth, 2010
Source: National Statistics Office of Georgia

USD 7,172 million -0.3% 7.1% USD 553 million -16.0%

KEY ECONOMIC INDICATORS

10 8
USD billion

30% 20% 10% 0% -10% -20% 2004 2005 2006 2007 2008 2009 2010

6 4 2 0

Real GDP

GDP real growth (%, USD) (Right hand scale)

Source: National Statistics Office of Georgia

HORECA INDICATORS OF GEORGIA Real GDP contribution, 2010 Contribution growth rate, 2010 Inflation, 2010 FDI, 2010 FDI growth, 2010 Turnover
Source: National Statistics Office of Georgia

USD 231 million 5.8% 4.2% USD 3.5 million -90.7% USD 186 million

Tbilisi 4,436,400 Georgian Lari (GEL) 1.7826

Overview of Tbilisi Hotel Industry 2011 / Advisory / August 2011

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.

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 Business visitor, 2010 Leisure visitor, 2010 4.43 days 4.56 days 3.99 days

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
2,500,000 2,000,000 1,500,000 1,000,000 500,000 2006 2007 2008 2009 2010

Source: 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
65 +

2% 8% 20% 30% 31% 10%

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

Source: National Tourism Agency of Georgia

55-64

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 the European region came from Turkey.
BREAKDOWN OF VISITORS TO GEORGIA, 2010
4% 33%

45-54

35-44

25-34

16-24

Source: Survey of International Travelers at National Borders of Georgia, National Tourism Agency of Georgia, 2010

Drivers and Forecasts

63%

If the political situation remains stable and the economy does not face difficulties, survey participants expect 1314% annual increase in the number of visitors to Tbilisi in 2011-2020.
CIS Other

European Region (w/o CIS)

Source: National Tourism Agency of Georgia

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
Location Friendliness of the staff Reputation Quality and cleanliness Price Level of Importance Source: KPMG Survey, 2011

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 remaining 17% 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.

LEISURE GUESTS
Location Price Reputation Friendliness of the Quality and cleanliness Level of Importance Source: KPMG Survey, 2011

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 internationallybranded 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
6000 5000 4000 3000 2000 1000 0 2008 2009
Number of rooms

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
FDI International assistance Business spending Government spending GDP growth

92

113

114 2010
Number of beds

Source: KPMG Survey, 2011

Number of hotels

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.

Source: National Tourism Agency of Georgia

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*

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 rooms based 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
6% 1% 12% 43%

Fixed Asset Investments, HoReCa, Georgia Fixed Asset Investments, HoReCa, Tbilisi FDI, HoReCa, Georgia

10.3 6.6 n/a

48.5 38.5

36.7 12.5

84.8 78.0 37.5

n/a n/a 3.5

Single

39%

242.1 181.9

Double

Business

Junior Suite

Executive suite

* Preliminary data Source: National Statistics Office of Georgia

Source: KPMG Survey, 2011

ROOM BREAKDOWN OF INTERNATIONALLY BRANDED HOTELS

7% 19% 47% 1%

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

26%

Single

Double

Business

Junior Suite

Executive suite

12 out of 14 surveyed hotels operate at least one restaurant on 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 bar on 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 internationallybranded 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 will include 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 surveyed hotels offered the following services, amenities and facilities:
HOTEL SERVICES AND AMENITIES
Air conditioned rooms Heated rooms Telephone connection in the rooms TV with local and international channels 100% 100% 100% 100% 100% 100% 100% 100% 100%

Source: KPMG Survey, 2011

For all main hotel room categories, the internationallybranded 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 suites were 50 sq. m. and 93 sq. m. respectively.
ROOM SIZES
140 120 100 80 60 40 20 0 Single Double Junior Suite Executive suite

115

60 32 16 32 20 36

50

Internationally-branded hotels

Local hotels

Source: KPMG Survey, 2011

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 seasonallyadjusted average daily rates (net of VAT, breakfast included) were:
DAILY RATES FOR INTERNATIONALLY BRANDED HOTELS Standard single USD 213 Standard double Business Junior suite Executive suite
Source: KPMG Survey, 2011

USD 239 USD 264 USD 321 USD 792

DAILY RATES FOR LOCAL HOTELS Standard single Standard double Business Junior suite Executive suite
Source: KPMG Survey, 2011

USD 90 USD 105 USD 138 USD 154 USD 190

Safe (either in the room or the front desk) 24-hour security 24-hour front desk Internet Laundry/dry cleaning services

HOTEL SERVICES AND AMENITIES

Luggage storage Shuttle services 24-hour room service On-site parking Currency exchange Game room (including Casino) Sauna Car rental Spa Store/Boutiques Beauty salon Childrens room Dedicated coffee shop
Source: KPMG Survey, 2011

100% 100% 93% 93% 50% 43% 43% 29% 14% 14% 0% 0% 0%

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
5000
Number of rooms High Probability Low Probability

4000 3050 3000 2000 2010

3695

4033

2013

PROJECTIONS

2015

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

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.

KPMG in Georgia 3rd floor, Besiki Business Center, 4 Besiki Street, Tbilisi, 0108, Georgia

Andrew Coxshall Managing Partner Southern Caucasus E: acoxshall@kpmg.com

T: +995 (32) 93 57 13 / 93 56 95 F: +995 (32) 98 22 76 E: general@kpmg.ge kpmg.ge

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 it 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.

Eduard Avetisyan Head of Advisory Southern Caucasus E: eavetisyan@kpmg.com