Hotel Construction Is Dwindling in the Middle East Despite Big Brand Interest

Companies like Accor, Wyndham, and Marriott all announced plans in recent days to beef up their presence in the Middle East. But the brand buildup has a ways to go to offset the six quarters of a hotel development decline in the region.

There are currently 542 projects, or nearly 157,000 hotel rooms, in various stages of development across the Middle East, according to Lodging Econometrics. The development figure represents a 2 percent decline in active construction from before the pandemic and a 36 percent decline in the number of projects expected to begin construction in the next year.

The region garnered a reputation as a vacation haven during coronavirus, as several countries like the United Arab Emirates and Jordan opened borders to international tourists while other parts of the world kept travel restrictions in place. But real estate is a long-term play, and that pop in travel demand doesn’t appear to have trickled down yet into the development pipeline.

“The next few years will prove pivotal in this region,” Lodging Econometrics reports in its development overview.

The report cites factors like fluctuating prices in oil, vaccine distribution, and even the new Biden administration in the White House as reasons for the development drop off. But it is important to note vaccine distribution is actually very high in the region’s top tourist destination, the UAE. As of Sunday, the country, home to cities like Dubai and Abu Dhabi, had the third-highest rate of vaccine distribution in the world behind Israel and the Seychelles.

Additionally, Saudi Arabia continued its push last year to become a major tourism destination by announcing a $4 billion tourism investment fund. Distribution platform Sabre also extended a partnership earlier this month with Kanoo Travel, the largest travel agency in the Middle East. The partnership extension was motivated by an expected increase in tourism to the region.

Branded Buildup: The slowing pace of development in the Middle East may seem at odds with recent brand expansion announcements from some of the world’s largest hotel companies.

Accor CEO Sebastien Bazin, on a February investor call, called hotel performance of the company’s Dubai portfolio “extraordinary” over the winter and a signal of how travel demand can quickly return once travel restrictions ease.

Accor opened its first SLS hotel in Dubai last week, Wyndham brought brands like La Quinta and Days Inn to the region, and Paris-based Louvre Hotels Group announced last week plans to add 31 hotels in Saudi Arabia. Marriott signed a deal last month with Al Saedan Group to bring three hotels to Saudi Arabia, including the debut of its Renaissance brand in the country and the world’s largest Aloft hotel, by 2025.

Forty-six percent of the hotels in various stages of development in the Middle East at the end of last year belonged to three companies: Hilton, Marriott, and Accor.

Hotel companies just need to make sure the travel demand to the region over the winter remains and doesn’t leak to other parts of the world once pandemic travel restrictions lift.

Let Luxury Lead the Way: Hotel companies are putting significant emphasis on their luxury and upscale brand portfolios in further Middle East expansion.

Much of Accor’s focus on ultra-luxury and lifestyle hotel growth involves the Middle East. The SLS arrival in Dubai comes months after Accor spun out the brand and several others into a separate division with Ennismore, owner of brands like Gleneagles and the Hoxton. Dubai is also the first international expansion city for the Accor-partnered Faena brand.

The Middle East accounts for a major part of the expansion trajectory at Raffles, which plans to essentially double its global footprint in the next five years. The brand has properties in development in Saudi Arabia, Bahrain, and Dubai.

Soho House Inches Closer to Going Public

A posh chain of members-only clubs around the world has a hefty valuation. Soho House confidentially filed paperwork last week with the U.S. Securities and Exchange Commission to go public on the New York Stock Exchange. The London-based company is likely to fetch a valuation at more than $3 billion and potentially as high as $4 billion.

Soho House previously tried to go public in 2018 in a deal that valued it at $2 billion, so this is an impressive financial jump given the pandemic temporarily suspended operations at most of the company’s 27 clubs.

While the company laid off 1,000 of its 8,000 staffers due to the pandemic, membership reportedly didn’t fall off a cliff. Only about 10 percent of Soho House’s 110,000 members canceled their memberships.

Rising Exclusivity: Soho House’s push toward going public comes at a time when more hoteliers and hotel companies are focusing on ultra-luxury brands and increased exclusivity. Accor signaled last year ultra-luxury brands have high growth potential and spun their own, including Raffles and Orient Express, into an independent division of the company.

Hotelier Andre Balazs announced plans last year to convert the Chateau Marmont in Los Angeles to a members-only model. More could be in the works, as more luxury travelers crave familiarity and less interaction with strangers.

Hotel brands like St. Regis and Four Seasons are beginning to build residential-only projects without an actual hotel component, the idea being people want the amenities of these brands without the transient nature of hotel guests.

“There is something to be said for knowing people,” Balazs told the Wall Street Journal last year about the members-only model. “You can chat with them. You know where they have been.”

Japanese Hotel Brand Plans U.S. Expansion

Hoshino Resorts, a hotel company known for its traditional Japanese ryokan lodging, plans to expand to the U.S. within the next five years, the company’s CEO Yoshiharu Hoshino told Bloomberg last week.

While the 107-year-old company has recently added urban hotel brands like Omo to its portfolio, Hoshino is best known for its luxury hotels in stunning resort settings like hot springs or mountainsides. That division of the company is likely to lead the U.S. expansion.

Hoshino mentioned Saratoga Springs, New York — a drive-to destination from New York City and Boston — as a setting fit for the hotel company.

The company has a hotel in Hawaii, but it isn’t the ryokan-type property planned for the mainland U.S. Hoshino plans to accelerate its search for U.S. properties once pandemic restrictions on travel ease.

“My personal goal is to bring traditional Japanese hot spring resorts to North America,” Hoshino said on Bloomberg TV. “There are so many hot spring resources in the U.S.”

A Hotel Recovery Down Under

Australian hotel operators should get to 95 percent of pre-pandemic business levels by 2023, according to Deloitte’s Access Economics Tourism and Hotel Market Outlook report released this month.

But hotel companies and operators face a recovery headwind due to a flood of new room supply adding to Australia’s hotel market. More than 5,000 rooms opened last year, and an additional 32,000 rooms are in the development pipeline — with 40 percent of that on track to open by 2022.

Cities and markets with greater reliance on business travel and international travel like Sydney and Adelaide are expected to take the longest to recover in terms of hotel occupancy rates.

“The corporate travel segment will clearly be critical in terms of the recovery, and markets where corporate travelers represent a relatively larger share of demand will face significant challenges, particularly as so many businesses big and small have settled into people connecting via technology,” Adele Labine-Romain, a Deloitte Access Economics partner and Deloitte national tourism leader, said in a release coinciding with the report. “In the short to medium term therefore, hotels in the major cities will need to look at ways to encourage a greater volume of domestic holidaymakers to fill the gap from business travelers.”