Sharp upturn not expected, but ME still 'bullish'

A survey hotel and hospitality industry in the MENA region by DLA Piper, the international legal practice, found that more than three quarters (76%) of respondents describe their 12-month outlook on the Middle East hospitality sector as “bullish”, compared to only a third of respondents surveyed by DLA Piper in Europe and the US, 27% and 32% respectively.

However, a similar number, 82 %, of Middle East respondents believe a sustained recovery will not take place before 2012, indicating a sharp up-turn in the industry will not take place in the immediate future.

The two results point towards a rise in confidence levels, with a degree of cautious optimism, and a need to ensure profit feasibility as the key driver behind developments.

“Middle East hoteliers are very optimistic about the short-term outlook for the industry, compared to their European and American counterparts, commented David Sanson, partner, DLA Piper Real Estate Group.

However, a sharp up-turn, or V-shaped recovery, is not on the cards. The positive feedback is driven by the massive investments made across the region, from both governments and private entities. However, the optimism is tempered somewhat and many industry experts are waiting for major developments to be completed before calling the return to high profit margins.”

The survey also revealed investors from the region look at their own countries as a source of investment growth and judge their outlook for the industry predominantly on the basis of their own region rather than the state of the hospitality industry in Europe or the US.

From a risk analysis perspective, joint ventures are seen by the majority of respondents, 91 %, as offering the best opportunity for growth, with many predicting large hotel chains will increase their market share in 2010. Partly fuelling this view is the region’s strong position as an airport hub, well connected to Europe and Asia, and the increase in flight frequencies and route options offered by diverse carriers in the region.

“We have already witnessed a large number of successful joint venture projects in the region, and given the feeling of cautious optimism we’re witnessing, it’s likely this form of investment will continue to be a favoured strategy,” commented Sanson. “However, businesses need to continually evaluate their individual environment to evolve and develop their strategy. The road ahead is bumpy and the most successful investors will be the companies that have allowed for flexibility and evolution within their short, medium and long term strategies.”

Almost one in ten respondents, 87 %, consider the decline in average room rates across the region as being the single most significant impact on their business. Industry commentators are pointing to geographic locations as being a key differentiator in the challenging, competitive environment and hotels with prime locations being able to be more price resistant.

The DLA Piper 2010 Middle East and North Africa Hospitality Outlook Report was launched at the 2010 Arabian Hotel Investment Conference (AHIC) in Dubai, organised by Bench Events and MEED. A copy of the full report can be found at www.dlapiper.com