HVAC MARKET OF SOCHI

Distinctive features of the region, which influence the development of HVAC market

There exist different theories about the origin of the name Sochi. According to one of them it comes from the word Sadsha, which meant Sea or Near the Sea in the language of ancient inhabitants of that land. By now sea determines life of Sochi a great deal.

Sochi occupies long and irregular strip on the coast of Black Sea between village Magri on the northwest and river Psou on the southeast. Sochi is one of the famous Russian resorts. Mountain range protects Sochi from the cold northern winds in winter. Black Sea gets warm in summer and warms up the coast in winter.

When you climb the mountains, air becomes cooler by 0,6 C per each 100 meters in summer, and by 0,3 C in winter. The temperature difference between lowland and highland regions of Big Sochi could reach 15 C and more. Average temperature in the town is 25-30 C in summer and 10-15 C in winter. There are only three seasons in Sochi instead of four: warm and humid summer is followed by long autumn, late fall comes to early spring.

The agglomeration of Sochi includes the town of Sochi within its administrative borders (so called Big Sochi), western part of the Gagra region of Abkhazia and the town Tuapse, which also has strong ties with Krasnodar. Permanent population of the agglomeration is around 500 thousand people, and more than 700 thousand including population of dependent on Sochi regions. In the peak of the summer high season there live around 1,3 million people in Sochi and all dependent territories.

Expression Big Sochi was introduced to differentiate historical town Sochi (Central part of Sochi now) and Sochi within its administrative borders, including Lazarevskoe, Loo, Dagomys, Khosta, Kudepsta, Adler, Krasnaya Polyana and others.

Tourism is a base of economy of the region. A lot of hotels, sanatoriums and other recreation centers are situated along the coast of Black Sea in Big Sochi. Numerous caf?, bars, entertainment centers, aqua parks and beaches offer to tourists a variety of ways to have a good time.

Food and processing industries are also developed in the region.

Construction activity in Sochi

Up to the present time the building construction in Sochi developed chaotically, mainly because the latest General Plan of Construction was adopted as far as in 1967 and was designed for 20-30 years. Now the development of a new General Plan is under way. The main target of the program of development of Sochi for the nearest four years is to double the number of guests of the resort. General Plan includes reconstruction of the waterside, development of modern beach facilities and necessary infrastructure. It envisages the most advanced decisions in design and construction, and preservation of historical traditions at the same time.

Commercial real estate and investment projects

The Town Planning Investment Conception is actively under development in Sochi. It includes plans for positioning, design, construction and exploitation of hotels and corresponding infrastructure on the territory of the Big Sochi. Full scale realization of this project needs more than 1 billion USD investment. Alongside with construction of new hotels the reconstruction of existing hotels "Moskva" and "Chayka" is planned.

In 2008-2009 the construction of "Ostrov Federatsiya" ("Federation Island") will be started. This project was developed by famous Dutch architect Erik van Egeraat. It would be an artificial island in Black Sea shaped as Russian Federation. The project is planned to be completed by the beginning of 2013, before Winter Olympics – 2014 is open. "Ostrov Federatsiya" is not a part of official Olympic construction, it is not intended for Olympic competitions neither for accommodation of the guest of Olympic Games. At the same time it would include hotels, stadium and other sporting facilities. The presentation of the project took part November 22, 2007 within the Sochi Forum. Saint Petersburg based construction company "M-Industriya" will be the contractor of the project. Financial company "Allied Business Consultants LLC" from the United Arab Emirates is the only investor of the project "Ostrov Federatsiya". After the construction is completed, construction company "M-Industriya" shall get 30% share of this complex.

"Natsbisnesbank" intends to invest 3,8 billion roubles (more than 150 million USD) into the construction of the office and trading complex "Sochi Plaza". This complex would include five-star hotel, trading center, apartment bloc and class-A office premises. The total square of the complex would be 100 thousand square meters.

