DUBAI—Hospitality players in the Middle East and Northern Africa won’t let the effects of an Arab Spring blind them from seeing the potential for hotel development.
“It is important that governments realize the benefits of travel and tourism to their economies. They represent 10%of global (gross domestic product) and 8% of global employment. All Arab Spring countries will rebound,” said Gerald Lawless, executive chairman of the Jumeirah Group, at the Arabian Hotel Investment Conference in Dubai.
The group is expanding in the GCC, including Bahrain, Doha, Kuwait and Oman. “We believe strongly in the viability of hospitality in the region. There is great pride from an investor perspective to have Jumeirah as an operator because we are home grown,” Lawless added.
The operator isn’t blinded by patriotism for the MENA region. “We need peace to thrive; the potential is there,” he said, adding that seeing 80% occupancy in the Middle East at the end of last year was encouraging. “People see investment potential when they see these kinds of numbers.”
Investment amid instability
Fellow AHIC panelists, many leading development at international hotel operators, sang a similar tune. While the troubled countries Bahrain, Egypt, Libya and Syria didn’t make it onto the top priority list, everyone concurred hotels are a long-term investment. Consequently, they are keeping an eye on these countries to push plans forward as soon as it becomes evident they are stable.
“The occupancy in our Sofitel in Bahrain during the (Bahrain Gran Prix) was very good, I can see signs of investors looking at new projects there,” Accor’s Director of Development for the Middle East, Olivier Granet, said.
Similarly, not everyone has thrown in the towel as far as Egypt is concerned.
“We are looking at all the resilient markets, like Dubai, but are also taking a look at those that have gone through the Arab Spring. If supply and demand drivers remain, we believe in Egypt and Lebanon,” said Ghaith Shocair, CFO of Majid Al Futtaim Properties, which develops retail and hospitality projects.
As an investor, he recognizes the risks as much as the opportunities, citing a general policy in countries such as Egypt and Tunisia to encourage hospitality employment versus populist pressure on the streets, which curb investment.
“When you have former or present governments accused of wrongdoing regarding particular land and infrastructure transactions, then there is a risk that the hotel investment won’t bring a quick return,” he said.
It is about striking a balance and taking individual forecasts of challenged markets and ensuring one prices and measures risk accordingly. Consumer spending in Egypt has bounced back to pre-revolution levels, Shocair said. “You have to go back to look at the fundamentals of investment achievability. Not everyone should go into shut down.”
Underlining his words, Granet remarked that Accor has just signed another management agreement for Egypt. He said there’s an air of expansion, not retraction, in the region. Owners are enjoying choice with operators busy competing to expand their brands.
Hot spots for development
Operators varied levels of interest by region and brand. Corinthia Hotels & Resorts is targeting Dubai, while Holiday Inn, ibis and Fairmont Raffles are expanding in Saudi Arabia. Holiday Inn also is stepping into Muscat, Novotel is pushing into Tunisia and Sofitel is eyeing Doha.
“The Middle East continues to be a very attractive market for us. Dubai is the undisclosed ‘king’ of the region followed by Saudi Arabia,” said Taras Ettl, VP of MENA development for InterContinental Hotels Group, which has 98 hotels in the region, 22 of those in Saudi Arabia, half of them in the deluxe segment.
Algeria is also high on the priority list for operators. Various brands including Fairmont Raffles Hotels International plan to open or expand their portfolio there.
“We had to reshuffle a couple of plans in terms of development due to the Arab Spring and the conflict in Libya, but the Middle East is a very resilient market, known for hotel performance to return quicker. Algeria is stable market for growth,” said Fairmont’s Director of Development for EMEA, Rami Moukarzel.
It is about taking the long-term view, emphasized Paul Pisani, senior VP of development for Corinthia Hotels, whose hotel in Tripoli became a safe haven during the conflict. He added he believes in the potential of the country to become a tourism destination one day. When is difficult to say, as no one controls the politics.
“The fundamentals stay the same: Libya’s beaches are still there and so are the fish in Egypt’s Sinai. It is just a small blip, it may take longer, but it will come back,” Pisani said.
Moukarzel confirmed the sentiment, reminding attendees that political issues in the region are nothing new.
“There is optimism in the long term,” he said. “Countries like Libya will bounce back. The problem is you don’t know how long it will take. In Egypt Cairo is more sensitive due to a lot of unknowns, but developers are looking at the Red Sea again. There are direct flights from Europe, and the area is picking up.”