Hotel investment largely on hold in MEA
 
Hotel investment largely on hold in MEA
11 JANUARY 2012 7:19 AM

Hotel investors are a taking a wait-and-see approach after the Arab Spring uprisings in the Middle East/Africa region, though some bright spots have emerged.

REPORT FROM THE MIDDLE EAST—Investors are taking a wait-and-see approach before emptying their coffers in the Middle East and Africa, where the Arab Spring uprisings in the past couple years hurt hotel performance and thwarted development.

The revolutionary wave of demonstrations began during December 2010, with subsequent upheaval in Bahrain, Egypt, Libya, Syria, Tunisia and Yemen, as well as major protests in Algeria, Iraq, Jordan, Kuwait, Morocco and Oman.

Through November 2011, occupancy in the Middle East/Africa hotel industry declined 7.1% to 57.2% and revenue per available room declined by 2.1% in U.S. dollars. Average daily rate was up 5.4%, according to STR Global, sister company of HotelNewsNow.com.

“The Arab Spring obviously affected much of the region. Libya, Egypt, Bahrain were the most affected countries,” said Marko Hytonen, area VP of the Middle East for The Rezidor Hotel Group.
 
Brussels-based Rezidor, which has 29 hotels in operation and an additional 13 in the pipeline in the Middle East, closed its Radisson property in Tripoli, Libya, early last year but is re-entering the city this month.

“It’s still in the very early stages, but we do have a full task force in place to support the hotel team. We’re cautiously optimistic for 2012 and hope to see a substantial improvement in all the affected countries,” Hytonen said.

Investment outlook
The investment community doesn’t share Hytonen’s optimism, according to Jalil Mekouar, managing director, Middle East and Africa, for Jones Lang LaSalle Hotels.

“The international investor community views the Middle East region, in general, as an unstable brand,” he said. “There isn’t much money flowing into the hotels in the region in particular affected countries.”

Regional investors, however, feel more comfortable with the risks because they understand the market’s culture better, but even they are largely taking a wait-and-see attitude, hunting for distressed assets instead of making a hefty capital commitment, Mekouar added.

There is little appetite right now to embark on new development plans, as investment “hates” uncertainty, he said. The Arab Spring still clouds political visibility, and, because of this, it doesn’t allow businesses to take a calculated risk.

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However, money invested in the right project in the region not only could generate high returns but also could signify a welcomed mark of trust to help counteract the underlying causes of the unrest, such as unemployment, Mekouar said.

“Spend money in the region and believe in the long-term benefits it can bring,” he said. “The region is full of diversity—culturally and historically—with plenty of resources. You just have to give the right support; there is so much potential.”

There are signs that things are looking up in Tunisia and Morocco. The latter is receiving a substantial cash injection via a commitment of US$2.5 billion from the governments of Abu Dhabi, Qatar and Kuwait.

The near-term investment outlook calls for fewer projects of higher quality, said Christophe Landais, managing director for the Middle East for Paris-based Accor, which has 147 hotels comprising 24,637 rooms in the Middle East and Africa.

“Investors had to postpone projects since 2010 but are still very much interested in developing hotels,” he said. “The style has simply changed. In 2009, lending was unhealthy. Now, investors have to put their own cash into a project, and with that, less but more sustainable projects, which make economic sense, are emerging.”

Saudi Arabia, Qatar and the United Arab Emirates would remain at the top of the list of stable countries, according to Nadejda Popova, travel and tourism analyst at research company Euromonitor International. If positioned as stable and renewed democracies, Yemen and Syria offer the most significant opportunities as tourism destinations for Europeans in terms of eco and adventure tourism, she added.

Development plans shaken—and unshaken
Euromonitor estimates approximately 460 hotels remain in the Middle East development pipeline. They will take some time to be built in Syria, Libya and Yemen and are expected to gain pace in Tunisia and Egypt, Popova said.

Of those regions, Libya, in particular, is generating significant developer interest. Popova called it a “destination like no other in North Africa,” while Accor’s Landais said his company’s still includes the country as an active target for development despite the turmoil.

InterContinental Hotel Group, which has 706 hotels open in its Europe, Middle East and Africa region, also is eyeing Libya.

“There is great long-term potential for the industry, and it really has been untapped up to this point. The infrastructure required to ensure tourism can thrive still needs developing, but over the coming years I have no doubt that this will become a top destination, and we are now actively looking for opportunities there,” said John Bamsey, IHG’s chief operating officer of India, Middle East and Africa.

Jones Lang LaSalle’s Mekouar said Libya could attract interest from regional investors as well, who, coupled with local oil money, could restart the engine.

Rotana Hotel Management Corporation is also going ahead with its plans in Libya, as well as projects in Baghdad, Jordan, the United Arab Emirates and Oman, which are under development and have experienced no delays so far. Syria is a different story, said Omer Kaddouri, the company’s executive VP and COO. Rotana has 43 hotels and resorts primarily focused in Abu Dhabi, Beirut, Dubai and Sharm El Sheikh.

“The projects in Syria are on hold for the time being, as is the case with everything else in the country,” Kaddouri said.

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