Money Growing: Congress Space
Congress centers in the capital, according to experts, are not investment-attractive premises for developers due to the long time it takes to recoup investments of 10-15 years. In Moscow the city authorities are more interested in the construction of new complexes: The "indirect" income for the city treasury from a large international congress center can exceed the direct income the owner of the center will get by 5-6 times.
Currently in the capital there are 154 congress premises, including conference halls in office complexes, hotels and cottage complexes. They total 25,000 sq.m. But, in the opinion of analysts at Knight Frank, there is a deficit of exhibition space that meets modern quality standards in the capital. In Moscow there is currently only one specialized congress center - this is located in the World Trade Centre (WTC) on Krasnopresnenskaya Naberezhnaya and holds 1,200 people. This center has existed for 30 years and is under the patronage of the Commercial and Industrial Chamber of the Russian Federation and the government of Moscow.
In the city there are also other large premises with a capacity of 1,000 to 6,000 people that are privately owned (Crocus Expo, Aras Agalarov is the owner and founder of the company), and under the patronage of state structures (State Kremlin Palace, which is federal property and managed by the Administrative office of the President of the Russian Federation; the All-Russia Exhibition Centre, the majority shareholder of which is the Ministry of Property of the Russian Federation; and Expo Centre on Krasnaya Presne, the majority shareholder of which is the Commercial and Industrial Chamber of the Russian Federation). However holding congresses is not the main specialization of these centers: as a rule, the congress centers in such complexes have additional possibilities in the general context of concert and exhibition activities.
Congress services are also offered in President Hotel, Radisson Slavyanskaya, Renaissance, the Marriott and other 4-5-star hotels, which according to standards, should have several halls for holding congresses and conferences. They, according to Knight Frank, have a capacity of about 10,000 places. The small conference hall (capacity of less than 1,000 people) segment in hotels was rather actively developing before the crisis and provided for additional demand, says Svetlana Perfilyeva, an analyst at Сushman & Wakefield/Stiles & Riabokobylko. However such halls can hardly be categorised as high-grade congress centers.
The construction of large specialized premises for congresses has never been interesting to private developers, considers Vera Ionova, director of TsMT congress center: "The return on investments here is much lower than in the hotel and office markets. The recoupment time is 10-15 years." The main reason for the long period it takes to recoup costs is the low percentage of effectively used areas: in an office premises it is about 80%, while in a congress center it is less than 50%. A negative feature is the seasonal prevalence of the business, the activity of which is observed in the spring and autumn. Low usage/loading also influences the speed of recoupment and even across Europe does not exceed 45%, while in Russia different sources name figures of 35-55%. In addition, the cost of operating a congress center (lighting, staff) is at least double that of office premises (average operating costs in a class A and B business center is $100-$120 per sq.m a year).
As a rule, congress center projects are interesting first of all to the government. They raise the prestige of the city and country in the world and bring rather high income to the local budget. "It is quite feasible that each participant of a large international congress gives us 500 euros as a registration payment. But they spend 6 times more than this in the city, buying souvenirs, visiting theatres, museums and restaurants, paying hotel accommodation," says Anatoly Alekseyev, director of Expo-Congress. According to the International Congress Convention Association (ICCA), 60% of congress centers in the world belong to the state, 35% to private owners and 5% are organized on the basis of mixed capital. In Russia such statistics do not exist.
The share of private traders
"If you construct one congress center for 5,000-6,000 people you will never recoup your costs. It is good only together with an expensive hotel or an exhibition center," says Alekseyev. "Exhibitions are 3 times more expensive to hold than congresses for a consumer, due to the higher rental costs of exhibition areas," Ionova says. Now in Russia the rates for exhibition areas range from 6 to 15 euros per sq.m a day, while the rates for congress areas on average is 3-6 euros per sq.m a day.
In world practice now, practically every large congress is accompanied by an exhibition, and every large exhibition is accompanied by a congress. This has helped private owners to occupy a niche in the market and make money from the diversifying congress centers, combining services for holding conferences with concert-exhibition activities. Russian examples are the construction of a congress-concert hall in Crocus Expo exhibition complex and the congress center within the territory of Expo Center, which may become the largest conference space in Russia.
The Expo Center project is planned to be completed by 2012. The building has been designed by British architect Zaka Hadid, one of the best architects in the world. According to Alekseyev, the congress center will cost approximately $2,000 per sq.m. The total area of the whole future expo centre will be more than 20,000 sq.m, 6,000 sq.m of which will accommodate a congress center with a capacity of 1,500 people. In Alekseyev’s opinion, this format is the most common in Moscow and Europe. However, the area of the congress center may also be increased up to 10,000 sq.m to hold congresses with more participants, he added.
