Iran hotels get green light as sanctions lift
Iran hotels get green light as sanctions lift
17 AUGUST 2015 8:40 AM
A potential lifting of sanctions has international operators eager to gain a foothold in Iran. 
REPORT FROM IRAN—A pending nuclear agreement with Iran that would lift certain sanctions imposed on the country by various state and geopolitical entities is the green light many global hotel operators have been waiting for.
“The interest in developing properties in Iran has always been there, driven by the lack of quality supply,” said John Podaras, managing partner at Hotel Development Resources. 
While the appeal waned for years when sanctions bit deeply and the currency tumbled making development too expensive, interest returned last year, he said. 
“Regional operators, unfettered by sanctions, have been among the first to enter actively and publicly into talks with developers, and many of the international operators, especially European, have made exploratory trips and discussions regarding specific and strategic opportunities,” he said. 
United Arab Emirates-based Hospitality Management Holdings has been watching Iran as one of the largest and most promising untapped markets, eager to step in with its Halal friendly products, according to its CEO Laurent A. Voivenel.
“If the Iranian Government is to achieve its goal of increasing its annual visitors from 5 million to 20 million per year, it will need to speed up development of hotels,” he said. 
“We are already in serious talks with various developers to soon visit the country and take our discussions forward. The pace of our expansion will depend on finding the right partners with a long-term understanding,” Voivenel added.  
A step ahead of the competition, Abu Dhabi’s Rotana Hotel Management Corporation already is developing four properties under its alcohol-free brand Rayhaan Hotels & Resorts. The first two will open in Mashhad in 2017 and 2018, respectively, and another two in Tehran by 2018. 
Demand on the rise
A wave of trade missions and scouting trips by global companies trying to position themselves in the country had been ongoing since November 2013 when the initial deal between Iran and the P5+1 nations (China, France, Russia, the United Kingdom and the United States, plus Germany) was signed, according to Omer Kaddouri, president and CEO of Rotana.
“This recent influx of international visitors has fostered a surge in hotel occupancy levels, which increased by 36% versus 2013, clearly showing the country’s challenge in the hospitality sector as there are simply not enough hotel rooms, covering all categories and star ratings at the moment,” he said. 
A TRI Consulting report released in May cited official tourism figures for Iran reached an estimated 4.8 million in 2014. 
While religious tourism still makes up about half of that number, followed by corporate and government travel hailing mainly from China, Korea and France, leisure tourism has doubled thanks to a government push to promote tourism in the country, welcoming more GCC, Caucasian and travelers from the Indian-Sub continent, according to TRI.
Iran’s population of 77 million are also avid travelers who visit the country’s 19 UNESCO World Heritage Sites and mountain regions, which offers opportunities for adventure and eco-tourism. The Financial Times picked Iran as one of its top world destinations in 2014.
The TRI report counted 640 hotels countrywide, of which 96 are housed in the capital Tehran, with occupancies up from 58% in 2013 to 79% last year, resulting in higher average daily rates and revenue per available room. 
“With the lifting of sanctions, we are sure that all developers and operators will be racing to secure their position in one of the world’s largest untapped markets,” Rotana’s Kaddouri said. 
AccorHotels has been assessing opportunities for some time, sharing information and initial due diligence studies with both potential local and international partners in Iran. 
“We expect the recent agreements to potentially open up tremendous opportunities, and rapid growth for the hospitality and tourism industry in Iran,” said Christophe Landais, managing director of Accor Middle East.
The group is considering a number of potential opportunities across its full portfolio of segments from affordable to luxury. An Ibis and a Novotel for Tehran are already at an advanced negotiation stage regarding management agreements, he said.
“Taking into consideration the huge potential of Iran and underdeveloped hospitality industry, I could foresee AccorHotels opening not less than 80 to 100 hotels within the next 15 years,” Landais added.
Podaras said a supply gap of internationally branded accommodation is filled by small independent properties, including furnished apartments. 
“Iran is in dire need of quality hotel accommodation. The pressing need is in the upper segment of the market, 4- and 5-star international standard,” he said. 
HMH’s Voivenel sees potential in the luxury segment but also in the mid-market segment, citing Iranian government plans to build 400 new 3-star and 4-star hotels over the next 10 years.
“According to industry sources, while there are more than 1,100 hotels in the country only 130 properties belong to the 3-star or 4-star segment and many of the existing hotels are in need of renovation and/or refurbishment,” he added. 
Podaras said there were few properties suitable for internationally branded conversions due to little quality development since the 1980s, rather seeing an opportunity to develop boutique hotels in historic buildings such as at Tabriz and Mashhad. 
“The few hotels that used to carry international flags in the days before the current administration would be the logical targets for conversions, and indeed the government has started on a refurbishment program for some of these, albeit in many cases it is purely cosmetic,” he said. 
The TRI report, however, said rebranding could be a good way to secure “immediate penetration, market leader positioning and direct cash flows from managements fees of an existing hotel asset,” citing recent successful redevelopments of the Parsian Azadi and Howeyzeh hotels. It also pointed out that owners would expect to benefit from attractive fee structures and the possibility of capital injection, or key money from operators, which would have to compete for prime properties. 
Challenges and benefits
According to TRI, demand could outstrip supply over the next 24 months. In Tehran alone, four key projects account for 1,292 rooms in the pipeline set to open by 2017. But opportunity comes with its development challenges, including repatriation of money until Iran joins the global banking SWIFT system again.
“Iran has considerable red tape, endemic corruption and a long list of intermediaries. Although there have been some efforts to alleviate this burden in an effort to attract foreign investment. Land ownership and required permissions can also be an issue, especially in Tehran where the shortage of suitable plots and building restrictions frequently present problems and stretch development timelines,” said Podaras, who recommended a strong local partner. 
CBRE Middle East’s managing director, Nick Maclean, who has been getting regular Iran inquiries from hotel operators, believes the benefits of hotel development in Iran will outweigh the regulatory and operational risks as Iran re-joins the global market.
“These will be demonstrated clearly with the partial lifting of sanctions, and for sure will cause all parties to try to avoid a return to isolation,” he said.
Podaras said Iran’s business opportunities would survive future global political pendulum swings, and in addition positively influence the GCC corporate hospitality markets. 
“Although it will take a few years to build up the necessary infrastructure, Iran will undoubtedly create a new destination which will compete with the existing leisure destinations in the GCC, Levant and North Africa,” he said.  
Maclean said the UAE in particular would benefit in the short and medium term from Iran’s hospitality market opening up, as investment teams would be stationed in Dubai to enter the market. 
“For developers seeking to enter the Iranian markets there will be new-build and refurbishment opportunities and several Gulf-based companies retain land bank interests,” he said.  

1 Comment

  • Sally King August 19, 2015 10:55 AM

    This definitely is an untapped market. However, with their police forces fervently enforcing the current religious ideology on their citizenry and their visitors, I am not sure that the tourist will flock there.

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