Middle East Hotels Experience Decline, But Opportunities Remain

The 2002 edition of HVS Internationalå‘s report on Trends and
Opportunities for Hotels in the Middle East, published today, 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 tragic events of 11 September 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% in 2001, compared to 2000. However, some countries
like the 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 regionwide hotel occupancy was down by four
percentage points in 2001 to 64%, largely due to the global economic
slowdown, which was exacerbated by the events of 11 September.
Similarly, average rates fell by approximately 5%, to US$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 (Serai and Shedi) are planning to expand in the Middle
East, which will hopefully contribute to boosting Asian visitation to the
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 illiquidity. 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.
Looking forward, HVS International anticipates a slight slowdown in
tourism to the Middle East for 2002, followed by a recovery in 2003. The
authors note that, historically, economic contractions in the Middle East
have lasted for one or two years with a subsequent recovery in the
following year. HVS International envisages that the trends in tourist
visitation are likely to vary across the region.
Additional copies of HVS International’s Middle East Hotels - Trends and
Opportunities 2002 report are available, free of charge, from HVS
International, 14 Hallam Street, London W1W 6JG, or on their web-site: