AHIC PREVIEW: Windows of opportunity
Hoteliers forecast growth for the next decade
As the Arabian Hotel Investment Confernece celebrates its 10th anniversary, hoteliers reveal their forecast for the next decade, highlighting KSA, UAE, mid-market and extended stay as the main segments for growth, while new speakers reveal their different approach to doing business
The Arabian Hotel Investment Conference has been a forum for top level hotel investors, developers, operators and advisors in the Middle East to meet, debate and network for the past 10 years, with this year’s event on May 4-5 celebrating a “decade of defining the hotel investment landscape”.
Organised by Bench Events and Meed in collaboration with UNWTO and WTTC, the conference addresses a multitude of issues on an annual basis, from smart capital, finding different equity sources and innovative debt financing, through to exploring different operating models and the evolution of hotel F&B.
In 2014, global perspective and hard talk sessions from hotel CEOs and the returning Saudi Symposium will be highlights, along with sessions on North Africa and, in light of Dubai’s Expo 2020 win, on creating value from mega-events.
More than 70 speakers will address delegates over the two days, with 12 speakers from the 2005 launch edition also speaking this year, and 27 new speakers.
The involvement of so many industry professionals was critical right from the get-go, recalls Bench Events co-founder Jonathan Worsley, who launched AHIC in 2005, having been a founding member of the International Hotel Investment Forum (IHIF) in Berlin and an advisor to WTTC’s Global Travel & Tourism Summit in Doha in 2004.
“This event opened my eyes to the enormous opportunity for tourism in the Middle East and specifically a more focused event on hotel development and investment,” he recalls.
“There were industry colleagues such as James Wilson, who was CEO of IFA Hotels & Resorts at the time, who was confident of its success and came on board as a platinum sponsor in the first year,” says Worsley, adding that Sarmad Zok, CEO of Kingdom Hotel Investments, was also one of the early supporters, along with Gerald Lawless, executive chairman of the Jumeirah Group and Mary Gostelow, Richard Garland, Tom Nutley, and Kurt Ritter, former president and CEO of Rezidor.
Lawless himself recalls: “I think because Jonathan Worsley and I had a lot of conversations before the first AHIC was held, to me it was very much a combination of efforts from all sides that brought us to have the first AHIC in Dubai 10 years ago and certainly we always had a great sense of pride that Madinat Jumeirah was the host venue and continues to be the host venue ever since.
“It concentrated investors’ minds and was a chance to showcase what Dubai has to offer in terms of hospitality investment and indeed in the broader region to demonstrate the potential that exists for the travel and tourism industry through the investment in hotels and resorts and these lovely locations.”
Worsley adds: “The icing on the cake was when His Highness Sheikh Ahmed Bin Saeed Al Maktoum, president of Dubai Civil Aviation and chairman of Emirates Airline said he would be delighted to be the patron of the Arabian Hotel Investment Conference and after 10 years, he has not missed one conference”.
He says the theme for the first AHIC was “Windows of Opportunity”, and that he expects exactly the same theme to resonate this year and even 10 years from now.
“With nearly two billion people with increasing economic prosperity living within four hours flight time of the UAE, our patron, His Highness Sheikh Ahmed bin Saeed Al Maktoum, said recently: ‘Dubai is the middle of the ‘new silk road’, the natural crossing point between eastward and westward routes’. Our theme for AHIC 2024 will undoubtedly be ‘Windows of Opportunity’,” he reveals.
With this in mind, coupled with the fact that conversation at this 10th anniversary conference will review the developments over the past 10 years and make forecasts for the next 10, Hotelier Middle East asked some of the speakers for their perspectives on lessons learned and the current and future windows of opportunity.
UAE AND KSA: Infinite opportunity?
Marriott International MEA president and managing director Alex Kyriakidis, who spoke at the first AHIC under his previous designation of global managing partner, tourism, hospitality and leisure at Deloitte and will return this year to speak specifically about the African market, says that the most significant change in the hotel investment landscape in the Middle East over the past 10 years has been the “emergence of the UAE and KSA as the ‘super growth’ markets”, highlighting in KSA the creation of a new economic city, Jazan, where Marriott has two hotels.
Also speaking at both the first and 10th conference, Rudi Jagersbacher, president MEA for Hilton Worldwide, highlights the “pace of change” and “rapid expansion” of hotel operators as being hugely significant, bringing the “potential of the region to the attention of a greater number of global investors who may otherwise have looked elsewhere to invest their funds”.
Like Alex Kyriadkis, he cites UAE and Saudi Arabia, plus Qatar, as the geographic areas with the biggest growth potential.
Starwood senior vice president acquisitions and development Neil George also notes continuing opportunity in the UAE and Saudi Arabia, as well as a focus on expanding in Iraq and Oman, while at InterContinental Hotels Group, Taras Ettl, vice-president, development, Middle East and Africa, reveals that “50% of our system size and about 65% of our development pipeline” is in UAE and KSA alone.
