Money Growing: Spas in Moscow

Speaking of the tendencies in the development of that sector in Russia, analysts at Olympic System (operators of the Olympic Star chain of fitness and wellness centers) point out that while existing chains of health clubs are expanding, new developers and major construction firms are entering the market to build their own chains of fitness and wellness facilities in residential compounds under construction.

One-Day Resort

Spa centers, offering a set of beauty treatment procedures such as seawater baths, seaweed, mud and herb treatments, make up one segment of the health fitness industry. Though that segment is booming, according to market analysts, even professionals find it rather difficult to explain what exactly the word “spa” means.

“In today’s Russia, there are many spa centers, or, to be more exact, centers who claim the name,” says Irina Strelnikova, head of the FWA&SPA department at Krost. “But 99% of the administrators are unable to answer the question as to what a spa actually is.”

When Krost decided to build what is to become one of the largest spa clubs in Moscow, as part of the 9,000sqm Else Club wellness park, on the premises of its residential estate Alisa, the company’s representatives visited all the most popular spa resorts in Europe and examined the meager domestic facilities.

“The spa sector as a line of business attracts people seeking to make money,” Strelnikova is convinced. “Spa centers are only just entering the market these days and customers still can’t figure out what it means. To find out they go abroad. We are set to change that.”

“The spa market only began to grow in Russia 3 or 4 years ago,” says Kirill Irtyuga, head of marketing and advertising at the hotel holding Heliopark Group. “First spa studios in this country sought to take up the role of beauty studios and fitness centers, and even health institutions at the same time. But with the rapid growth of foreign tourism, Russians were given the chance to familiarize themselves with ‘real’ spa treatment.”

Being fit and healthy is fashionable, it’s advantageous, making up an important part of a successful image, Irtyuga is convinced. In his opinion, the interest in spa services in Russia will grow, which means the segment has good prospects for the next decade, or so.

“The reason spas are so popular is in the philosophy of the treatment,” adds Marina Strelchenko, general director of Olympic System. “The relaxation techniques, widely used there, are tailored to meet the requirements of our time. A vacation twice a year is no longer enough for a manager to get rid of stress. Obviously, many busy people today just cannot afford really long breaks.” In such circumstances spa centers – one-day resorts – can help. At the same time, she adds, spa treatment is also very popular among those who do not usually experience too much stress in their everyday life.

Apartment block Spas

Given their potential, spas have caught the attention of construction firms, especially those involved in upscale residential development, although that industry has still not developed into a separate segment. “None of the prime residential estates have a spa studio on their premises, operating as an independent business,” says Olga Bogoroditskaya, head of top class real estate at Knight Frank. “Construction firms rarely get involved in that area themselves. As a rule, having defined a concept of the future compound, they rent out or sell properties to specialized companies. So far, we have seen no projects where developers of prime residential space plan to open a spa studio as such.”

“Practically all the owners of expensive apartments are potential customers of spa centers,” experts at Fitness Consulting Group are convinced. “That is why some of the developers open spa studios with a view not only to complementing the public amenities and services available on the site, but also to use it as one of the key competitive advantages, as in the case of Krost, for example.”

Incidentally, the construction of one square meter at Else Club has cost the group approximately 3,000 euros. According to the estimates of consulting companies, that figure exceeds the average cost of 1sqm at deluxe wellness clubs, which they put at $2,000. Krost officially announced its plans to break into the new segments of the market, including spa and fitness facilities, about 18 months ago, although the idea to open a wellness park first occurred to the group’s executives back in 2002.

“In addition to Else Club at Alisa, the company is working on two more clubs of a somewhat different format. They are a business club on Prospekt Mira and a wellness center on the premises of the Leonardo residential estate,” says Strelnikova. Krost hopes to receive payback on its investment in three years.

In the year 2005, MIAN Corporation, in cooperation with a number of chain operators, launched construction of two fitness centers of the newly established Terra Sport chain. One of those facilities is to open at the Copernicus (Kopernik) residential compound. DON-Stroi is working together with the Orange Fitness chain, while Capital Group is working in tandem with World Class.

“A spa center on the territory of a residential complex is economically effective from the day the sales begin, and pays back after 30% of the apartments are sold out,” holds Oleg Marinin, project manager at Vitro Village (being developed by Park Group). “Returns grow as a result of a well-thought out approach towards managing the compound on the whole and its public amenities, in particular.”

