BLP launches its inaugural MENA Hotels Market Survey 2016

BLP’s first MENA hotels survey shines a light on performance and trends in the region’s hotel industry for 2016 (Download your copy of the survey here).

Abu Dhabi-based Hospitality Partner, Scott Antel revealed the results of the survey at the Arabian Hotel Investment Conference, held in the Madinat Jumeirah, Dubai last week. Approximately 200 hotel professionals working in MENA were surveyed and their influential views, alongside articles on Opportunities in Iran, Hotel management agreement negotiations in the Middle East, and Competition Law issues in 2016, form the basis of this authoritative report.

Geopolitical and energy prices are impacting business

Over 50% of hotel industry professionals cited regional political turbulence, including sanctions, travel restrictions and the threat of terrorism as major issues impacting their business, according to the inaugural Middle East and North Africa Hotel Market Survey launched today [insert date] by international law firm Berwin Leighton Paisner (BLP).

Other pressures which impacted inbound demand included both the general economic downturn from key markets, such as Russia and China, and low energy prices, stated by 46% of respondents as detrimental to both reducing demand in MENA and driving investors to look at Europe and the US instead for a better yield.

Respondents were also very vocal about perceived negative press coverage of the region (including refugee migration to Europe) impacting on MENA tourism, whilst others surveyed called for local governments to educate potential visitors on the excellent safety and security records of many countries in the region.

Scott Antel commented: “BLP’s first MENA hotels survey highlights the opportunities and threats to achieving substantial and sustained growth in the region.  We are encouraged by the positive responses received from the region in terms of opportunities for the hotel industry in Iran and some key cities in the Gulf.  Other feedback our respondents also highlighted was to flag that big brands, and the Online Travel Agent (OTA) disrupters, can expect competition from the boutiques, especially from more discerning travellers.

“Key legal issues in our report includes the need to seek local legal counsel when using standard hotel management agreements, in order to avoid making costly mistakes, and the key competition law issues for 2016 outlined by James Marshall, BLP’s Antitrust and Competition Partner.”

Competing with the OTAs: is boutique or bigger better?

MENA hotel owners are consistent in their views with European hotel owners (published in BLP’s European Hotel Market Survey 2016) that consolidation to create bigger hotel brands is not necessarily the only way to compete with the OTAs. Other than increasing scale, suggestions from those surveyed included hoteliers improving data analysis, pushing competition law authorities to challenge the already substantial OTA consolidation and to prohibit ‘rate parity’ clauses, and devising more attractive loyalty programmes to get customers to ‘buy direct’.  Many respondents also felt that OTAs could themselves face rate competition from similar disrupters.

In terms of bigger brands, there was consensus that customers who are interested in higher end or a lifestyle experience are less inclined to consider using either the OTAs or the big hotel brands as both lack the necessary ‘cache’ or unique appeal of a boutique offering.

52% believe that RevPAR will decline in MENA

With the background of challenging economic and geopolitical conditions, the majority of respondents felt that there would be no growth (27%) or a decline in growth (25%) of RevPAR in the region, with some of those surveyed expressing views that established markets such as Dubai and Abu Dhabi may have peaked on RevPAR.

In terms of positive RevPAR, Tehran was cited as a city to watch, and is now ‘open for business’ after the [partial] lifting of economic sanctions. A substantial increase in demand from business travellers and tourists is now expected in Iran, who may be met with a significant shortage of room supply.

Other cities predicted an uplift in RevPAR include Jeddah, due to its proximity to the holy sites of Mecca and Medina, and Ras Al Khaimah which now boasts better quality hotels and is currently being promoted with a global marketing campaign by the Emirate.

MENA hotels in a real estate portfolio

Sentiment from industry respondents found that hotels rated favourably as an asset class, just ahead of residential investment. However, the risks of investing in hotels were highlighted by respondents, including the greater complexity involved in hotel development and operation and the up-front investment costs required before any revenues are generated.  But those surveyed said that if these risks are actively managed, on balance, it could produce very high returns for those investors who focus on developing the right product for the right market.  This position was supported by 85% of respondents who said that those institutional investors who value hotel property as an asset class would benefit from potentially greater returns on investment, having a liquid asset, and the added-value that having a hotel asset can bring to a mixed use scheme.

However, respondents cited that it was unlikely that overseas investors could enter the region in any significant numbers due to foreign ownership restrictions in many MENA countries insufficiently developed laws, regulations and practice, alongside political instability in some countries.

MENA Hotel Market Survey 2016: Top Trends:

  1. Dubai – was voted No. 1 for best value hotel investment/development
  2. Iran – 47% of respondents said they were ‘considering’ and 31% ‘strongly considering’ business opportunities with Iran, with 43% saying they were already active
  3. 43% believe that RevPAR will grow in MENA
  4. Franchising and management was the most popular growth model for hotel brands
  5. 65% of respondents felt that the brands would have more negotiating power over MENA hotel owners post consolidation
  6. 74% believe a third party operator with a franchise brand could be a more profitable proposition for an owner than a brand managed hotel
  7. Social media – Facebook, Twitter and LinkedIn were cited as the most important social media channels



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