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Riga, at a crossroad

The political, cultural and economic center of Latvia, Riga has had a stormy history filled with foreign invasions due to its position at the crossroads of Europe. A multicultural city whose identity is multifaceted, Riga is a destination that looks toward the future and is aware of its many economic and touristic advantages. While in recent years hotel growth was slowed by the tumultuous character of geopolitical relations between Europe and Russia, which are its two source markets, Riga does not fall short of arguments to put forward. It is the portrait of a Latvian capital that finds itself at a crossroad.

Located at the mouth of the Daugava River, Riga established itself on the shores of the Baltic Sea. The first mention of the city dates back to the 10th century, but the year 1201 is considered the official year of its foundation. The capital went under the German flag and then became a major center of the Hanseatic League. Because of its geographic location between Western Europe and Eastern Europe, its proximity to Russia and its status as a strategic commercial hub, Riga has long been coveted by the surrounding powers. For nearly 700 years, Latvia has been successively subject to German, Polish, Swedish and Russian occupation... And in the 20th century, it regularly found itself at the heart of geopolitical conflict between Russia and Germany, with the lasting domination of the Soviet Union being broken by periods of German occupation during the two world wars. Latvia acquired its independence by the Baltic Countries after the Singing Revolution (led between 1987 and 1990), and naturally made Riga its capital, before joining the European Union in 2004 and the Eurozone in 2014. But its recent past is not untarnished: more than one quarter of the country’s population is Russian, which is not inconsequential for relations with its powerful neighbor...

Today, the city is divided into six districts and suburbs, subdivided into 58 quarters that all have their very own identity and form a cultural mosaic. Its architecture is characteristic the urban fabric of its medieval center testifies to the city’s prosperity between the 13th and 15th centuries. Riga is also one of the cities with the strongest concentration of Art Nouveau buildings in Europe, as well as many buildings of timber dating from the 19th century, soviet buildings and modern architecture stand alongside medieval constructions in an urban landscape. The combination blends past and present, which are characteristic of the Latvian capital.

The country’s heritage is also natural: 17% of its territory is forest; an environment that is propitious to the preservation of birdlife (and thus bird watching); it also protects about 25 species of plants. The aquatic environment is very present: 17.6% of the city consists of lakes and water points, and Riga has no fewer than 13 lakes. It offers an ideal environment to develop ecotourism and tourism in connection to wellbeing, particularly since the Jūrmala beach resort is fewer than 40 minutes from Riga. Latvian authorities promote the country for slow tourism, under the slogan “best enjoyed slowly”. Finally, the quality and cost of its health sector have made Riga a favorite destination for medical tourism, with 300,000 foreign patients each year.

The country’s four traditional economic pillars are agriculture, the chemical industry, logistics and the wood industry. According to the Investment and Development Agency of Latvia (LIAA), the country also benefits from advantages in the metal working, transport & warehouse, new technologies, renewable energies, health, sciences and agro-food sectors. In 2016 World Bank ranked the country 22nd out of 189 for its capacity to encourage foreign investment. Riga also rose to the Top 10 destinations with the strongest appeal for direct foreign investment in the forecast ranking of future European cities and regions by fDI Intelligence. For its strategy to appeal to investors, it relies on cost effectiveness, with low-cost labor (in 2015, the average Latvian salary was 817.15 euros before taxes) with a good level of training, as well as low corporate taxes (with a fixed rate of 15%).

The demographic evolution of the country is negative, however; as in other Baltic countries, the region overall lost close to 20% of its population since 1992. Since 2014, Latvia dropped below 2 million inhabitants, one third of which are concentrated in the city of Riga, which had a population of 641,007 in January 2015. In this context, the pressure on land and property is more moderate than in other European capitals. This factor may benefit investors, because the territory offers many opportunities.

The tourism sector also has strong potential. In 2016 Riga airport posted record arrivals, with more than 5.3 million travelers. The capital has many tourist attractions such as its old town and Riga Central Market, a UNESCO World Heritage site, one of the biggest markets in Eastern Europe with 80,000 to 100,000 visitors daily. Its four pavilions were built in 1920 and were used as hangars for military aviation. The cultural dynamism of Riga also plays a role in its image: the capital has 40 theaters, an opera and many museums. It organizes music festivals year-round, including the Riga Music Festival (in January), the Bach Music Festival (in February-March) as well as the Riga Opera Festival (in June).