The same "Natsbisnesbank" plans to finance the construction of sporting and touring complex "Gornaya Karusel" in Krasnaya Polyana, new Russian ski resort and touring center of the world highest level. Infrastructure of "Gornaya Karusel" includes alpine skiing tracks and modern ski lifts. There also would be the zone of chalet and hotels, where the journalists, who broadcast sporting events in Krasnaya Polyana, would be accommodated. OAO "Investitsionnaya Kompaniya "TPS" plans to start in Sochi in 2008 construction of the Congress Hall. Value of the project is 500 million EUR, construction would take 2-3 years. The Congress Hall should have exposition square of 20 thousand sq. meters and trading premises of 30 thousand sq. meters. There will also be a conference-hall for 3200 people. In the Congress Hall would be held The Sochi Investment Forum and other official and business events. New Congress Hall will replace existing complex "Festivalnyi".

One of the biggest contractors who work in Sochi is Austrian company "Strabag Group". Experts say that the modest estimation of the total value of contracts "Strabag" won in Sochi is 150 million EUR. Now "Strabag Group" carries out reconstruction of airport in Adler and construction of the Olympic Stadium.

"Altius Development", branch of the company "Bazoviy Element", is a developer of multifunctional complex "Imeretinskaya Riviera" in Sochi. "Altius Development" plans to invest into this project 3 billion USD. The Olympic Village would be situated in the territory of "Imeretinskaya Riviera" during the Winter Olympics – 2014. There also would be built hotels, luxury real estate, sporting and entertaining complexes, entertaining park with aqua park and big yacht terminal. According to preliminary project, the total square of different objects of the complex would be around one million sq. meters.

Company "Expo" is going to start in 2008 construction of Entertainment Park on the bank of river Mzymta, opposite to Imeretia lowland. It would be the only entertainment park in Europe with different amusements, pool with artificial waves for surfing and artificial installation for rock climbing. New Entertainment Park would be situated immediately near the Olympic Village. The construction is to be completed in 2010.

Olympic infrastructure

The Federal Target Program envisages development of the Olympic infrastructure in the region of Big Sochi. Olympic infrastructure should include Olympic Stadium, big and small ice stadiums for ice-hokey, ice stadium for figure skating, short-track, skating center, ice stadium for curling, main and subsidiary Olympic Villages, skiing and bobsleigh tracks, ski jump and many other.

There also should be constructed new roads, developed new fiber-optic lines and radio communication nets, built new information and communication center, and so on. New state corporation "Olympstroy" has been specially created to organize construction of Olympic infrastructure.

Industrial construction

It is planned to build and modernize by 2011 four power stations and four cascade-type hydro power stations with total capacity of 1129 MWt in the Sochi region. Value of the project is estimated in 83,6 billion roubles (3,3 billion USD). These plans include: double increase of the capacity of the Sochi power station; reconstruction of the Krasnaya Polyana hydro power station; construction of the Krasnodar and Adler hydro power station; construction of complex of four cascade hydro power stations on the river Mzymta; construction of steam and gas power stations in the regions of towns Tuapse and Novorossiysk. Into energy generation should be invested 33,7 billion roubles and 49,9 billion roubles more into development of electric power transmission. It is planned to replace all electric power transmission nets in the town completely.

Residential real estate

Blocks of flats, houses, cottages and private mini-hotels make up 80% of total number of objects under construction in Sochi. In this year were commissioned big residential complexes "Premier", "Aleksandriyskiy Mayak" and "Gals".

Residential construction is financed by both State Budget and private investors. According to official information, it was planned to build 1,5 million sq. meters of social housing in Sochi at the expense of the Federal Budget. Everyday you can see announcements about new investment projects for construction of luxury residential buildings.

Companies from other regions of Southern Russia are very active the Sochi region. For instance, concern "VANT", based in Rostov-na-Donu, works in the construction market of Sochi for two years. Total square of residential real estate it built in the town exceed today 500 thousand sq. meters. Georgiy Babaev, President of GK "Sunzha-Development", says that "VANT" is now a lieder in the segments of economy and business class real estate. Babaev explains that the main reason for it is the lack of interest to these segments of construction business from the part of big Moscow based construction companies, who are engaged mainly in construction of luxury residential real estate. According to his opinion, the most active players in the market of luxury residential real estate are corporations "Gras", "MP Group", "Dialstroyinvest" and "ST Group". Luxury residential real estate demands more solid investments than economy class, but at the same time the output is higher and faster. Mr. Babaev believe that local companies can not compete with "VANT" in the segments of economy and business class real estate, because price of the plots in Sochi is very high, and local developers can not invest enough to guarantee fast payback.

