Hotel Markets – Outlook, Trends and Opportunities

This issue has been published by the London Office of HVS International 2005 Edition

Elie Younes and Bernard Forster

from the rooms department on be, on average, 12% in 2004, which A Record Year! departmental profit and, thus, gross will undoubtedly whet the appetite operating profit (GOP); of local and regional investors; INTRODUCTION ∑ If we assume an average ∑ RevPAR to GOPPAR conversion development cost of US$185,000 per rates in the region range from 0.6 in AND HIGHLIGHTS room for our surveyed sample, then to 1.2 in . Factors that ∑ HVS International’s Middle East the total return on investment from influence this conversion rate Hotel Survey for 2005 features 105 operating cash flow is estimated to include average rate fluctuation, hotels totalling 32,000 rooms. Our sample includes branded four-star and five-star hotels, but we have Table 1 Performance of First Class Hotels in the Middle East 1994-04 excluded super-luxury hotels as 80 120 these could skew the results of this survey; 75 ∑ 100 This year HVS International has 70 pioneered a profitability assessment 80 of the Middle East hotel industry. 65 An assessment of GOPPAR (gross 60 60 operating profit per available room;

Ref: GOPPAR a Derivative of RevPAR, Occupancy (%) 55 40 Elie Younes and Russell Kett, HVS 50 International 2003) for each market 20 has been conducted by HVS 45 International’s expert Middle East 40 0 team. Our assessment is based on 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 our research and HVS Occupancy (%) Average Rate (US$) RevPAR(US$) International’s extensive expertise in the local, regional and Source: HVS International Research international hotel markets worldwide; ∑ Despite the continued political Table 2 RevPAR vs GOPPAR Trends 2004 (US$) turmoil in , the hotel industry in the Middle East had a spectacular 150 2004, achieving a ten-year record RevPAR GOPPAR

performance and outperforming 130 some of the best-established international markets. Occupancy 110 among quality hotels increased from 67% in 2003 to approximately 72% in 2004. Average daily room 90 rate (ADR) for the region increased ...... Average RevPAR 04 US$ 73 by approximately 10%, from US$92 70 Average GOPPAR 04 US$ 62 in 2003 to US$101 in 2004. RevPAR ...... as a result saw double-digit growth 50 of approximately 18% on 2003,

registering US$73, the highest since 30 1994; ∑ Hotel gross operating profits grew 10 on average by 26%. GOPPAR Doha Muscat

improved from US$49 in 2003 to an Hurghada Cairo City average of US$62 in 2004. The Damascus

accelerated GOPPAR growth is Sharm el Sheikh Cairo – Pyramids Cairo – Heliopolis attributable mainly to the strong Source: HVS International Research and Analysis impact of the incremental income

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 1 of fully fledged monetary union Table 3 Winners and Losers – Percentage Change in RevPAR with a single currency in 2010 is Between 2003 and 2004 remarkable; barriers to the movement of goods, services, capital and labour have largely been 03 Growth Abu Dhabi eliminated; 04 Growth Amman ∑ continues to experience one Beirut of the strongest economic growth Cairo – City Centre rates in the region: GDP was Cairo – Heliopolis approximately 9% in 2004; Cairo – Pyramids ∑ GCC (Gulf Co-operation Council – Damascus predominantly oil producers) Doha countries are pressing ahead with Dubai their economic diversification Hurghada programmes, with the UAE (Dubai), Jeddah Qatar, and remaining the most committed and proactive. Manama We consider that a unified Middle Muscat East strategy is vital as this Riyadh will restrict intra-regional competition; Sharm el Sheikh ∑ The non-GCC countries also

