HOTEL INVESTMENT: Potential versus pitfalls?
Viability director Guy Wilkinson reports from the Arabian Hotel Investment Conference 2012, which revealed an ambivalent outlook on the opportunities for hotel developers in the region
Some people collect stamps; for me, it’s GCC hotel pipeline data. Regular readers of this column will recall that last September, my company published a survey of more than 100 chains active in the Gulf, showing a massive 274 hotels with 77,000 rooms under development.
Well, I’ve had a few chances to check first-hand the reality of the data provided by the operators, and confess there may have been just a teensy element of propaganda in their figures.
I was in Jeddah recently, for example, and drove the entire length of the Corniche — among other principal thoroughfares — in search of building sites for the 16 future hotels we had been officially told were confirmed.
Disappointingly, it turned out that in fact, most of them had either not yet started on site, were not actually signed, or had simply been cancelled without comment.
The reason I mention this is that Jeddah is one of Saudi Arabia’s top cities and the Kingdom is supposedly the GCC’s hottest market for hotel development — right? At last month’s Arabian Hotel Investment Conference (AHIC) in Dubai, we heard many a speaker spout eloquently about the Kingdom’s and indeed the entire region’s continued potential to absorb new hotels.
Accor’s Middle East development director, Olivier Granet said: “The Middle East has over 30 cities with one million inhabitants, but only one-to-two hotel rooms per 1000 inhabitants, compared to a figure of 10 in Europe.”
With talk of massive future pipelines, delegates who attended only the plenary sessions, or who were looking to catch a few key ‘sound bites’ from the panel sessions, might thus have left the conference thinking the message was basically the same as previous years, i.e., “Recession, what recession?”
In reality, for nerdy listeners like myself, the event drilled down quite effectively into the reality that the development potential is restricted to what Fairmont’s development director, Rami Moukarzel, called “pockets of opportunity” only, two of which he identified as being Algeria (“a stable market with a stable political regime”) and Erbil in Iraqi Kurdistan.
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Stephen Lari, principal of the Claremont Group, a New York developer, claimed that his company’s planned DoubleTree Suites project in Erbil could achieve an impressive IRR of 25 to 30%.
Bashar Al Natoor, director, Corporates from Fitch Ratings distinguished between “committed and non-committed projects” in the region, and those of the public and private sectors. Referring in particular to Abu Dhabi, where it was hoped government spending on tourism projects would soon resume strongly, he said that only governments had the wherewithal to put projects on hold and restart them in this way, whereas private developers could not.
Pinpointing opportunities
In a most pertinent panel session facilitated by Jones Lang LaSalle’s CEO, Mark Wynne-Smith, bankers were shown five realistic case studies of hotels in the region and asked to respond live if they would lend them money or not. While they turned down a new resort in Hurghada due to poor demand and a five-star downtown hotel in Riyadh due to expected oversupply, they loved the prospect of a branded budget hotel in downtown Abu Dhabi.
Indeed, budget hotels in KSA were one of the few specific sub-sectors that were agreed to offer real investment potential, as Oliver Granet, with more of his macro data, told the audience: “There are 25 million inhabitants in the Kingdom, but not one international branded budget hotel”.
With low development and operational costs, and high demand and profit potential, the Ibis, Premier Inn, Super 8 and Mena brands are all planning new properties there.
Elsewhere in the conference, Oman was depicted as offering quiet potential, Qatar struggling with oversupply, Kuwait stagnant and Bahrain still bogged down with security problems.
Even in booming Dubai, most development projects are still ones that were started pre-recession, with only Al Habtoor’s 1,700-room Westin/W/St. Regis complex standing out as a contemporary vote of confidence in the city’s future as a global convention destination.