News Analysis: The Iranian boom

Following the removal of sanctions in Iran, what is the immediate impact on the hospitality industry, and what new opportunities does the Iranian tourism sector offer?

Experts say there is a need for at least 400 new hotels to cope with expected tourists
Experts say there is a need for at least 400 new hotels to cope with expected tourists

Iran is getting a lot of attention on a global scale; following sanctions being lifted from the country, several business opportunities have emerged, with hospitality coming under scrutiny.

Local Iranian businesses are now able to usher in a new era of trade relations, and attract investment opportunities. At a roundtable held by law firm CMS in conjunction with Colliers in Dubai, 50-year-old Iran Travel and Tourism Company’s managing director Mohsen Gharib presented several opportunities within the country’s tourism sector.

“Last year we welcomed four million visitors. The vision is to increase that number to 20 million in the next 10 years (by 2025). We foresee a requirement of 400 new hotels that need to be built in Iran in the coming decade to meet that goal,” Gharib said. Sources have revealed to Hotelier Middle East that Iran currently has between 700-900 operating hotels, albeit no official figure exists.

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“Along with Tehran, European tourists frequently visit Shemshak; Arabian tourists like to visit the Caspian coast and Mashhad attracts religious tourists. Whereas Persepolis is steeped in Iranian history as is the Ali-Sadr water cave. AccorHotels is the first company to recognise this opportunity having opened two hotels near the Tehran international airport,” added Gharib, whose company owns 60 hotels across Iran.

Christophe Landais, AccorHotel’s former Middle East COO for 15 years, was given charge of Iran’s development, and is now at the helm of operations in Tehran.

He said: “Iran has suddenly become the first choice for tourists and investors. We [Accor] have been observing the Iranian market for the last 12 years, and recently opened two hotels near the airport under the Ibis and Novotel brand names. We feel we can develop a large portion of the 400-odd hotels that’s required in the country.”

He added: “Quality hotels are lacking at the moment in Iran. Yes, there are five-star hotels, but they are not up to the mark of global standards, which is also the case with two-and three-star properties. That’s the reason we started with the Ibis and Novotel brands in Tehran.”

“Moreover, apart from Tehran there are a few key cities that are in immediate need of quality hotels. 25 million people are going through Mashhad to visit the holy shrine at the moment, but the official government statistic are much more,” Landais added.

He further predicted that many more mid-market hotels will go live.

However, raising finance is a crucial aspect in sanction-free Iran. A task that is not always an easy one, as destination management company Destinia found out. “We have noticed that the Iranian market is very different to other markets in the Middle East, which we were already familiar with. And investments require to follow a complex bureaucratic process and things don’t always move as quickly as we would like,” said Destinia Iran manager Saleh Zand.

Zand told Hotelier Middle East that the removal of sanctions did not have any direct bearing on operations: “It doesn’t affect us directly, but it definitely feels like things are moving in the right direction without any u-turns. It goes without saying that the lifting of the sanctions will be great for the country and its future development.”

Finance will be a crucial aspect in defining investors’ interests in the country, and not just in the hospitality sector, but across all industries. Arjan Capital senior partner Nicholas Masoud Gilani said: “In theory, the barriers to borrow money vanished with the lifting of the sanctions. But the reality is that it will take some time with funding mostly coming from second-tier banks. ROI is around 20% at this point in Iran, which is not visible in the rest of the region at this moment.”

Gilani, who previously worked as the managing director at the National Bank of Abu Dhabi, revealed more about the source of funding: “Global banks are hesitant for debt financing and their fear stems from the sanctions, but there is a new paradigm now; however the fear will not disappear overnight. And, in the absence of large global banks, there will be ample opportunity for debt financers from continental European banks, central banks in Europe, including banks from the GCC, India and China. There is plenty of opportunity for banks in these regions to raise credit.”

Gilani added that there is a limited window for investment opportunity, one that will not last for a long time.

Meanwhile, opinions on investment in Iran remained divided across two online polls conducted by Hotelier Middle East. 58% respondents on a Twitter poll suggested that the investors should wait and see, whereas more than 60% on HotelierMiddleEast.com felt that now is the right time to invest.

Grant Salter, director, head of travel, hospitality and leisure advisory Deloitte, said interest rates are bound to be high. “Given the inherent risks associated with a new and unpredictable market, we see the availability of funding being constrained in the short-term. There are likely to be players willing to accept the kind of risks associated with these market conditions but these will likely come at the price of high interest rates and heavy loan security requirements where debt is sought.”

Another concern is training, and Landais said AccorHotels will focus on developing hospitality standards. “Iranians are skilled and talented in many sectors, but sadly, that is not reflected in the service industry, which is an irony given how hospitable they are. The commitment Accor has taken as investors is to bring in the expertise, and transfer it to the local Iranian market.”

“We are in the process of registering the company in Tehran and with that we will also obtain the licence to bring Accor’s management training academy, of which we have 17 in the world — one in Dubai. The academy will enable us to train young prospects. So our philosophy is to not only develop hotels in the country, but to also develop the expertise and competence of Iranians in the service industry,” he concluded.

Meanwhile, other hospitality companies are also considering Iran with Rotana having previously reported that it has four properties under development in Iran.

It also claimed to be the first operator to announce plans into the market in December 2013, with four properties under development, all of which will be opened under the brand Rayhaan Hotels & Resorts by Rotana.

Rotana president and CEO Omer Kaddouri previously told Hotelier Middle East that the firm is also, in the tune of Accor, hoping to develop training for Iranians.

So despite a few hurdles, the country has made its plans clear to boost tourism. In January, an Iranian shipping company announced it would launch an Islamic cruise, which will sail between Iran, Muscat and Salalah in Oman, and Mumbai in India. And the government wasted no time and signed a deal with Airbus to purchase 114 new aircrafts just days after the sanctions were removed.

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