–40 –30 –20 –10 0 10 20 30 40 50 60 70 80 experienced considerable economic Decline % Growth growth, which was driven mainly Source: HVS International Research by low interest rates and an improvement in domestic and international confidence and occupancy, facilities, revenue mix and private and public capital consumption; and labour costs; investment in the industry). ∑ The region remains highly ∑ Demand was boosted by an increase vulnerable to political instability in in regional tourism and by the Iraq, US sabre-rattling over Iran and improved awareness of European MACROECONOMIC Syria, and the continued tensions markets. The increase in ADR was between Israel and the Palestinians. attributable mostly to increased OVERVIEW However, since the election of demand, which stimulated hoteliers ∑ In 2004 the Middle East was the Mahmoud Abbas in succession to into increasing room rate. This was second-fastest growing region after the late Yasser Arafat as the new further enhanced by the continued China. Spectacular economic Palestinian leader hopes for a devaluation of the US dollar (the growth in GDP of more than 5% was potential peace process have been currency to which most currencies recorded in 2004, and this was raised which, if these hopes in the region are pegged), and hence attributable primarily to a materialise, will undoubtedly fuel the increased purchasing power combination of high oil prices, low economic growth and significantly (elastic demand) of the major interest rates and abundant improve international confidence non-dollar-denominated hard liquidity within the region. and thus direct foreign investments currencies; Expectations are that the region’s on all levels. ∑ Our general outlook for the hotel growth is likely to continue to be industry in 2005 and 2006 remains strong in 2005, although growth is OVERALL TRENDS positive in all aspects (operating expected to slow; ∑ performance, investment returns, ∑ The progress made towards the goal According to Tourism Organisation (WTO), the growth in the number of tourist arrivals in the Table 4 Real Gross Domestic Product Growth (%) region in 2004 was once again staggering in comparison to 2003. Forecast The number of tourist arrivals in 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 the Middle East in 2004 was up by 20% on 2003, and the Middle East Bahrain 3.1% 3.1% 3.1% 1.2% 5.2% 5.0% 3.8% 4.9% 5.6% 6.4 remained the world’s fastest- Egypt 5.1 5.9 5.0 3.1 3.9 2.5 3.0 1.8 2.7 3.8 growing region in terms of arrivals 0.8 2.7 2.2 1.5 2.5 2.8 3.6 3.1 6.4 6.0 between 1996 and 2004. This reflects both the potential of the tourism Kuwait 2.9 2.5 0.0 (0.5) 4.0 0.8 (2.0) 4.6 7.2 2.6 industry in the region and its 4.0 3.5 3.5 4.0 0.0 0.8 0.9 2.0 4.0 4.5 resilience to political shocks; Oman 3.5 3.5 2.1 1.5 4.7 5.0 2.2 1.1 1.2 1.4 ∑ We consider that the growth in Qatar 8.9 10.5 3.2 3.3 4.3 5.7 4.6 8.5 8.7 8.3 tourism was driven mainly by increased intra-regional visitation 1.4 2.5 (1.0) 1.6 4.1 1.7 0.6 3.5 5.3 4.7 (an increase which has been Syria 5.5 4.1 3.4 4.0 1.5 1.6 2.2 0.9 2.2 1.9 noticeable ever since the events of 11 3.0 1.0 (5.0) (1.2) 5.0 2.9 2.4 3.5 5.7 5.8 September 2001), increased Source: Economist Intelligence Unit, February 2005 international awareness of the region, the decline in the US dollar,

2 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International ∑ Table 5 Worldwide Tourism Trends and Distribution 2003-04 Most currencies in the region are pegged to the US dollar and, given Tourist Arrivals the recent appreciation of the euro, Millions % Change the region will become increasingly 2003 20041 2003/04 1996/04 attractive, in terms of purchasing power, to the European leisure World 691.0 759.0 %9.8% 27.2% markets; 31.0 33.0 6.5 51.2 ∑ The significant number of large- Americas 113.0 124.0 9.7 6.0 scale developments underway East Asia/Pacific 119.0 153.0 28.6 67.3 throughout the region (in Qatar, Bahrain, Oman, Dubai and Europe 399.0 414.0 3.8 18.2 Lebanon, for example) is likely to Middle East 29.0 35.0 20.7 148.5 stimulate both the level of visitation and private investment. The latter will be further fuelled by the gradual relaxation of freehold Middle East legislation, which will allow 5% Africa regional (and, occasionally, 4% international) investors to take full Americas ownership of commercial and 18% residential real estate; ∑ Public spending continues to drive most of the economic and tourism development in the GCC, whereas non-GCC countries rely on private spending and investment. However, the increased liquidity of the private equity markets in the region will in East all likelihood improve the private Europe Asia/Pacific sector’s role in the investment in 55% 20% and the development of the hotel and tourism industries over the next five to ten years; 1 Preliminary estimates ∑ While hotel financing in the region Source: World Tourism Organisation has in the past been conservative, recent indications show a trend and an improvement in global when compared to other towards more aggressive hotel debt economies. All of these factors have destinations worldwide; financing in aspects including stimulated international leisure and ∑ We expect the region to experience mortgage lending ratios, mortgage corporate visitation; further considerable growth over amortisation period and debt ∑ Tourist arrivals in the Middle East the next five to ten years. However, servicing structure; continue to account for less than 5% the annual growth rate is likely to ∑ An increased level of development of the total number of arrivals slow over the next decade. We note in ‘hotel derivatives’ is noticeable. worldwide. This clearly reflects the that the WTO expects the region to Such asset classes include potential of the region to experience experience an average annual timeshare, serviced apartments and strong growth in the future and growth of approximately 7% over limited service hotels. Although further improve its market share the next 15 years; opportunities for investment in