Specific features of local HVAC market

Southern Russia is the most capacious market for room air conditioners in Russia. RAC are not a luxury there, it is a necessary thing to meet the requirements of comfort living conditions. It is a common thing in Southern Russia that groups of population with rather low income, such as pensioners, actively buy air conditioners.

One of the specific features of the region is that there is no seasonal difference in sales. Construction works are carried out practically all year round there.

Elena Pakhomova, General Director of the company OOO "Lux Komfort" says: "We have a very specific climate conditions here: it's hot and humid. Not every kind of equipment could work here properly. Besides, we are close to sea, it causes intensive corrosion. So we have to buy more expensive equipment with antirust coating".

Construction boom during last tree or four years in the Krasnodar Territory, part of which is Sochi region, guaranteed demand for heavy HVAC equipment. It provoked differentiation of local HVAC companies into two groups. Companies of the first group go on working in the segment of the room equipment. Companies of the second group concentrated their efforts on industrial equipment, no wander, taking in consideration sharp growth of this segment.

As far as so called "positive influence of Olympic factor on the HVAC market of the region" is concerned, it's reasonable to expect some positive changes only in future. Mass construction of Olympic and other prestigious objects is not under way yet. There are still no even designing projects of the majority of declared Olympic objects. At the same time the number of players, who want to get a niche in the market of Sochi, increased significantly.

The main customers of HVAC companies are private persons and "Olympstroy". Sure, there are some more big customers: companies, who build high-rise buildings and trading centers. Among them are also those who are engaged in reconstruction of hotels and other big objects.

Players of HVAC market of Sochi

Now more than 40 HVAC companies work on the part of the coast of Black Sea between Adler and Tuapse. The biggest of them are OOO "Almaz", OOO "Albion", OOO "Deltacool", OOO "Kompaniya "Versal", PSK "Kredo", OOO "TK "Pingvin".

Volume of the regional market of air conditioners was in 2007 of around 11,5 thousand units. Distribution by the price segments is more or less the following: cheap air conditioners – 42%, medium price air conditioners – 40%, expensive models – 18%.

In the Sochi region the following trading chains work: "Domostroy", "M-Video", "Mikro-Lana", "Pioner", "Poisk", "Tovary iz Germanii", "Eldorado". Regularly appear new ones.

Traditionally there are different opinions about the influence of trading chains on the market. Heads of specialized HVAC companies consider trading chains to be an obstacle for the civilized development of the business.

Serguey Borovik, General Director of OOO "Albion" says: "The influence of so called "seteviky", or trading chains, on the HVAC market situation is very negative. It's because of their trading strategy of price damping, absence of after-sales service and low qualification of personnel".

Elena Pakhomova, General Director of the company OOO "Lux Komfort", has a little bit different opinion: "In the beginning these shops made some troubles for HVAC companies indeed. Mainly because the whole way of their existence could be describe in the word "dumping". But in some years they occupied their own niche: sales of low-quality equipment and installation works, carried out by non-professional brigades "from the street". And no after-sales service as it is. There was some positive side here: we stopped selling cheap equipment and got some spare time because of it. Now we repair equipment which was sold by trading nets, advertising ourselves and showing everybody their incompetence this way".

There are no local producers of HVAC equipment in Sochi. Elena Pakhomova tells: "Ones a man came to my office and proposed to open a chiller factory here. But it is a resort here, and you should regard things in a sober: who needs a factory at the resort?"