Spa services are most popular when offered by fitness centers and wellness clubs, analysts at Fitness Consulting Group note. By combining exercises and spa treatment their customers are offered an ideal fitness program that works, while investors benefit from merging two lines of business.

“These days, spa studios are opening across the city chiefly as part of existing fitness centers and beauty studios already featuring swimming pools, Turkish baths, massage parlors, etc,” Bogoroditskaya explains. “In other words, it is just one of the services. Any beauty studio caters both for the occupants of the compound and outsiders, or else it would fail to make a profit. Residents gladly go swimming in a pool so near at hand, but when it comes to beauty treatment procedures, they tend to remain loyal to their personal beauticians and studios.”

“Spas are successful when operating at a hotel or a club, etc,” Strelnikova agrees. “For example, in Great Britain the spas of the E’SPA chain, always operating on the premises of hotels, are highly valued; at the same time Elemis, as an independent health facility, is no less popular with top clients such as Madonna or Robby Williams. We hope that our club will appeal not only to Alisa residents but also to residents in neighboring districts, central Moscow and rural areas.”

Fitness Consulting Group’s analysts believe that more major developers are likely to follow the example of the above-mentioned firms in the near future and pay more attention to the development of spa facilities. “Besides, the construction of health clubs as such will continue, mostly by companies seeking to diversify their business or regarding a corporate fitness center as a social responsibility,” Olympic System’s experts add. They do not rule out that in future all prime residential compounds will offer their tenants a beauty treatment service.

“As for the prospects of the industry, we can expect an increase in demand for smaller studios, as well as large complexes in the near future,” analysts at Olympic System report. “But real competition will only begin 4 to 5 years after the market is saturated. Today, there is a green light for all investors.”

“The number of spa studios is growing rapidly in Russia,” Irtyuga agrees. “But the segment for spas at office centers, large shopping malls and hotels is practically vacant. I would like to note that the investment appeal of a spa center project at a business class hotel is approximately 15% higher.”

“Moscow’s spa industry is growing,” believes Strelnikova. “But while some centers fall into the red and close down (such as Asia Spa, Saturnia at Radisson Slavyanskaya Hotel), others prosper (Tretyakoff, Kaskad). At Else Club we hope to have no real competition for the first five to seven years after opening.”

Spa a la Russe: Obligatory Bath

There are a great variety of spas in accordance with international classification, Olympic System analysts explain. They include countryside and city facilities, maternity spas, oriental spas and spas for lovers, etc. In Russia, countryside spas operating at health resorts and day-spa centers located within the city limits, and at beauty studios, are believed to have the most potential.

Analysts say that is linked to business and social activity and the established rhythm of work and leisure, because most businessmen can barely afford more than a couple of hours of leisure per month or more than two to three weeks per year. An inseparable feature of local spas is a Russian bath.

But national character is not the only factor that affects the special requirements spa facilities must meet in this country. Russian law, too, plays a role. Balla Fai, head of strategic development at Paul’s Yard, has reported that not long ago his firm received a request from a customer seeking an annex of some 300sqm for a spa studio. “The emphasis was placed on that type of property deliberately,” Balla Fai noted. “The law bans equipping spa studios on the premises of residential blocks with saunas. That is why the best option for a spa studio is an annex, or, even better, a detached building.”

The theoretical conclusions of the property experts find confirmation in practice, as the city developers actively pursue both formats: that of one-day spas and countryside spas. The Park Group development company has pledged to open a sports and health spa complex at the residential health resort Vitro Village in 2006.

The company is set to spend $2.5 million on the 3,000sqm complex, Marinin says. “By creating our spa we sought to offer the widest possible range of services to our residents and guests, from a Turkish hammam to a black Russian bath in a detached wooden bathhouse.”

S-Holding plans to launch construction of a 47,600-square-meter shopping and leisure center on Rublyovo-Uspenskoye Shosse, 20 kilometers from the Moscow outer ring road (MKAD), not far from the junction to Nikolina Gora. The complex will feature a spa studio, Oksana Basova, spokesperson for the group, has reported. “Today the company is in the process of acquiring land around the building site and is working on the concept of the project,” Basova said.

The spa studio, according to preliminary data, will be situated in a 10,500sqm building – the second phase of the development, estimated to be worth $16.5 million.

“So far it is hard to give any precise figures as to how much spending the spa facility will require. We expect the complex not only to attract the attention of residents in the Rublyovka area but also to be popular with Moscow businessmen,” Basova continues. In her opinion, there is no clear distinction between one-day city spas and countryside spas in Russia. “Nowadays we can see that distinction being gradually eroded as there is a tendency towards decentralization. At times it is harder to get to the city center from the outskirts than it is from the countryside,” she explains.

