Imminent risk of oversupply of luxury hotel rooms in Baku, Azerbaijan

This year alone, luxury properties under such brand names as Jumeirah, JW Marriott and Four Seasons opened for business, with Baku boasting around 17 hotels listed as 5-star properties. Additionally, a Fairmont Hotels & Resorts is scheduled to open later this year in the iconic Flame Towers complex that dominates the city’s skyline.

“Over the past several years, they’ve opened a lot of high-end properties,” said Marina Usenko, the Moscow-based executive VP of Jones Lang LaSalle Hotels. In 2009, the city had only 4,400 hotel rooms, and “in 2010 alone they added 1,200 rooms, for a 29% increase.” In 2011 800 more rooms were added, and, according to Usenko’s research, 1,200 might be added in 2012 to 2013, she said. More modest properties also are opening, and Usenko said the number of branded 3- to 5-star hotels, or what she describes as “modern quality stock,” is increasing at a far steeper pace.

Usenko predicts that by the end of 2015, those categories will have registered growth of 260%, raising the question of whether the city is in danger of becoming “overhoteled,” at least in the luxury category.

“Baku is a nice and attractive city, but these are a lot of rooms for a city of just two million people. Concerning business travelers, most of the impact from the construction and installation boom related to the petroleum business is now over.

“So unless the Azerbaijani authorities reposition the country to attract more (meetings, incentives, conferences and events business) and leisure travelers, I don’t see the high-end hotel market as sustainable,” she said.

Hotel executives running major brands in Baku disagree, although they admit there are tough times ahead, at least in the short term, and are pinning their hopes on government efforts to boost tourism. “I agree that the next three years will be challenging because of the number of 5-star properties opening, but I’m optimistic,” said Guy Godet, the GM at the recently inaugurated, 243-room JW Marriott Absheron Baku.

Kemal Bayik, the director of marketing for the recently opened Four Seasons Baku, said demand is now primarily from the United Kingdom and the United States because of the oil business. “But we see huge potential in corporate business from Moscow and not just the petroleum sector but also in such industries as pharmaceuticals, banking, insurance, etc.”  “So we’re counting on 20% of corporate clients from the Commonwealth of Independent States, especially Russia and Ukraine. Another important guest source will be wealthy Azerbaijanis living in Moscow, returning here to attend to their business interests,” he said.

Leisure travel is another potential market, as noted by Jones Lang LaSalle’s Usenko. She said that while Azerbaijan will never rival Spain or Turkey as an international destination, the country could target the regional markets in the neighboring CIS countries. Azerbaijan Tourism Minister Abulfaz Garayev told that travel to the country has grown each year over the past decade. This year he expects a 7.5% increase in visitor arrivals over the 2.2 million registered in 2011.

Fairmont Towers Hotel in Baku, Azerbaijan