Table 6 Middle East Tourism Arrivals 1989-04

40,000 Iraq War 35,000 9/11 30,000

25,000 (’000s) 20,000 Gulf War 15,000

10,000

5,000

1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005

Source: WTO estimates

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 3 Table 7 Average Annual Room Occupancy 1994–04

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Bahrain Manama 65 % 58 % 53 % 63 % 58 % 56 % 59 % 62 % 64 % 64 % 72 % Egypt Cairo – City Centre n/a 67 73 75 69 79 78 66 68 67 78 Cairo – Pyramids n/a 58 66 66 47 70 76 61 62 61 73 Cairo – Heliopolis n/a 65 79 72 70 83 83 75 75 73 75 Hurghada 48 63 70 63 50 80 77 65 66 66 86 Sharm el Sheikh 79 73 72 66 68 79 63 61 66 64 75 Jordan Amman 61 74 71 61 56 56 59 44 45 57 72 Kuwait Kuwait City 44 41 44 46 46 47 46 49 53 84 64 Lebanon Beirut n/a n/a 45 61 61 58 61 55 55 59 71 Oman Muscat 67 66 64 71 56 57 55 62 59 57 69 Qatar Doha 61 75 80 78 72 61 58 56 60 72 72 Saudi Arabia Jeddah 68 64 61 58 60 59 63 59 57 53 54 Riyadh 66 62 61 62 63 62 60 61 65 64 55 Syria Damascus 70 73 68 70 69 69 66 65 67 65 69 UAE Abu Dhabi 65 58 66 65 66 64 67 67 68 68 82 Dubai 74 69 74 73 70 70 74 71 76 79 86 Average 61 % 63 % 67 % 66 % 61 % 65 % 68 % 64 % 66 % 66 % 72 % Source: HVS International Research

Table 8 Average Room Rates Achieved 1994–04 (US$)

% Change 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2003–04 Bahrain Manama 86 87 92 90 93 102 105 103 119 122 132 8.2 Egypt Cairo – City Centre n/a 73 72 78 78 80 86 85 77 75 75 0.0 Cairo – Pyramids n/a 38 42 46 44 47 59 60 36 38 42 10.5 Cairo – Heliopolis n/a 59 62 61 62 62 68 65 59 60 63 5.0 Hurghada 67 39 41 44 30 34 41 35 30 32 40 25.0 Sharm el Sheikh 1 51 49 53 52 35 44 45 41 37 39 42 7.7 Jordan Amman 67 75 83 83 81 71 68 68 65 69 74 7.2 Kuwait Kuwait City 2 209 205 213 201 204 203 214 218 216 233 230 (1.3) Lebanon Beirut 2 n/a n/a 166 173 143 129 135 138 150 154 168 9.1 Oman Muscat 103 103 112 101 95 91 86 80 74 66 82 24.2 Qatar Doha 65 68 77 101 116 112 115 105 100 101 146 44.6 Saudi Arabia Jeddah 99 103 117 115 113 111 119 110 104 104 114 9.6 Riyadh 98 105 106 110 113 116 115 110 107 104 105 1.0 Syria Damascus 102 73 124 118 111 104 97 94 94 102 100 (2.0) UAE Abu Dhabi 108 114 129 111 101 99 88 89 89 87 91 4.6 Dubai 3 117 119 120 126 107 104 105 100 110 113 144 27.4 Average 98 87 101 101 95 94 95 92 89 94 103 9.9 % 1 Our sample changed in 2004: various five-star and five-star de luxe hotels were removed from the sample 3 Excludes five-star luxury hotels 2 We have adjusted our sample for the entire period shown Source: HVS International Research

