Middle East Hotels experience decline, but opportunities remain
The slight slowdown in tourism to the Middle East in 2002 is to be followed by a recovery in 2003, reported hospitality market valuator, HVS International. Historically, economic contractions in the Middle East have lasted for one or two years with a subsequent recovery in the following year.
The 2002 edition of HVS International’s report on Trends and Opportunities for Hotels in the Middle East confirms a significant decline in the performance of hotels throughout the region in 2001. However, the authors commented that the decline in performance is likely to result in some investment opportunities for hotel investors.
The survey reports on a sample of 108, mostly branded, first-class hotels. These hotels represent more than 32,000 rooms in ten countries throughout the Middle East. Whilst the events of September 11 made their mark across the globe, the Middle East and North African regions were the worst affected by the aftermath. The number of tourist arrivals in the Middle East decreased by 8.7 percent in 2001, compared to 2000.
However, some countries like the United Arab Emirates (UAE), Lebanon and Syria were still able to experience growth in tourism arrivals for the full year 2001, which was mainly driven by increased regional Arab visitation.
The report confirms that region wide hotel occupancy was down by four percentage points in 2001 to 64 percent, largely due to the global economic slowdown, which was exacerbated by the events of September 11. Similarly, average rates fell by approximately five percent, to $84. This was caused by the decline in demand, combined with the increased hotel supply in the region, and more aggressive pricing, in an attempt to stimulate demand. Many tourism projects are already planned in the Middle East and their development is not likely to be delayed by the current political instability.
In addition, Asian operators such as Dusit, Shangri-La Hotels and GHM Hotels are planning to expand in the Middle East, which will hopefully contribute to boosting Asian visitation to the region. According to the authors, while hotel development is likely to slow down somewhat in the short term, opportunities may arise for financially strong and liquid local investors to benefit from a delayed presence of international capital. Due to the turbulent environment in some countries, several independent hotels are likely to face periods of financial hardship and cash liquidity.
This is likely to result in opportunities for cash holders either to acquire the properties at depressed prices or to act as a third party and buy the loans associated with these properties at low ratios.
As for new hotel development opportunities, the authors note that the main hotel developments in the region generally have been, and still are, geared towards the construction of full service properties in the Middle Eastern capitals.
However, opportunities are most likely to arise for the development of branded mid-market hotels, serviced apartments, time-share units, and other leisure facilities either in the main cities or in some secondary locations, which are currently not identified for potential hotel investments.
HVS International is the trading name of SG&R Valuation Services Company, an American partnership formed by S R London Corporation and HEI International. — (menareport.com)
© 2002 Mena Report (www.menareport.com)