The pace of hotel development in the Middle East is picking up after a two-year dry spell. The key to making these hotels a success is showing this region is still a place to visit when the rest of the world is back to open borders and on a level tourism playing field.
Editor’s Note: Skift Senior Hospitality Editor Sean O’Neill brings readers exclusive reporting and insights into hotel deals and development, and how those trends are making an impact across the travel industry.
Hotel brands typically point to the U.S., China, and Europe as their main three geographic benchmarks for recovery from the pandemic. But the Middle East is the real winner.
Many of the publicly traded hotel companies to report fourth quarter and full-year 2021 earnings over the last few weeks noted the Middle East was one of their strongest-performing regions.
Marriott’s revenue per available room — the industry’s key performance metric — in the Middle East was 8 percent above 2019 levels in the fourth quarter. It was 7 percent above 2019 levels for Hilton. Accor, which lumps the Middle East into a portfolio with India, Africa, and Turkey, reported a 5 percent increase over 2019 levels across the area.
Average occupancy rates in the Middle East topped 65 percent in the fourth quarter, the highest of any region in Marriott’s system.
“With relatively high vaccination rates and low travel restrictions during the quarter, the Middle East has become a safe, easy place to visit,” Marriott CEO Anthony Capuano said on an investor call last month. “Leisure demand was remarkably strong, benefiting from a significant increase in international visitors. Room nights from international guests rose nearly 60 percent from the third to the fourth quarter.”
Many of the companies reporting strong numbers in the Middle East noted this was led by the United Arab Emirates, where Expo 2020 began its delayed start in October as a result of the pandemic. But companies are also signaling with their development pipelines that they see reason to build further into the region for reasons beyond just a global event like Expo 2020.
Fertile, Unbranded Soil: Many of the major hotel companies are pushing beyond the U.S. into international markets for the simple reason there is a lot more runway to slap a brand on unaffiliated hotels compared to America, where a vast majority of the hotel product is tethered to a major brand.
Real estate is a long-term play, so a one-quarter performance pop by itself is unlikely to stir developer interest. But the Middle East’s limited travel restrictions during the pandemic meant more travelers were introduced to the region as a vacation destination, and Expo 2020 is meant to show off Dubai to the world as a place to live and work. That appears to be paying off in the development community.
The Middle East ended an eight-quarter downward trend in its pace of hotel development last year. The fourth quarter was the second consecutive quarter of hotel development growth, according to Lodging Econometrics. The number of projects expected to begin construction in the next year is up by 5 percent while the number of projects in the early stages of planning and development is up by 13 percent.
Saudi Arabia, which is actively pursuing its own tourism initiative, leads the Middle East’s development pipeline with nearly 70,000 rooms across 210 hotel projects. The United Arab Emirates comes in second place with almost 36,000 rooms across 126 hotel projects.
Five hotel companies — Hilton, Accor, Marriott, IHG Hotels & Resorts, and Radisson Hotel Group, respectively — account for 60 percent of the projects and 58 percent of the rooms under construction in the Middle East. Hilton has 97 projects in development while Accor has 83 and Marriott has 74. IHG hit a personal record high in the fourth quarter with 51 projects while Radisson rounded out the top five with 24 projects.
“You have many countries opening their own territories to be discovered by so many people, and I can guarantee you Accor, in probably 99 percent of the cases, [is] very close to the different governments [and] the different ministers of tourism to help them basically grow and have a great experience, discovering countries you didn’t know,” Accor CEO Sebastien Bazin said on an earnings call last month.
Hotel Chains Offer Help While Noting Limited Exposure to Russia, Ukraine
While the executives at major hotel companies like Accor and IHG Hotels & Resorts voiced their support in recent days for those impacted by the Russian invasion of Ukraine, they also indicated their portfolios were relatively small in either country.
Accor has six hotels in Ukraine while Hilton has four, according to Lodging Econometrics. IHG and Marriott each have one. There is greater branded exposure in Russia, where Accor has 29 hotels and Hilton has 14. IHG has five hotels in Russia while Marriott has five, Wyndham has four, and Hyatt has one.
“Putting aside that Ukraine and Russia is less than 1 percent of the [Accor] network — because that is absolutely irrelevant — What’s relevant is we have 2000 people in Russia. We have a couple hundred people in Ukraine, and we care for them, and we feel for them,” Bazin said on an earnings call last month. “The most important thing for me and the teams of Accor is to make sure that people are safe, to make sure you talk to them, to make sure you provide whatever is needed, and to make sure that they know that you’re there.”
Accor activated its ALL Heartist Fund to financially support team members and their families in the impacted region, the company tweeted late last week. The company is also partnering with the United Nations High Commissioner for Refugees to collect employee donations that will then be “topped-up” by Accor. The Paris-based hotel company is also working to provide shelter and resources in neighboring countries to arriving refugees.
IHG is working with hotel owners in neighboring countries to provide refugees temporary accommodations. The company also makes donations to CARE International and the International Federation of Red Cross and Red Crescent Societies to support their work toward helping refugees.
“Our priority is helping our guests and our colleagues in both Ukraine and Russia, and we are doing all we can to support them in what must be an incredibly frightening and worrying time,” IHG CEO Keith Barr said in a post to LinkedIn. “The world has been through so much in the past two years, and it is very difficult to see more pain and hardship being endured by so many. Our thoughts are with everyone affected and we will continue to do all we can to find ways to create a little light at such a dark and difficult time.”
A Hotel and Convention Development Spending Spree in Las Vegas
The Las Vegas Convention and Visitors Authority plans to spend north of $4.5 billion to add 7,602 hotel rooms and nearly 800,000 square feet of convention space to the Southern Nevada region by the end of 2024.
That would put the region at more than 158,000 hotel rooms total two years from now. Las Vegas is already home to one of the world’s largest convention facilities, the 4.6 million-square-foot World Trade Center Las Vegas.
Twelve hotel projects added 5,179 rooms and 670,000 square feet of convention space to Las Vegas last year at a cost of nearly $4.9 billion, according to the Daily Lodging Report. It might seem like a head scratcher to put so much attention to building up convention spaces when city-wide meetings and events is a sector that has yet to revive from the pandemic downturn on travel. But there is swelling sentiment these kind of conventions and events will be increasingly popular in a new era of remote work.
Companies will rely more on gathering teams occasionally for a meeting or large gathering in lieu of working together every day in a traditional office, the thinking goes.
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