Table 9 RevPAR Performance 1994–04 (US$)

% Change 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2003–04 Bahrain Manama 56 51 49 56 54 57 62 64 76 78 95 21.7 Egypt Cairo – City Centre n/a 49 53 58 60 62 67 56 52 50 59 16.4 Cairo – Pyramids n/a 20 37 29 31 35 50 40 23 23 30 30.6 Cairo – Heliopolis n/a 38 49 44 52 52 57 49 44 44 47 7.9 Hurghada 32 25 29 28 24 27 31 23 20 21 34 62.9 Sharm el Sheikh 48 43 46 41 36 43 35 31 24 25 32 26.2 Jordan Amman 41 55 59 50 46 40 40 30 29 39 53 35.5 Kuwait Kuwait City 77 70 78 77 79 79 82 89 114 196 147 (24.8) Lebanon Beirut n/a n/a 57 81 81 75 82 76 83 91 119 31.3 Oman Muscat 69 68 71 72 54 52 47 50 44 38 57 50.4 Qatar Doha 39 51 62 79 71 69 67 59 60 73 105 44.6 Saudi Arabia Jeddah 69 68 73 70 69 68 77 67 59 55 62 11.7 Riyadh 65 66 64 69 70 72 69 67 70 67 58 (13.2) Syria Damascus 71 53 84 82 77 72 65 61 63 66 69 4.1 UAE Abu Dhabi 70 66 85 72 64 63 60 60 61 59 75 26. 86 82 89 92 75 73 78 73 84 89 124 38.7 Average 58 53 60 60 58 56 60 59 59 62 73 18.1 % Source: HVS International Research

4 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International ∑ Table 10 GOPPAR Performance 2003–04 (US$) Following the escalation of violence by militant Islamists in Saudi Arabia in late 2003 and early 2004 and the Dubai relocation of some expatriates to Abu Dhabi GOPPAR 03 Bahrain, concerns have mounted Damascus Increment GOPPAR 04 that Bahrain itself may be the target Riyadh of an attack. However, the country Jeddah has so far successfully overcome Doha such concerns; Muscat ∑ Ties with the USA have further Beirut strengthened recently, with the Kuwait City conclusion in 2004 of a bilateral free- Amman trade agreement between the two Sharm el Sheikh countries. However, this agreement Hurghada might have an impact on Bahrain’s Cairo – Heliopolis Cairo – Pyramids relations with neighbouring Saudi Cairo – City Centre Arabia; Manama ∑ The long-term prospects for the economy of Bahrain are tied to those –40 –20 0 20 40 60 80 100 20 140 160 of the wider Gulf region, Source: HVS International Research and Analysis particularly the Saudi market. Bahrain already has a large offshore financial sector, which serves mainly Saudi needs; however, due to Saudi restrictions, so far it has not such asset classes exist in some parts become a base for investment of the region, we recommend that Country Analysis serving the Saudi market. Recent investors fully understand the Saudi moves towards economic market opportunities and BAHRAIN liberalisation could make it easier investment characteristics of each for Bahrain-based firms to do type of asset class before setting Economics and Politics business in Saudi Arabia. their investment strategies; ∑ Bahrain has a small but reasonably ∑ As anticipated in last year’s report, prosperous and diversified Developments and an increasing number of specialist economy and one that is less hotel investment funds are being dependent on oil than most other Initiatives created for and within the region. Gulf States; Private and public projects and The source of such capital emanates ∑ Economic growth for Bahrain is initiatives in the country include the mostly from the GCC countries; forecast to rise from an estimated following. ∑ InterContinental Hotels Group, 5.6% in 2004 to 6.4% in 2005, Mövenpick, Rotana and Rezidor triggered by increased government ∑ The government is expected to press SAS appear to be the most prolific spending, the development of large- ahead with the liberalisation of hotel operators in the region, in scale state-backed projects and utilities, which should promote a terms of new developments. foreign investment; more rapid inflow of foreign investment and stimulate growth and confidence; ∑ Private sector development is being Table 11 Proposed Hotels – Bahrain encouraged more broadly, as investment processes are Number of Opening streamlined and tax incentives Hotel Name Rooms Date Location Status introduced; ∑ The development of the Friendly Mercure Grand All-suite Hotel 120 2005 Manama Under Construction Bridge between Bahrain and Qatar 1 Radisson SAS Diplomat 130 2006 Manama Under Construction is back on track after being on hold Marriott Executive Apartments 190 2007 Manama Under Construction for a while. Construction is due to Bahrain Cty Centre Hotels 500 2007 Manama Under Construction commence in 2007 with completion due by 2010; Amwaj Island Hotels 750 2007 Muharraq Under Construction ∑ Plans have been announced for a Novotel 200 2007 Manama Under Construction major programme of expansion at Durrat al Bahrain Resort 100 2008 Durrat al Bahrain Under Construction Bahrain International Airport with Proposed Hotels – (BFH) 400 2008 Manama Planned an estimated cost of US$170 million. Once the expansion is complete, in Zallak Resort 300 2008 Zallak Planned 2010, the airport’s capacity is likely Bahrain Equestrian Club 200 2008 Manama Planned to increase from the current capacity Luxury Resort Hotel 165 2008 Jasra Planned of around 7 million passengers to 12 million passengers per year; Other Rumoured Projects 500 2008 Manama Rumoured ∑ 1 Serviced Apartments The US$1.3 billion Bahrain Financial Sources: HVS International Research and Hotel Operators Harbour (BFH) is under construction. The BFH is a major

