The news of a peace deal between the US and Iran following the outbreak of hostilities three and a half months ago could unleash a wave of hospitality investment in the Middle East.
Following the start of fighting in February, which has seen countries and emirates across the region targeted by Iran and a near-total block of shipping in the Straits of Hormuz, concerns have grown over the impact on the region as a tourism destination.
Research released by the World Travel & Tourism Council (WTTC) has shown that the wider region was losing $600 million per day in visitor spending during the peak period of disruption as the region’s reputation for safety disappeared.
However, research released by global consulting services firm HVS, which focuses on the hospitality and leisure industries, has shown Middle Eastern investor sentiment has remained positive despite the conflagration.
President - HVS Middle East, Africa and South Asia Hala Matar Choufany oversaw the research collated from the replies of investor, hotel operators and developers representing 160,000 branded hotel rooms across the Gulf Cooperation Council (GCC), with the largest share being in Saudi Arabia, 42 per cent, followed by the UAE on 34 per cent.
The research, released in May, shows that the war has had a much greater impact than severely curtailing international tourist numbers, with 45 per cent reporting delays to hospitality investment or development decisions.
Feel-good factor
Despite this, Choufany admits she is a little surprised to see just 17 per cent of respondents reporting a negative outlook compared to 43 per cent holding a positive outlook with the remaining 40 per cent being neutral in the research released in May.
She says: “The optimism is being driven by several factors. Investors continue to believe in the long-term tourism growth story of the GCC.
“Government strategies remain active and demand has not disappeared. What has changed is the level of caution around timing and development.”
While many international airlines pulled out of the region at the start of hostilities and are yet to return with meaningful numbers, Choufany argues that diversified regional demand driven by domestic tourism, religious travel, staycations and local leisure demand has kept things ticking over.
She says: “These hotels are less vulnerable to disruptions in international aviation and traveller confidence.
“Luxury and upscale properties continue to perform well in many markets because domestic and regional travellers are increasingly sophisticated and willing to spend on premium experiences.”
Choufany adds that most respondents are also confident that EBITDA will recover within six to 12 months once peace has resumed.
She adds: “Hospitality markets are generally capable of absorbing short-term shock. What becomes more problematic is prolonged uncertainty.”
Philip Wooller, the senior director for Middle East and Africa for STR, which is owned by commercial a group company of commercial real estate data specialists Costar, is confident that the region will reopen as quickly as possible once it is safe to do so.
He says: “Dubai is one of the biggest hotels markets in the world with 155,000 rooms and it is on a comparable level to London.
“The only way these hotels are going to fill up is through international travel, regional and international events and exhibitions, big conventions and your international leisure travel.”
And he cites the previous example of Covid as proof that Dubai will always be a popular destination with international travellers.
Wooller says: “It opened up as soon as it could and as safely as it could and everybody flocked back to Dubai.”
Whitebridge Hospitality director Philip Camble agrees that Dubai will quickly regain its popularity once it reopens largely thanks to its geography and airline Emirates’ ability to exploit this.
“Dubai in particular has succeeded with the creation of Emirates,” he says. “Its geography will never change as it will be between the East and West and Emirates has a low cost base and will continue to be one of the biggest carriers on the planet.”
Camble adds Dubai is also set to benefit from recent projects which have focused on three and four-star properties targeting new markets.
He says: “It will open up new segments of demand, especially China and those other countries whose people would love to come to Europe but we make it quite difficult for them.”
Choufany is also keen to highlight that while respondents have admitted to being “slightly”, 32 per cent, or “significantly”, 11 per cent, more cautious as a result of recent events, this is very different to having a negative outlook.
“That distinction matters because it tells us capital is still interested in hospitality,” she adds. “For example, an investor may delay an acquisition by six months while monitoring geopolitical developments. That is very different from cancelling the investment altogether.”
Choufany says that these sentiments are not just found locally but also internationally with non Middle Eastern brands unlikely to be put off in the long term by the conflict.
She adds: “International operators remain attracted by the scale of tourism investment, infrastructure development and long-term demand growth.
“What we see is greater selectivity around market entry, project timing and deal structures, but not a withdrawal from the region.”
Despite the general positivity, Choufany admits that opportunities for acquisitions are also emerging as certain groups including smaller independent owners, those with highly leveraged assets or which are high international market dependence as well as those with limited liquidity reserves feel the pain.
Smart tactics
Meanwhile, Wooller says while capital investment may be on hold many of Dubai’s most famous hotels have used the drop in visitor numbers as an opportunity to undertake extensive refurbishment.
Costar data shows that the Anantara World Estates Dubai Resort closed on 10 April with no reopening date advertised, the 197-room Jumeirah Burj al Arab for refurbishment estimated to take 18 months while the 290-room St Regis Dubai, The Palm is offline until 31 August with other brands including Radisson Blu, Armani, JW Marriott and Park Hyatt.
While the work is going ahead, Wooller says the news is being kept under wraps, adding: “The city wants to be portrayed as open so they are not going to say this hotel is closed or that hotel is closed but many of the hotels that were approaching that 10-year time period for a refurbishment might have brought it forward.
“That has its complications as well with supply issues but I think the sensible hotels with the cash have moved forward with their refurbishment plans and will come back bigger and better than ever before.”
Camble agreed that now was a good time for refurbishment particularly as he believes even once peace has been restored, international travellers will need coaxing back if 2027 is to be a success.
He adds: “It’s a good period once you have low occupancy to undertake this work, providing the supply chain can operate.
“Even if there is a solution to the Strait tomorrow and it reopens and everything starts flowing, there are psycho0logical considerations for international tourists.
“This year is pretty much finished and, let’s face it, people have probably now booked their summer holidays.”