Main brands of HVAC equipment

Equipment of practically all world manufacturers are presented in the Sochi HVAC market: room air conditioners AUX, Daikin, Dantex, Fujitsu General, General Climate, Gree, Haier, Hyundai, Kentatsu, LG, McQuay, Midea, Mitsubishi Electric, Mitsubishi Heavy, Polar Bear, Panasonic, Pioneer, Polaris, Samsung, Sanyo, Sharp, Tadiran, Toshiba, Venterra; industrial air conditioners Aermec, Carrier, Denco, Daikin, Fujitsu General, Korf, LG, McQuay, Mitsubishi Electric, Panasonic, Sanyo, Wesper. Multi-zonal systems are represented by brands Daikin, Fujitsu General, Mitsubishi Electric, LG, Sanyo; chillers and fan coils – Polar Bear, Daikin, Carrier, Clivet, McQuay, Wesper. There is ventilation equipment Amalva, Aermec, Korf, Ostberg, Systemair, VTS-Clima, Wesper, Wolf, Arktoc, Veza; HVAC equipment for swimming pools Polar Bear, Calorex.

Most popular heaters, convectors, electric fire-places are Arktos, Nobo, Noirot, Termor, Teplomash. Heat curtains are represented by companies Ballu, Frico, General, Korf, Pyrox, Kupol, Arktos, Teplomash, Tropik, Favorit. Trade houses sell air humidifiers Boneco, Air-O-Swiss, Elenberg.

Special events, advertising and marketing

Every year several construction exhibitions take place in Sochi. The most popular one is "Stroymarket", it is held in March and October. In March, 2008 there was organized architecture and construction forum "Stroyplotchadka Budutchego" ("Construction Site of Future"). Within the forum took place presentation of construction projects, which were planned to realize in Big Sochi by the Winter Olympics – 2014.

Companies Daichi and Ventrade organize each year different actions and presentations, and also seminars for dealers and designers.

Difficulties and prospects of HVAC market in Sochi

Specialists say that, taking into consideration announced super-ambitious plans of construction and reconstruction of Sochi, local HVAC market has infinite prospects of dynamic development. At the same time, to avoid disorder in the HVAC market, there should be created an association of representatives of HVAC business, and introduction of unified rules of the game at the market.

Serguey Borovik says: "There should be organized strict control of the quality of offered services. Activity of so called "seasonal" players and trading chains should be restricted, because it affects the market situation drastically".

Lack of qualified personnel, common for all HVAC industry problem, also exists in Sochi. Andrey Agapov, Director of company "Deltacool", says: "Professional training of installers still remains a problem. Many companies feel the lack of qualified specialists".

A typical feature of a fast developing and not mature yet market is insufficient qualification of customers. Here is the opinion of Alexandr Goncharenko, Director of company "Neoterm": "Customers still don't understand that not all firms are "equally useful". Sometimes, they attract casual labourers with no qualification for work, which can be done only by serous professional company, which has big and well prepared stuff of experienced professionals. As a result, customer "save" money, but acquire a lot of problems with launching equipment into exploitation, guarantee service and, it's the most important, with post-guarantee service and maintenance".

As far as sharp and not always fair competition is concerned, each company looks for appropriate way itself. Big companies step by step reject "wild" ways of doing business and "in kind" responses to trading nets. They improve quality of their work instead of decrease price. Vadim Volovikov, Director of company "Pingvin", says: "The main problem of our region is that there exists big and sharp competition at the HVAC market in a rather small piece of land. We try to resolve this problem in a civilized way: we improve quality of our work; enlarge the spectrum of our service; we guarantee in-time service and individual approach to our customers; we practice direct delivery of equipment in short time; we offer wide range of equipment and optimum price-quality ratio".

All participants of HVAC market in Sochi expect serious increase in sales in the nearest future. These expectations, surely, are connected with approaching Olympics and construction boom it should cause.

Editors of magazine "The World of Climate" sincerely acknowledge help and assistance of the team of Information Project HVACNEWS.RU and the top managers of Samara based HVAC companies:

Vadim Volovikov, OOO "Torgovaya kompaniya "Pingvin", Dirctor:

- Winter here is warm, so air conditioners are often used for heating. There is a big demand for low-capacity split systems in Sochi. The structure of sales is determined by private customers a great deal.