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 5 Durrat al Bahrain hotel, an 18-hole golf course, an ∑ In 2004 aggregate occupancy in the aqua park and various other leisure market increased to 72%, and and retail facilities; average achieved room rate for the ∑ The US$750 million Al Areen Desert quality hotel market increased by Spa and Resort is to be located on 8% on 2003, to US$132. This resulted the eastern boundary of the Al in 22% growth in RevPAR, to US$95; Areen Wildlife Sanctuary, close to ∑ Our research and analysis suggests the Bahrain International Circuit that the quality hotel market in (BIC); the resort will be Manama registered an average approximately 25 minutes’ drive GOPPAR of approximately US$75, a from Manama and will cover an 30% rise on 2003; area of some 200 hectares (2.0 km2). ∑ New openings in 2004 included the It will incorporate extensive spa 110-room Mövenpick and the 120- project that aims to consolidate facilities and themed hotel unit Ritz-Carlton apartments; Bahrain’s leading position as the accommodation, residential villas ∑ international financial centre of the and low-rise apartments, Proposed and rumoured new Middle East, thereby creating commercial and entertainment supply in the market is illustrated in a financial hub in the region facilities, and a water park, which Table 11. and providing the necessary will face the BIC and overlook the infrastructure and facilities for the Al Areen Wildlife Sanctuary. The Outlook and Opportunities full range of requirements of the resort is expected to attract the ∑ Bahrain remains the most financial services sector. Some 350 health tourist market and is diversified and open economy in national, regional and multinational scheduled for completion by 2008; the GCC region, initiating financial institutions and companies ∑ The Dream Island resort, a Venice- innovative projects and embracing are expected to take up residence in style island, is being developed long-term approaches towards the the BFH upon its completion, which along the northeast coast of development of its economy; is scheduled for 2009. In addition, Manama and is likely to include a ∑ the BFH will contain a wide range of hotel, a spa, beach villas, marina Unlike other GCC countries, leisure and retail outlets, key residences and other leisure and Bahrain benefits from cultural and entertainment facilities and entertainment facilities. The project natural resources that could be residential premises; is due for completion in 2006/07; capitalised on when it comes to designing the country’s tourism ∑ The Bahrain International Circuit ∑ Plans have been announced for the product. We still consider that was successfully completed in time development of a desert ski centre, Bahrain must carefully define its for the 2004 Formula One Grand at a cost of some US$500 million. tourism strategy in order to Prix, and, according to local The attraction will cover an area of differentiate itself from other estimates, the event attracted more 25 hectares near Al Jazira Beach. The destinations in the region, notably than 40,000 foreign visitors. This centre will offer outdoor sand skiing Dubai; annual event is likely to stimulate and snowboarding facilities as well additional organic growth in as an indoor ice rink that will be ∑ A considerable level of new hotel visitation to Bahrain for at least the suitable for a variety of sports. A supply is likely to enter the market next four years; hotel is also planned within the over the next few years. This could ∑ The construction of the US$1 billion complex, along with a convention potentially have a significant impact Amwaj Islands project is underway hall and retail facilities. Completion on the performance of quality and most elements of this city of the project is scheduled for 2008. hotels. However, various innovative development are expected to be projects are being developed, and completed by 2007. The project these are likely to establish the comprises a group of man-made Visitation and the Hotel country more firmly on the global islands, covering approximately 279 Market tourist map, and hence induce a hectares (2.8 km2), located on the considerable level of hotel demand north coast of Muharraq Island, ∑ Bahrain saw visitation grow that should in turn absorb the new near to Bahrain International strongly in 2004. The main impetus supply; Airport. The project will include a behind this growth was the Formula ∑ We consider that opportunities exist 9.5 km beachfront, 1,048 residential One Grand Prix in April (which in this market for the development units (available for freehold drew more than 40,000 foreign of branded limited service hotels purchase), private marinas, hotels, visitors). This was the first time that and serviced apartments. commercial and entertainment Bahrain had hosted such an event centres, restaurants and malls; (and it was the first country in the EGYPT ∑ The US$1 billion Durrat Al Bahrain Middle East to do so). Growth in 2 project is a 20 km seaside city resort visitation was boosted too by events Economics and Politics located 25 km from the capital such as the GCC Summit in Manama, in the south of Bahrain, December 2004; ∑ According to the Economist near to the planned Bahrain/Qatar ∑ The main source market for Bahrain Intelligence Unit (EIU), economic causeway. The project (due for remains the Arab world, which growth is forecast to rise to 3.8% in completion in 2008) is one of the accounted for more than 75% of the fiscal year 2005 from an estimated most ambitious in the country, total number of arrivals. Asia is the 2.7% in fiscal year 2004, as cuts in featuring 13 islands with over 2,000 second main source market, customs duties and taxes stimulate villas, 3,000 apartments and accounting for approximately 15% economic activity. The growth is townhouses, a 60-room, five-star of total visitation; also attributable to the inflow of

