Hotel operators have outlined plans to enter Iran following July’s historic nuclear agreement, which will see international sanctions lifted in exchange for Iran reducing its uranium enrichment capacity. The deal — between Iran and the US, Britain, France, Russia, China and Germany — follows nine years of discussions, and according to Iran president Hassan Rouhani, has “opened a new chapter” in Iran’s relations with the world.
Prior to the Islamic Revolution in 1979, there were a number of international operators, such as InterContinental Hotels Group (IHG), Hyatt Hotels, Hilton Worldwide and Starwood Hotels & Resorts operating in Iran. However, in recent years they have been prohibited from signing deals due to sanctions, a lifting of which could pave the way for the opening up of business and tourism.
The world has been watching Iran since the signing of the initial deal in November 2013, during which the country accepted strict constraints on its nuclear programme for the first time in a decade in exchange for partial relief from sanctions. Since then, there have been several trade missions from key European countries, providing a valuable insight into a destination, which has long been closed off.
Following a recent visit to the country, Christopher Hewett, associate director of TRI Consulting, reports: “The signing of the initial agreement in November 2013 resulted in a surge in hotel occupancy levels, which increased from 58% in 2013 to 79% in 2014.
“However, the industry’s isolation from the global hospitality and tourism market over the past 30 years has left most of Tehran’s hotels old, outdated and in desperate need of improvement. Not only in terms of refurbishments and renovations, but also for the knowledge and expertise of international hotel developers and operators.
“With Tehran’s hotel market offering a minimal 96 hotels (compared to Dubai’s 657 hotels), of which only 16 are classified as four- and five-star, the opening of Iran’s economy presents enormous opportunities.”
As the first hotel management company to announce its expansion into Iran, Rotana Hotel Management Corporation’s president & CEO, Omer Kaddouri, already has four properties under development.
“All [four] will be opened under the company’s alcohol-free brand Rayhaan Hotels & Resorts by Rotana. The first two hotels are set to open in the city of Mashhad — a 362-room hotel in 2017 — followed by a 275-room hotel in 2018. In Tehran, Rotana will launch two further Rayhaan properties by 2018 — a five-star hotel with 194 rooms and a four-star hotel that will include 210 rooms. With the lifting of sanctions, we are sure that all developers and operators will be racing to secure their positions in one of the world’s largest untapped markets,” Kaddouri tells Hotelier Middle East.
One of the key opportunities is the lack of experienced hotel operators in Iran. Cristal Hotels is using this gap as the basis for its strategy, as Peter Blackburn, president and CEO of the group explains: “Importing the services of experienced hotel operators which have a knowledge of the region will enable Iran’s hotel sector to up its game in the short-term. This is where we see a role for Cristal Hotels, working with partners in the country.
“All segments look promising, especially mid-market and serviced apartments. There will be a lot of demand for business hotels too.”
Abu Dhabi-based One to One Hotels is also keen to take advantage, seeing the destination as having as much potential as Iraq or Saudi Arabia. Philippe Harb, COO, One to One Hotels and Resorts stated that his company has been monitoring the Iranian hospitality market for the last few years: “It’s a large population reaching about 80 million people with a $106bn market cap, $100mn daily turnover with an underdeveloped hospitality market.
“With such a dynamic market, we are actively looking for strong partners to develop our brand categories. In terms of foreign direct investment, Iran’s government has provided a series of incentives under the Foreign Investment Promotion and Protection Act. These incentives, which are very attractive for foreign investors, include a 50% tax reduction on revenue, loan structure and eligibility of government capital, title deed and property ownership rights, up to 100% ownership in free zones, unlimited transfer of capital and dividends.”
Similarly, Dubai-based operator, Hospitality Management Holdings (HMH) is already engaged in talks with various developers and will be soon visiting the country to take discussions forward.
Laurent A. Voivenel, CEO, explains why: “The need for quality accommodation in Iran is immediate. The demand will go up tremendously with massive growth of oil and gas operations as well as other industries such as infrastructure, metals and automotive.
“According to industry sources, the number of tourists (business and leisure) visiting Iran has increased by almost three times during the last 12 months. Interestingly, at the same time the number of European tourists visiting Iran increased by 240%.
“This has definitely given a boost to hotel occupancy and RevPAR/ ADR. Tehran is definitely a key business destination and the hub of all political activity. But there are many other tourist attractions, such as Esfahan, Persepolis, Mashhad and Shiraz.”
And it’s not just regional and international chains eying up the destination. Existing hotels in-market, such as the Tehran Grand Hotels Group, is optimistic about the future. Managing director, Farman Ghaffarian, sums up the current state of affairs with respect to his industry: “Religious tourism has grown within the past two decades since some of Shia’s most respected religious sites are in Iran, such as Imam Reza in Mashhad.
“Recently, there has been growth in health tourism, which is an emerging market, due to the outstanding medical knowledge available and price competition. More than 1000 key tourist destinations have been pinpointed throughout the country, but cities like Tehran, Mashhad, Isfahan, Shiraz and Yazd are in the front line. Many are motivated and determined to invest and expand. In the city of Tehran alone, more than 40 hotel project licenses have been issued, of which some already have begun construction and some are near opening, from luxury to budget.”
However, while many locally-based hotel groups are fully invested in capitalising on the recent agreement, Iran as a destination is not without its challenges, with some large international players proceeding more cautiously.
“AccorHotels does not, at present, have any management agreements in place in Iran,” reports Christophe Landais, CEO, AccorHotels Middle East, “however we are considering a number of potential opportunities across a broad range of segments. AccorHotels can confirm that it is in advanced negotiations regarding management agreements for two properties in Tehran under our ibis and Novotel brands.”
Alex Kyriakidis, president and managing director Marriott International MEA confirms that the group views the recent deal in a positive light, commenting: “We are pleased with the historic progress made regarding relations between Iran and the international community. At this time we do not have any hotels in Iran. However we will be watching carefully the status of trade sanctions.”
Rudi Jagersbacher, SVP Hilton MEA, echoed this cautious sentiment when he spoke at Arabian Travel Market 2015, commenting: “We would only operate if there’s the security and safety of our team members — if that’s not validated, we’re not moving anywhere.
“Also if there are any kind of restrictions from the US Government... then clearly we won’t be able to go into areas under restrictions, so at the time being there will be no entrance of Hilton to Iran.”
Challenges such as instability are a real threat, and Paz Casal, travel research analyst at Euromonitor International highlights this, stating: “Despite recent improvements and developments in the sector, Iran’s critical involvement in the Syrian war using Hezbollah as its armed force in the country, as well as the ongoing tensions with Saudi Arabia and other regional and international powers, means that there is a lingering threat of violence and instability.
“Enmities between Shia and Sunni states and factions across the region are prevalent and more dangerous than ever before, threatening the state’s safety.
“In contrast, a number of regional markets are experiencing something of a tourism boom, including Dubai, Abu Dhabi, and also Oman and to some extent other, North African markets that can be considered as competition such as Morocco,” she adds.However, there is no doubt that recent developments will only enhance Iran’s economy as Ali Borhani, founder & CEO, Incubeemea reports: “The current contribution of travel and tourism to GDP is a mere 2.2% and this is while 1.9% of the total contribution to the workforce of the country comes from the sector.
“So the only way for Iran’s travel and tourism is up — if the right investment environment is provided, the real attractions of this market are communicated, and the developing relations between Iran and the world continue — without a doubt Iran can, in eight to 10 years, generate $28-30 billion from travel and tourism,” Borhani concludes.