Middle East Hotel Markets - Outlook, Trends and Opportunities

What are the major macroeconomic and political factors affecting the Middle East market?


What are the important micro developments?


How are hotels in the Middle East performing?


What is the outlook, and what are the investment opportunities?

The answers to these questions and many more may be found in the 2004 edition of HVS International’s Middle East Hotel Markets - Outlook, Trends and Opportunities, which covers 15 markets in the region. The 2004 edition of HVS International’s report on Trends and Opportunities for Hotels in the Middle East, published today, confirms that hotels throughout the region experienced 10% growth in RevPAR in 2003. Prepared and written by Elie Younes and Bernard Forster, the survey reports on a sample of 120, mostly branded, first class hotels. These hotels represent more than 33,000 rooms in ten countries throughout the Middle East.

The authors comment that overall demand declined during the first half of 2003, due mainly to the war in Iraq, but recovered strongly during the second half of the year. Markets such as Kuwait and Doha benefited from the increased levels of visitation provided by the coalition forces and commercial visitors during the war and after. The strong growth in arrivals and demand has continued during the first half of 2004, and it is expected to be sustained throughout the year. Furthermore, the authors mention that while the strong operating performance in some markets, notably Kuwait, is not fully sustainable, HVS expects that it is likely to encourage hotel investment. However, the authors comment that investors should be careful not to base their investment decisions solely on 2003 performances, which in some markets were abnormally high and boosted by war-related demand.

From a macro standpoint, according to the authors, a unified tourism strategy for the whole region, or at least the GCC countries, should be beneficial to all countries involved, as it would avoid intra-regional competition and improve the region’s attractiveness. In terms of developments, hotel investment continues to be geared towards full service hotel properties. A number of timeshare and fractional developments (most upscale) are starting to emerge, with development led by Dubai. Furthermore, the report mentions a noteworthy increase in the level of investment in serviced apartment properties. Such properties are being developed either as stand-alone operations or to form part of mixed-use developments featuring an integral or adjacent hotel and thus provide the whole development with cost and revenue synergies. Due to the nature and characteristics of transient demand for accommodation in Dubai, the emirate remains the major market for the development of such asset classes in the region.

When it comes to capital, the authors consider that as the new financial hubs and institutions (in Dubai and Bahrain) come on stream and start operating, the availability of capital to institutions and individual investors will improve. HVS considers that this is likely to stimulate the amount of hotel development and acquisition (either single asset or portfolio). Furthermore, HVS considers that this will positively impact the liquidity of the hotel real estate market in the region and, increasingly, attract regional and international hotel real estate investors. Furthermore, HVS anticipates an increased level of hotel investment funds being developed in and for the region over the next five years.

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The reports suggests that opportunities exist for investing in mixed-use developments, branded serviced apartments, timeshare units and branded limited service hotels within the region. Elie Younes and Bernard Forster anticipate hotel operating performances experiencing another strong year in 2004, assuming no major political upheaval in the region.
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