6 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International included in the process are the Misr Table 12 Proposed Hotels – Egypt Hotels Company, The ‘Thomas Cook “Boulak” Land’ and other Number of Opening hotels in downtown Cairo; Hotel Name Rooms Date Location Status ∑ The government has recently Former Nile Plaza 211 2006 Cairo City Centre Under Construction further facilitated entry procedures Park Hyatt 1 250 2007 Cairo City Centre Under Construction for visitors from EU countries. Novotel 400 2007 Cairo City Centre Rumoured Citizens of Italy and Germany can now travel to Egypt with an ID card Fairmont 400 2007 Cairo City Centre Planned only; Holiday Inn – City Stars 340 2005 Heliopolis Under Construction ∑ Arab visitors now have easier Serviced apartments – City Stars 200 2005 Heliopolis Awaiting Approval procedures for entry into Egypt; Westin 250 2007 Heliopolis Under Construction ∑ The development of a ‘metro’ Proposed Branded Hotel 500 2007 Heliopolis Planned line in Cairo city centre, work Airport Hotel 350 2007 Heliopolis Under Construction which would involve the construction/rehabilitation of a 4.5 Mövenpick/Greater Cairo 280 2006 Al Obour Rumoured km underground railway between Hilton 485 2008 Heliopolis Rumoured Ataba and Abbasiya, appears to be Kempinski 230 2005 Hurghada/Sahel Hashish Under Construction on the government’s agenda; Other Hotels (two or three) 750 2008 Hurghada/Sahel Hashish Rumoured ∑ In terms of infrastructure, work has started on the improvement of the Grand Rotana Hotel and Spa 600 2006 Sharm El Sheikh Under Construction airport in Cairo at an estimated cost Proposed Regent Hotel 300 2007 Sharm El Sheikh Planned of US$400 million. This will include Holiday Inn 176 2005 Taba Opened the development of a third Millennium 120 2005 Port Ghalib Under Construction international terminal, including the construction of a concourse, three Mövenpick Resort 434 2005 Taba Under Construction skyways and ancillary buildings 2 Mövenpick Resort 138 2005 El Gouna Under Construction with a total built-up area of 2 Proposed Hotel 330 2006 Soma Bay Awaiting Approval 164,000 m . The expansion will Radisson SAS 250 2006 El Quseir Early Construction increase the handling capacity of the airport from 9 million passengers to 11 million passengers per annum by 1 Taken over from Le Meridien mid 2008; 2 Extension ∑ The development of a second Sources: HVS International Research; Hotel Operators terminal building at Sharm El Sheikh Airport is likely to start in hard currency from tourism, non-oil Egyptian pound is expected to mid 2005. The total built-up area of appreciate to approximately the expansion is estimated to be exports and the Suez Canal; 2 ∑ E£5.77:US$1 in 2005 compared to around 44,000 m ; The president, Mr Hosni Mubarak, ∑ has recently addressed the long- E£6.2:US$1 in 2004; The Grand Museum of Egypt is standing popular unrest by ∑ Personal and corporate income tax planned in Cairo, near Giza. This project aims to establish a state-of- reshuffling the cabinet. The new rates have been lowered, and this the-art complex of museums and government faces a number of will strengthen private investment; facilities that will provide access to a economic challenges such as ∑ Foreign direct investment (FDI) in broad range of information and preventing further deterioration of Egypt reached only US$600 million antiquities. The total estimated cost public funds, tackling strong in 2004, a significant decline on the US$1.2 billion of 2000. However, we of the museum is US$350 million, inflation and raising low business but the project is still awaiting confidence; note that FDI in the Middle East as a ∑ whole has grown considerably over funding; For the first time since 2000, the the last few years. ∑ Rumours suggest that Saudi Arabia Egyptian pound has appreciated and Egypt are seriously considering over hard currencies, notably the US Developments and the development of a new causeway dollar. According to the EIU, the Initiatives across the Red Sea in order to link the port of Diba in Saudi Arabia Proposed Grand Rotana – Sharm El Sheikh Egypt Private and public projects in the with the Egyptian port of Sharm El country include the following. Sheikh. This US$3.0 billion project is currently awaiting the outcome of ∑ New laws are being established to various technical studies; remove any tax differentiation ∑ Major tourist and infrastructural between joint venture and private projects are underway in Taba, sector companies, and to reduce Marsa Alam and El Alamein. corporate profit taxes to approximately 20%; Visitation and the Hotel ∑ The government is now pressing Market ahead with the privatisation of some of its assets in Cairo. Some of ∑ Despite the terrorist attacks in Taba the companies that should be during the third quarter of 2004,

