Moscow is booming and has a glut of high-end hotels. But as MIKE ECKEL finds out, the russian capital could face a tourism crisis if a severe lack of reasonably priced hotels continues.

You’ll find few people shedding tears for the destruction of the Hotel Rossiya, a dour, hulking behemoth that glowers at St Basil’s Cathedral and lurks near the Kremlin like a bad Cold War hangover.

Ask tour operators, however, and you’ll find plenty scratching their heads over the loss of its nearly 2700 rooms and the dwindling number of Moscow hotels that are both moderately priced and of reasonable quality.

A mix of bureaucratic regulations, poor planning and astronomical real estate prices has left Moscow with few mid-range hotels, forcing tourists and business travellers far afield for lodgings or resigned to glittering, five-star hotels with head-spinning room rates. It’s that desperate,” said Helene Lloyd, a tourism market consultant in Moscow.

In addition to the Rossiya, whose exterior inspired nicknames such as ‘the suitcase’ and ‘the square’, other major hotels that have been demolished are the equally unlovely 430-room Intourist (nicknamed the ‘rotten tooth’) and the nearby 1000-room Moskva (whose image graces the labels of Stolichnaya vodka).

The Ukraina, one of the few mid-range hotels remaining in the city centre, was sold last year for the equivalent of £150 million (A$372 million), a substantially higher price than expected that indicates the buyers want to refit it to serve the high end of the market.

“The loss of so many rooms – bringing the total room capacity lost to date to around 6000 – is expected to have a major impact on tourism in Moscow in 2006 and beyond,” the World Travel and Tourism Council has noted. That’s just under 10% of the city’s total hotel rooms.

An estimated 2.5 million tourists now visit the Russian capital annually, according to official statistics, bringing in up to £540 million (A$1.36 billion) for the city each year. Moscow has one of the highest occupancy rates in the world at its roughly 170 hotels.

When a trade exhibition is on, attracting business people from across the country and around the world, hotels are solidly booked – though major business conventions are still often able to negotiate lower rates for large blocks of rooms.

The vast majority of Moscow’s more than 65,000 hotel beds, the WTTC noted, are of Soviet-era quality: a term invoking draughty windows, lumpy beds, surly staff and questionable plumbing.

The International Olympic Committee inspectors who reviewed Moscow’s bid to host the 2012 games last year cited a lack of three-star hotels as one of several problems.

Real estate prices in Moscow – which are among the highest in the world – have meant that commercial office space and luxury residences are the fastest way to recoup costs and reap huge profits.

For Western and Russian hotel investors, four- and five-star projects yield higher, quicker returns, said Gennady Lamshin, acting director of the Russian Hotel Association.

Foreign chains including MeriStar Hospitality Corp, Wyndham International Inc and InterContinental Hotels Group are pushing through Russia’s infamous bureaucracy to enter Moscow’s hurly-burly business climate, and a raft of new projects for high-end hotels are either under construction or slated to break ground in coming years.

The glut of projects, largely four stars and up, could end up flooding the market, said Arthur de Haast, global chief executive with consulting group Jones Lang LaSalle, potentially pushing down rates.

The number of projects out there at the moment, if they all get constructed, there is a danger of causing oversupply in the luxury segment of this market,” de Haast said.

As for mid-range hotels, two moderately priced Holiday Inns have opened in recent years – adding 340 rooms – but experts say it will be at least two years before any sizeable block of rooms comes on the market to serve Moscow’s non-business, non-luxury travellers.

The Rossiya is slated to be replaced with a new project, including a concert hall and cinema, along with at least 1500 rooms that officials say will carry mid-range prices – but tourism analysts say 2010 will be the earliest that any of its rooms will be available.

“Unfortunately, most of the supply we’re aware of is four- or five-star hotels, so there’s not a lot to attract leisure tourists,” said Lasse Restolinian, a hotel consultant with London-based HVS International.”