A more stable Iraq brims with opportunities
A more stable Iraq brims with opportunities
04 NOVEMBER 2013 7:17 AM

A booming oil industry and infrastructure upgrades are piquing interest from hotel developers, especially in the more stable Kurdistan region.

REPORT FROM IRAQ—Iraq’s Kurdistan region—comprising cities Erbil, Sulaymaniyah and Dohuk—brims with opportunities for hotel development driven by oil and its reconstruction programs and status as a safe haven in the country.

“Although, Kurdistan market is not yet as mature as other markets, the region in general has seen notable improvements in the regulation of the business environment as well as investment flows to various sectors,” said Olivier Granet, director of development in the Middle East for Accor, which is looking to enter Kurdistan.

“More specifically, the hospitality sector has benefited from the continuous development of Erbil‘s airport, city infrastructure along with leisure and commercial areas, and we have seen lots of interest toward our brands,” he added.

Kurdistan is in the top 10 largest oil reserves in the world and represents a strategic entry point to the rest of Iraq. “In contrast to other parts of Iraq, the perceptions of a comparatively safe and stable environment have generated significant investments and an estimated amount of approximately 2.2 million visitors to Kurdistan in 2012,” Granet said.

For the last decade the Kurdistan Region has enjoyed a level of peace rarely seen in other parts of Iraq. However, it seems oil is fuelling development as much as raising the potential for conflict, as is the fluid political landscape.

According to a recent HVS report “Here comes Kurdistan,” more than 50 companies from 23 countries are pumping $10 billion into the region to find and extract oil and gas reserves.

“Emerging markets often carry a certain level of political risk, and so does Kurdistan,” said Amir Lababedi, associate director of HVS International in Dubai. “At present, the majority of hotel investment is being undertaken by Kurdish or Iraqi investors, with some exceptions, whereby development finance institutions such as (Overseas Private Investment Corporation) are supporting developers to obtain finance for their projects, which may be deemed as higher risk loans by more conventional lending sources.”

He said there is huge potential for oil-related industry, supported by global oil companies, as well as significant amounts of inward investment for much needed reconstruction and redevelopment of the city, in addition to investment into the pharmaceutical industry.

“Combined, these, among other factors, represent strong underlying fundamentals underpinning the decision to invest. Investors will aim to factor the perceived political risk into their investment return requirements, and together with operators feel reasonably comfortable that … 10 years without security incident in Kurdistan indicates that this will hopefully continue into the future. The constant increase in flights and destinations being added is testimony to this,” Lababedi added.

According to HVS, 66% of total visitation in Kurdistan in 2012 was generated from travelers within other cities in Iraq. However, airport improvements, such as at Kurdistan’s gateway Erbil International, counts 22 global airliners servicing European and Middle Eastern destinations. Arrivals at the airport grew by 53% in 2012. Over the next five years, airport authorities estimate a 20% growth, slowing to 7% to 8% annually thereafter.

Colliers International’s “Iraq-Erbil hotel market overview” has recorded similar figures.

“Our research has shown that the majority of visitation to Iraqi Kurdistan tend to be intraregional and domestic and mainly for leisure purposes. As a perceived safe haven and secure city, Erbil has also benefited from international transient corporate tourism, mainly from the oil, pharmaceutical, manufacturing, consultancy and governmental sectors,” said Filippo Sona, director and head of hotels and hospitality in the MENA region at Colliers International.

According to HVS, Erbil today houses approximately 100 hotels. Supply in Erbil has tripled during the past three years, with the majority of hotels being midscale and upper midscale.

According to the HVS report, the lack of infrastructure—power, water and housing—is one of the factors driving hotel investment. Those visiting to develop the infrastructure need a place to stay, and there are no other viable options.

“So although hotel owners may have to invest additional capital for backup power supply plant, for example, this additional investment is factored into their investment returns and is currently being offset by the super-normal profits that first movers into the region can avail,” Lababedi said.

Rotana Hotel Management Corporation is testimony to Lababedi’s words.

“We opened our Erbil Rotana in 2011, and the hotel since then is performing extremely well. In 2012, the average daily rate in Erbil was great, 9% up from the previous year,” said Omer Kaddouri, executive VP and COO at Rotana.