Saudi Arabia is also a key expansion market for Accor, which formed a strategic alliance with with the Omar Kassem Alesayi Group to open 10 properties in Saudi Arabia by 2018.
“The two companies signed a management contract for the first three of these hotels under Accor’s Ibis brand, including a 200-room and 300-room hotel in Jeddah and a 194-room hotel in Riyadh,” says Jean-Jacques Dessors, chief operating officer, Accor.
“KSA expects to be hosting over 15 million visitors by 2014, with a growth rate of 6.7% per year thanks to the dynamism of its religious tourism. And as the religious tourism is growing in KSA, we believe that we have to develop our extended stay brand Adagio in this region,” adds Dessors. “Accor will open the first Adagio in Jeddah in 2016.”
Also in Saudi, Golden Tulip MENA president Amine Moukarzel notes a need to complement hotels with expansion in emerging cities such as Gizan, Onaiza, Al Jubail, Al Taif and Yanbu.
David Thomson, coo at JA Resorts & Hotels, however, says that “there can be no doubt that the UAE and Qatar will continue to represent the two biggest growth areas for hotel investment in the next 10 years in the Middle East”.
“Qatar, despite the recent negative press, also has to follow the Dubai model more closely if
it is to host the 2022 World cup and become another leisure as well as business destination in the Gulf. Presently it does appear to be sending out mixed and confusing messages but I would expect this to change in the next few years,” observes Thomson.
Making waves in the mid-market
For the past five years at least, the need for expansion in the mid-market has formed talking points in numerous panel sessions at AHIC. It’s only now though, and looking ahead, that real in-roads appear to be being made into this grossly underserved segment.
“As well as location, the next decade will also see the rise of the mid-range brand such as our Hilton Garden Inn offering,” says Jagersbacher.
“While the region has rightly developed a global reputation as a luxury, upscale destination, informed observers acknowledge that visitor target numbers across a number of local countries will only be achieved by expanding the accommodation options and therefore widening the prospective visitor pool. This is particularly pertinent in relation to upcoming major events such as Dubai’s Expo 2020 and Qatar’s 2022 World Cup,” he adds.
Citymax Hotels COO Russell Sharpe, who spoke at AHIC in 2004 while working as regional vice president sales and marketing for Le Meridien, says that this “development of the mid-market will undoubtedly dominate AHIC 2014”.
“Over the coming years, we will see growth in the budget sector throughout the region, especially in KSA where there is still huge potential for both local ‘home grown’ hotel chains and international operators. Franchising and flexible manchise agreements will increase, and contractual agreements will be less rigid, giving owners the flexibility to work with whichever operator matches their own business objectives and ideals,” says Sharpe.
Among the larger companies, mid-market brands represent 30% of Starwood’s pipeline while the last decade has been a “game changer” for Holiday Inn, which IHG is looking to grow “by more than 50% (by number of rooms) in the next three to five years”, according to Pascal Gauvin, COO, India, Middle East and Africa.
This demand is partly because “investors have moved from purely prestige-driven motivation to consideration of yield as a key tool to influence investment decisions,” comments Martin Ostermann, director of development, Meliá Hotels International.
“The shift of the regional midscale and extended stay (serviced apartments) market from independently operated and unbranded units to a consolidated and international offering will continue to be a focus as it combines the residential real estate and hospitality sectors. As such, markets with demand for longer term stay travellers can be expected to benefit from this trend,” Ostermann adds.
Hala Matar Choufany, managing director, HVS, agrees that “with escalating development costs and limited access to financing, more development of mid scale and budget hotels are being considered by investors.
“Also as a result of the downturn and drop in hotel values, there has been an increase in investment-driven projects versus ego driven projects, with the latter being less common in this new environment,” she says.
However, Chiheb Ben Mahmoud, executive vice president — head of hotels & hospitality, Middle East & Africa hotels & hospitality group, JLL, warns that while affordable hotels will be the “common denominator” for the next 10 years, they should not be “cookie cutter budget hotels”. “I mean more intelligent and flexible hotels, more in line with their general environments,” he adds.
Another segment expected to grow in the region is that of branded residential projects. A new speaker for this year’s agenda, Michael Glennie, president and COO of FRHI — which entered Dubai 12 years ago and now operates eight hotels with 4600 rooms across the Middle East — says this is an area in which he is keen for the company to grow.
“A recent trend is the introduction of branded residential products associated with hotel development; it is an efficient mixed-use product when it is well balanced and well defined. FRHI has pioneered in this field in the Americas and is now bringing its expertise to the region on several iconic projects,” says Glennie.
At the same time, he is confident of significant growth for the group’s three existing brands, all luxury.
“We will double the inventory over the next five years with 10 confirmed projects under construction representing another 4600 keys. We have identified a development potential for FRHI in the Middle East of 56 hotels across the three brands. We will consolidate on our existing presence in the Kingdom of Saudi Arabia and the UAE and we will prioritize GCC countries such as Qatar, Bahrain, Oman, and Kuwait, and in the Levant in Jordan and Lebanon.”