To develop the tourism sector, the government is focusing on several economic goals: increase the number of foreign visitors staying in the city for three days or more, increase the exportation of tourist services by 5 to 10% per year. The Riga Tourism Development Bureau, also known as “Live Riga” is developing the capital’s tourism sector under five themes: “Look Riga, Feel Riga, Stay Riga, Meet Riga and Work Riga”.

In 2015, the destination had 125 properties representing 15,723 beds, according to data from Latvia’s Tourism Development Bureau. The capital posted an increase in its supply in recent years and this supply has diversified. Hotels are predominant there: 90 hotels for 6,540 rooms according to Latvia’s Statistics Bureau. These units are mostly on the upscale segment: 4,066 4* rooms (for 58.5% of the supply) and 258 rooms in 5*. In 2016, the city was enriched with the Pullman Old Town Riga (155 rooms) and the Park Inn by Radisson Residence Riga Barona (78 keys). In the second semester 2017, the former Riga Hotel will reopen its doors under the Kempinski brand after major renovations; it will be renamed the Kempinski Grand Hotel Riga (141 rooms and suites). The three leading hotel groups in Latvia’s capital are Carlson Rezidor, Best Western and AccorHotels. Riga also has 22 hostels for 1,876 beds, three Guest Houses with 130 beds and two campgrounds (capacity 420). In 2016, the capital posted a RevPAR (Revenue per available room) down slightly by -3.6% compared to 2015.

This may be explained by a slight drop in its occupancy rate by -0.9 points, which nonetheless reached a high of 67.1%, and a drop in average daily rate by -2.3% (or a value of 61.2 euros in 2016), according to data published by MKG Consulting_ OlaKala_destination.

From a geopolitical standpoint, the city is positioned at a new turning point because of its exposure to the Russian market. Riga posted an average occupancy rate of 67% in recent years while the number of Russian arrivals nosedived in Europe. The change in relations between Europe and Russia should prove decisive for its economy overall and for tourism in particular: Latvia will be one of the first markets to benefit from improvement. Inversely, if relations worsen, the geopolitical risk could have a negative impact on all the Baltic States. Moreover, the cultural proximity of the two countries is such that close to 80% of Latvians speak Russian, according to the Investment and Development Agency of Latvia.

The segmentation of clientele staying in the country may be broken down as follows: domestic clientele generates 24.3% of nights realized in the country, ahead of Russian clientele who continue to lead in terms of number of foreign visitors, with 13.4% of travelers. Between 2007 and 2015, Russian clientele grew by no less than 115%, German clientele by 53% and Estonian visitors by more than 71%, according to data from the European Hospitality Report 2017. Despite the recent drop in Russian arrivals and the volatility due to the geopolitical context, in the midterm growth in foreign clientele constitutes structural support for Latvia’s hotel sector.

According to Riga’s tourist office, the expectations of visitors to the capital vary depending on criteria and especially depending on their age. According to a study published in 2014, its quality-price ratio constitutes an important appeal factor, particularly among 16–25 year old, while visitors aged 56 to 65 and over 65 are particularly interested in its cultural heritage. Riga’s accessibility and good image are key factors for visitors of all ages. On average, visitors spend 74.86 euros per day in Riga. Norwegians spend the most, with average spending of 122.66 euros per day. Overall, across all nationalities, tourists 26 to 35 years of age spend the most (85.42 euros per day on average). A survey also reveals negative factors mentioned by visitors: the city needs to improve the quality of its welcome and especially hospitality; the local climate and public transportation are not its strong points.

The city looks toward the future and is developing through a series of projects. Riga has a plan for sustainable and strategic growth built around four pillars: social (a qualified population and active society), economic (strengthening of innovation and the ability to export), urban (develop a safe, practical and pleasant environment) and international (internationally identifiable and competitive destination). The capital also hopes to develop its accessibility and commerce, particularly by connecting “Freeport Riga” to the Via Baltica, also known as European Route E67, with a motorway. This route connects Helsinki to Prague, via Riga, Tallinn and Warsaw and is financed by European Funds. Investments have been made to strengthen Riga’s international airport infrastructures in order to serve 20 million passengers by 2025. Finally, “Rail Baltica” is a project underway that is planned to connect the three Baltic States by rail to the European rail network.

These development projects, as well as measures favoring investment, attest to the desire to position Riga among the leading destinations of tomorrow. And there are plenty of reasons: riche architectural heritage, a dynamic artistic impulse, a diversified events calendar and a competitive economy looking towards the world that posts good levels of growth. The only uncertainty, but a big one, for local hoteliers and investors: the impact of European geopolitics on tourism. In Riga, more than anywhere else, fortune favors the bold.

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