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 7 total visitation to Egypt in 2004 process of a complete renovation phenomenal growth in GOPPAR of increased by some 34% on 2003, to totalling approximately US$45 67%, to approximately US$36; 8.1 million visitors. This growth is in million prior to the hotel’s ∑ Table 12 illustrates the new supply addition to the considerable 15% rebranding as a Sofitel by the end of in Egypt. growth that was experienced in 2005. 2003; Outlook and Opportunities ∑ Europe remains the main feeder Cairo Heliopolis ∑ We consider that Egypt has not yet market in terms of demand. ∑ Hotels in Cairo Heliopolis achieved its full potential in terms However, the country has been experienced a moderate increase in of tourist visitation. The country has experiencing strong growth in occupancy, from 73% in 2003 to 75% unique natural resources that, if demand from GCC countries since in 2004. This growth came in spite of capitalised on further, should the events of 11 September 2001. the opening of the 346-room JW stimulate additional growth; Marriott Mirage Hotel in August ∑ The upscale hotel market in Cairo is Cairo City Centre 2003 and the opening of the 790- reaching stability in terms of room InterContinental in late 2004; ∑ In 2004, marketwide occupancy for occupancy. However, some markets Cairo City Centre hotels rose by 11 ∑ In 2004, average rate in US dollar have in the past achieved relatively percentage points on 2003, to 78%. terms increased by 5% to US$63; low average room rates. It is our This increase was driven by the ∑ In 2004, RevPAR across the opinion that the hotel market in initiatives undertaken by the Heliopolis hotel market increased Egypt could potentially experience Egyptian government to promote by approximately 8% on 2003, from significant growth in average room tourism to Egypt, an increased level US$44 to US$47. This increase was rate over the next few years. This of GCC tourist visitation, an reflected in accelerated growth in will undoubtedly have a significant improvement in global economies, GOPPAR of 14%, to approximately impact on GOPPAR and investment which in turn stimulated US$48. returns; worldwide travel, and the strength ∑ With the exception of Heliopolis, of the euro, which stimulated Cairo Pyramids we expect the hotel market in the further demand from European ∑ Quality hotels at the Pyramids Cairo area to experience moderate countries; ∑ achieved 73% occupancy in 2004, an growth (or stable performance) Despite the depreciation of the local increase of 12 percentage points on in occupancy in 2005. Depending currency, average room rate in US 2003. This was only the second time on the operational (revenue dollar terms remained unchanged at since 1992 that marketwide annual management) policies of hotel US$75. The recent opening of the occupancy had exceeded 70%. managers, the market could also 136-room Four Seasons Nile Plaza is Average rate in the Pyramids potentially experience significant likely to have an impact on future market increased by 11%, from growth in average room rate; average room rate performance on US$38 to US$42; ∑ We expect the hotel transaction account of the firm pricing policy of ∑ The resultant RevPAR increased by market in Egypt, and, specifically, the this operator; approximately 31% on 2003, from market in Cairo, to be more active in ∑ In 2004, RevPAR across the US$23 to