According to Colliers, there is a gap for globally branded hotels and serviced apartments in Erbil, where revenue per available room has been on the rise since 2010, up 20.5% to $216 in 2012, despite some light drops in occupancies. Colliers expects occupancy to drop to 74% in 2013 from 75% in 2012, while ADR will rise to $301 and RevPAR to $223. 

HVS estimates a lower RevPAR for Erbil during 2013 at $136, with an ADR at $186 and occupancy of 71%. However, Lababedi said the market is far from saturated.

“It is a long-term strategy; the redevelopment plans are part of a much longer-term vision, and the underlying economic growth fundamentals of the region are considered to be sustainable over the long term,” he said.

“So although the occupancy trend may not be an upwards diagonal line as demand and the facilitators of demand such as airlift will at some points during the growth cycle have to catch up with sudden influxes of hotel room supply, they will stabilize eventually, at levels which are deemed supportable for hotel investors at present,” Lababedi said. 

He added that operators should be careful not to overreact to those influxes of supply and maintain rate integrity so as not to unnecessarily drop rates too low from which the whole market will struggle to recover from. “The importance of understanding how others are performing is vital in this regards reinforcing the need for data availability and sharing.”

More than 3,000 rooms are in the pipeline through January 2016, according to HVS. Most of the proposed hotels are 4- and 5-star properties, branded by the likes of Starwood Hotels & Resorts Worldwide with three properties; Kempinski; Hilton Worldwide; Marriott International; and two hotels from Best Western International.

“At the moment hotel investment is mainly at the upscale level … but going forward I believe there is certainly an opportunity for midscale projects,” Lababedi said.

Deemed Kurdistan’s cultural capital, Sulaymaniyah’s fertile lands call for investment, and the Kurdistan Regional Government also has approved $600 million for tourism projects, according to the HVS report.

Visitation to the city recorded a compound annual growth rate of 36.9% from 2007 through 2012. From 2005 through April 2012, airport passenger movements increased 52%. Airlines connect to Europe and the Middle East, and 1.5 million travelers are expected to pass through by 2023, according to the report.

Sulaymaniyah benefits from a larger proportion of leisure travelers due to a relaxed and socially less conservative environment. Because of its proximity to Iran, there are a large number of border crossings as well, Lababedi said.

“The town is also being positioned as a center of industrial development. Because of the international trade embargos placed on Iran, it is believed that many Iranians form companies there in order to trade with the rest of the world,” he said.

The KRG approved a large leisure tourism project, the $2-billion “Dukan tourist city.” The casino resort will be located by Lake Dukan, the largest lake in Kurdistan.

“Lake Dukan is a potential leisure tourist destination, which presents an area of natural beauty similar to those seen in Switzerland, Germany and other European countries,” Lababedi said.

Close to the Turkish and Syrian border is Dohuk, with its own lake and Mosul Dam Lake not far off. It remains the most undersupplied opportunity in the region, according to the HVS report. Starwood’s Sheraton brand is the only global hotel set to open in 2014. The city’s airport will open next year to serve 1.1 million passengers by 2035.

“Dohuk is certainly an area to watch for the future, and has good potential for both leisure and business demand,” Lababedi said.

Accor is in discussions with potential local partners to enter Kurdistan with various product offerings.

“A key success factor is linked to our capacity to bring operational excellence with corporate social responsibility to establish a positive cycle within local community. We need to provide adequate training to give the possibility to local people to develop their professional skills within the hospitality sector and enhance careers both locally and at more global level,” Granet said. 

“Therefore, with strong commitment to local community we can make the difference and contribute to develop the hospitality sector in the region with Kurdistan to become a fully developed destination based on a solid supply of internationally branded hotels and serviced apartments, with the right level of services,” he added.


  • Anonymous November 4, 2013 5:58 AM

    "A more stable Iraq"? WSJ headline from 10/30/13 "U.S. General Decries Spiraling Iraq Violence"

  • RajShivanu November 4, 2013 5:33 PM

    Hi, Like me Hotelier is good Boost up. I am looking for part of this.

  • Paul Sherwood - John Rown and Partners November 7, 2013 8:46 PM

    Hospitality and Construction Industries at the forefront of development and recovery, is great to see. Exciting potential.

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.