Konti Group is currently building a sports complex at the Pokrovskoye-Glebovo residential estate, Konti’s general director, Vladislav Timerbulatov, reported. He did not specify whether the new facility would feature a spa studio. “The health and fitness industry is a promising sector but is not a core business for us. The investment will amount to about $20 billion. Such projects are not as rewarding as construction, because the average payback term is seven years. The construction cost of one square meter, including equipment, is $2,000 to $3,000,” he explains.

“Within the city boundaries most spa centers are centrally located,” says Marinin. “In commuter areas such services are so far only available at small spa studios operating at beauty parlors. The shortage of supply on the spa services market in the countryside has been felt since the first closed-type spa studios appeared, inaccessible to most residents of rural areas.”

Spa Requirements

The clients of spa centers are not particularly numerous. But then, in Russia, according to Magram’s researchers, only 3-4% of residents attend fitness centers, while in Western Europe and the U.S. that figure stands at 30-40%.

However, spa services are not so expensive as to be affordable only for high-income clients, Marinin believes. “The cost of certain procedures may be quite high, indeed, given the high cost of production of certain substances, such as oil, for example, and their shipment to Moscow,” the analyst admits. “But many spa centers offer their clients more affordable annual programs of spa treatment.”

The pricing policies in that sector depend on the prospective client’s purchasing capacity, the location of the studio, the list of services offered, and the price and quality of beauty products used. “Today, an average bill at a quality spa center stands at around $100,” Strelnikova says. At Else Club, Krost plans to charge clients at the same level and higher but promises to ensure a top quality service.

“Since there is still little experience in that sector in Russia and it has not yet been transformed into a separate industry, all the requirements spa studios have to meet are analogous to those, say, for beauty parlors, and they are, first and foremost, the requirements to observe sanitary and fire safety regulations, etc,” says Irtyuga. “The range of services depends on the owner’s imagination, professionalism and his financial situation.”

While some parlors may confine themselves to just nail treatments, occupying a small room at a hairdresser’s, others, such as the Spa Center at Heliopark Old Estate in Pskov, felt the need to hire an expert in Ayurveda medicine to teach the staff the techniques of Indian massage.

The requirements as to the common-use areas directly depend on the number of procedure units on the site, Marinin says. For a psychotherapeutic session or aroma treatment, a room of no more than 20sqm would be enough; ultrasonic or press therapy sessions require the installation of state-of-the-art medical equipment, waterproofing and acoustic insulation systems.

“Each procedure offered requires a certain amount of space, which is quite easy to calculate as there are clear-cut requirements as to the space needed for each kind of treatment,” Olga Kisarina, head of research at Praedium, adds. “On average, a spa center can measure from 600 square meters to several thousand, in the case of a center operating at a hotel. As to the range of services, it is important to offer the optimum choice of procedures taking into consideration all the market requirements, and to that end it is necessary to keep up with the fashionable trends in that segment and strike out any obsolete spa procedures from the price-list. The cost of a spa center may stand at $1,200 to $3,000 per sqm, depending on the quality of fittings, the concept, and equipment.”

Andrei Mashkov, leading retail property consultant at Paul’s Yard, says that major fitness chain operators attach primary importance to location – either in densely built-up residential areas or in prestigious but quiet residential districts in the city center.

“The compulsory requirements are: a parking facility, convenient access and transport routes,” he adds. “It is also desirable that the property should occupy one story (level). If a fitness center occupies a basement floor, a swimming pool can be built. In new buildings that option is foreseen at the early design stages. The power capacity required is 150 to 300 kilowatt depending on the size of the property and the volume of supply required. Water supply in large quantities (to ensure normal operation of shower rooms and saunas), as well as high-capacity ventilation are of primary importance, too. The ceiling height should be 4 meters or more. The demand for such properties is quite high, but finding them is difficult. That is why major chain operators are gradually expanding their business in the Russian regions, as well.”

Nowadays, there are about 2,000 sports clubs in Moscow, some 250 of which may be described as fitness clubs proper. On the whole, the Moscow market of spa services differs substantially from the regional markets, Fitness Consulting Group reports. Unlike those in provincial cities, Moscow’s sports and health clubs cater mostly for high-income clients. Such clubs make up 40% of the sector, and that share is growing steadily.