After the decision to carry out Winter Olympics – 2014 in Sochi was taken, there is an increase of construction activity. Some projects of luxury residential complexes are already under way. There are plans to build new public, administrative, sporting, recreational, cultural, entertainment and trading complexes. Because of it there appears a good prospect for central air conditioning systems, their share of market could increase.

Maxim Kovalenko, OOO "Ventrade", Director for Development of Southern Region:

- We undertake complex wholesales of HVAC equipment, offer technical consultations, supervise construction works on different objects, where our equipment is installed. We don't do installation works ourselves.

The rate of growth of HVAC market in Sochi corresponds the rate of growth of the local construction market, approximately by 30-40% annually. Specific features of HVAC market of Sochi are determined by its southern and recreational nature, and by "Olympsrtoy", naturally. We have hot climate in our region, many recreational facilities, hotels and sanatoriums; besides there started a construction boom. All this means high demand for our equipment".

Serguey Borovik, OOO "Albion", Director:

- HVAC market of Sochi is very diverse, and has a practically unlimited capacity under present conditions. At the same time it remains non-civilized and half-wild.

Unfortunately, there are a lot of self-made "specialists", who have got some superficial knowledge and who converted HVAC business into some kind of "beach season". There are many "wild brigades", short-lived firms and trading nets. In order to obtain fast money they practice price dumping, intentionally distort information and statistical data, sometimes even offer to customers intentionally false or wrong technical decisions. Because of it I would like to give customers a good piece of advice: deal only with specialized HVAC companies and with qualified specialists.

Serious investors are coming into Sochi. To my mind, there should be a shift of demand into the segments of industrial and more sophisticated equipment in the local HVAC market.

Elena Pakhomova, OOO "Lux-Komfort", General Director:

- The main attraction of our town is its nature and, surely, the sea.

The majority of us, I mean HVAC market players in Sochi, are dealers of companies based in big cities. This HVAC companies offer substantial discounts for regional dealers, but nobody supervise how its dealers sell equipment. Because of it price dumping is flourishing in Sochi. In addition, each fired installer immediately opens his own business, which can compete with really professional companies only knocking down prices.

Andrey Agapov, OOO "Deltacool", Director:

- The interest to the town of Sochi grows from year to year. Construction boom doesn't slow down even during the beach season. Because of it sales of HVAC equipment don't have now seasonal nature nowadays. Requirements of Russian citizens to the quality of recreation service are growing high. It makes developers to approach more seriously to equipping new hotels and other recreational facilities with modern and efficient systems of air conditioning and ventilation.

At the same time, it still a rare thing when customers discuss with specialized HVAC companies and design organizations all nuances of creation of indoor climate beforehand. It doesn't allow to resolve the issues of placement of the climate equipment in complex with the specifics of design of building and with energy consumption on the stage of designing and capital construction. First of all, it concerns construction of private hotels. Projects of these hotels are usually ordered and construction work starts without a glance to the climate issues.

Alexander Goncharenko, OOO "Neoterm", Director:

- Sochi is a town where air conditioning systems could be used practically all year round. Winter temperatures allow to use air conditioning systems in winter to heat room. Many customers, who don't have heating systems for some particular reason, often do it.

Some of the problems of development local HVAC business are those, connected with entering into the market of Sochi of big companies – suppliers of HVAC equipment. These companies are interested in their turnover only, and they can give big discounts to end-user.

Artem Shachnev, Engineering and Construction Group "Mikroklimat", Director of Retail Net:

- Engineering and Construction Group "Mikroklimat" opened its retail shop in Sochi in 2008. We foresee good prospects for development of our main engineering and construction business in Sochi. We have all necessary resources to do it. Engineering and Construction Group "Mikroklimat" includes its own design organization, construction and installation company, wholesale company.

The main specific feature of the market of Sochi is that investment attractiveness and Olympic fever caused very high competition in all local markets, including HVAC market. At the same time the market expands. Owners of hotels, including those under construction, for instance, clearly understand that guests now became more fastidious and demand better service. Air conditioner in a room of hotel is now not only the indicator of the level of hotel, but also a must.

The specificity of equipment, delivered to the region, is that seasonal factor is not clearly expressed. At the same time, temperature variations also influence the level of sales.