The amphitheater in Crocus Expo, according to the director of Crocus Congress Center Leonid Lozbenko, will be completed in March next year. Its capacity will be 6,000 people. The project will cost $140 million (20% of the total cost of Crocus Expo). It is intended for large customers of international professional associations and transnational corporations which hold meetings for at least 5,000 participants. Such events will simultaneously involve some services from the exhibition, hotel, and entertainment segments.
Crocus Expo already includes a separate shopping center - Crocus Mall, four hotels and its own metro station is under construction to solve the problem of transport accessibility. The top management of the company plans to recoup the costs of the construction by means of boosting the whole congress-exhibition industry.
Crocus Congress Center plans to fight the current crisis by means of increasing the number of concerts and entertainment events, which still seem to be in demand despite the hard times, notes Lozbenko.
Economic instability will influence congress events in two ways: on the one hand, companies will reduce costs on congresses, and on the other the number of corporate and state meetings will increase.
Projects from zero
In the world there are three main types of congress centers divided by capacity: 1,500 people, 2,000-3,000 people and 10,000-15,000 people. As a rule, the centers compete not at the level of the space, but at the level of the countries and cities. The main clients of congress centers are state structures, large international and transnational companies, and also professional associations that hold international meetings on a regular basis and to this day are considered the most popular.
Among the requirements for a premises in which to hold a congress are proximity to airports, the volume of traffic in the city, and the location of the premises in relation to the city center and historical sights.
A multipurpose congress center that meets world standards should include a main hall for holding the plenary session which can then be partitioned into several smaller smalls. There should also be premises where round tables, sessions and meetings can be held. Meeting rooms should have simultaneous interpretation facilities (into six languages, under UN standards).
The construction of such a congress center with a capacity of 1,000 people can cost at least $30-50 million. Renting premises in it can exceed 2,000 euros per sq.m a year. Currently in Moscow the cost of a package deal for one participant of a large international congress is from 300 to 1,000 euros.
In Russia the congress business faces some specific problems. "First, it is extremely difficult to develop this field of activity without a legislative base,” says Lozbenko. “Secondly, without the support of local authorities it is difficult to compete with state congress centers, in fact carrying o hold international events approval from the government is needed."
In Moscow it is also difficult to attract international clients because of the complexity of the visa system, and also because of the high cost of services in the Russian capital. In 2006 the Adam Smith Institute held a forum for leaders of management at Expo Congress, to which Helmut Kohl, Bill Clinton, and other marketing experts and heads of leading international companies attended. "We liked organizing this forum,” says Alekseyev. “However they admitted that it was difficult to make ends meet." On the demand of the organizers Expo Congress converted the premises by building additional walls in the main hall subject to sound absorption and light reflection and this was reflected in the cost of participation - $3,200 per person. At such a price to hold such an event in Russia for organizers loses economic interest, considers Alekseyev.
In the world the problem of financial appeal is solved as follows: passenger carriers and hotels give large (up to 50%) discounts to participants. The city authorities are a big help as they understand the value of the international resonance connected with holding a congress, for raising the prestige of the city.
PR person required
Organizations engaged in the activities of congresses in different countries are part of international associations, such as ICCA, UFI (The Global Association of the Exhibition Industry), etc. According to the ratings of ICCA, the leading country by number of international congresses in 2007 was the US (467 congresses), and the leading city was Vienna (154 congresses). Moscow came 80th in the list. Under UFI’s rating in terms of the condition of congress infrastructure Moscow comes 42nd from 53.
The not so brilliant position of Moscow is caused by a lot of factors: here there are few specialized premises for holding international congresses, statistical and analytical research on the congress industry has not been carried out, and the infrastructure is not developed. Moreover there is no system of standards or regulatory-legislative base for such activity. Many of these problems can be solved by opening a so-called congress bureau - such non-commercial structures are rather widespread in the West. Their functions consist of advertising and promoting the congress services of the city in the world market using money from the local budget and the payments of participants. An initiative to create such a bureau was set up by the Commercial and Industrial Chamber of the Russian Federation last summer. Now, according to the person who came up with idea - Vadim Zhukov, they are at the stage of developing the concept. "In Moscow there is no congress association or elementary market structures that can connect various premises,” he says. It is planned that next year the bureau may start to operate.
"A congress bureau, certainly, can solve many of our problems, however it will only make sense if it allocates serious powers and levers of pressure on air carriers and the hotel business," says Alekseyev.