At IHG, Gauvin says long-stay products will be a priority going forward. “Long-stay is also of increasing interest to investors. We opened the region’s first Staybridge Suites in Cairo in 2008 and have since tripled that. Over the next three to five years we will open six more Staybridge Suites, three of which will be in Saudi Arabia and two in the UAE,” he explains.
Heading for hindsight
Segments aside, CEO of Shaza Hotels Simon Coombs, who will speak at AHIC on a panel entitled ‘The Next Wave’ focused on new types of boutique hotels, says the industry needs to use the benefit of hindsight in order to sustain and hopefully propel growth.
“Major economic shocks to global and regional economies, such as the financial crisis that commenced in 2008, should encourage us to reflect and to take positive actions going forward,” says Coombs.
“Experiences from the past decade indicate that there must be a strong focus by both the public and private sectors in the coordination of present and future demand stimulation in order to sustain supply booms that we are now seeing in many markets.
“Historically, hotel development has been driven by the private sector with a micro investment view. However, I believe that this has changed and from a macroeconomic perspective we have seen the major impact of counter-cyclical measures taken by governments to push through initiatives, even during times of downturn.”
At Wyndham Hotel Group, returning speaker Bani Haddad, regional vice president MEA, also ranks the level of investments from government as a significant change.
“The increasing direct investment from government entities of sovereign wealth funds in the hospitality industry has played a major role in shaping the hospitality landscape in the region. Many of these investments were mega projects which actually helped position the country or the city they were developed in and consequently attracted demand and additional investment in the industry,” says Haddad.
Meanwhile, Golden Tulip MENA president Amine Moukarzel notes that PPPs play a significant role. “The hospitality industry is seeing tremendous impact related to technology and to its sustainability. The partnership with the private and public sectors has a significant role to enhance the hospitality deliverables, whether on the legislative aspect, classification ratings, or on establishing the standards for better improvement and better deliveries year on year.”
Jumeirah Group CEO Nicholas Clayton says that these days, developers themselves are “exercising more discipline around projects”.
“Fewer hotel developments are being built for a “single use” and more are being developed with a longer term plan to sustain cash flows and quality,” says Clayton.
In addition, both Hala Matar Choufany at HVS and Filippo Sona, director, head of hotels, MENA region, Colliers International, predicted a move towards franchising becoming more common as an alternative to pure management contracts.
“Lastly but not least, the market will witness rising popularity of franchising, although this will be primarily the business model of well-established owning groups — the likes of MAF,” predicts Sona.
Bringing the construction perspective, Tom Hasker, UAE country director & head of project management ME, Faithful+Gould, says that as the industry looks to the next 10 years, “the other significant change is the requirement for properties built within the past 10 years to undergo refurbishment works in order to compete with new properties and maintain the luxury standard of Dubai.
“The requirement for significantly higher than usual maintenance budgets to overcome poor quality base building design and construction has resulted in developers recognising the importance of quality over cost when developing hotel projects,” adds Hasker.
Aside from the geographic, segmentation and investment changes, speakers were keen to also highlight the consumer demands and travel trends that will be shaping the business.
At Shaza, Coombs predicts an increase in intra-regional travel and “localisation” of brands — which he asserts does not mean lower rates — and travelling families, also lucrative.
“I also believe that as an industry we can do more to properly cater for the expectations of travelling families. The Muslim tourism market spend, even excluding Umrah and Hajj, is estimated to reach US $181 billion by 2018 according to figures produced by Thomson Reuters,” reports Coombs.
At Katara Hospitality, which prides itself on choosing operating partners that understand a country’s “local spirit” while also appealing to international guests, COO Christopher Knable agrees that he expects to see more local concepts going forward.
“The Middle East in general and GCC markets in particular have been traditionally positioned within the luxury travel segment. We expect to see this bracket evolving further by developing local concepts that provide exquisite hospitality experiences that go beyond amenities and personalised service,” says Knable.
Boutique and lifestyle hotels will also be important, asserted Meliá’s Ostermann and Colliers Sona.
“In cities such as Dubai, the high degree of industry sophistication and high proportion of the GCC population characterised by generation Y will see more scope for boutique, lifestyle hotel concepts being developed,” he explained.
With this trend only just taking shape in projects in the region, with Mondrian Doha and ME by Meliá Dubai under development, along with the first W for Dubai finally expected in 2017, will boutique be the new budget in terms of talking points at AHIC for the next 10 years? Discussed at length, yet not quite off the drawing board?
For how many years will the UAE and KSA dominate the development pyramid? And who speaking at this year’s event will have the staying power to be there in 2024?
Only one thing is certain — as Worsley says, the window of opportunity will remain open; it’s up to the industry ensure it keeps stepping through it.