US$30, which was the short to medium term. We have downtown hotel market increased reflected in a 38% growth in identified three potential hotel by approximately 16% on 2003, GOPPAR, to US$29. acquisitions in the market that are from US$50 to US$59. Similarly, likely to take place in 2005 or 2006; GOPPAR grew by 16%, to US$71; Sharm El Sheikh ∑ We consider that hotel investment ∑ We highlight that the conversion ∑ Hotel occupancy in Sharm El Sheikh opportunities exist for the factor between RevPAR and in 2004 grew significantly on 2003, development of full service hotels in GOPPAR in Cairo City Centre is the from 64% to 75%. Average rate in US Egypt as well as branded limited highest in our survey, at 1.2 in 2004 dollar terms experienced a service hotels (in Cairo only). (that is, in 2004, each US$1.0 of moderate increase, from US$39 in RevPAR yielded GOPPAR of US$1.2). 2003 to US$42 in 2004; The high conversion factor is driven ∑ JORDAN primarily by the strong level of non- The resultant RevPAR of US$32 was up 26% on 2003, causing hotel rooms revenues (notably food and Economics and Politics beverage and casino income) and profitability to improve significantly. low labour costs in the market; GOPPAR increased from US$33 in ∑ Jordan’s economic health has 2003 to US$49 in 2004. ∑ The Cairo Marriott Hotel & Omar improved considerably following Khayyam Casino will undergo a Hurghada the war in Iraq. This improvement complete renovation of its rooms was driven mainly by the that will start in August 2005 and ∑ The hotel market in Hurghada considerable increase in exports, an last two years. It is now confirmed achieved the highest growth in our improvement in domestic that the Helnan Shepheard and the survey in every aspect. Occupancy confidence and growth of the Nile Hilton are likely to undergo for quality hotels in the market tourism sector, all of which led to some major renovation work over increased by approximately 20 GDP growth of approximately 6% in the next two years. Furthermore, the percentage points on 2003, to 86%, 2004; El Gezirah hotel (previously while average room rate of US$40 ∑ Growth in private consumption managed by Starwood Hotels & was a 25% rise on 2003; should gradually accelerate and Resorts under the Sheraton brand, ∑ The resultant RevPAR of US$34 GDP growth is expected to register and operated by Accor since compared to RevPAR of US$21 in 6% in 2005 as capital investment January 2005) is currently in the 2003. This was reflected in a picks up;

8 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International Table 13 Proposed Hotels – Jordan KUWAIT

Number of Opening Economics and Politics Hotel Name Rooms Date Location Status ∑ The phenomenal increase in oil prices InterContinental Hotel 450 2005 Aqaba Redevelopment in 2004 was the main contributor Marriott Aqaba 300 2005 Aqaba Under Construction to the impressive 7.2% economic growth in Kuwait. However, in Lagoon Project Hotels 750 2008 Aqaba Early Development 2005 oil output is forecast to rise Proposed Hotels 500 2008 Aqaba Early Development only moderately, which will cause Kempinski 250 2005 Dead Sea Under Construction Kuwait’s economic growth to slow. Five-Star Hotel 250 2008 Dead Sea Rumoured Consequently, GDP growth is expected to be 2.6% in 2005; Cristal City 600 2008 Dead Sea Planned ∑ The country’s economy remains Sources: HVS International Research; Hotel Operators heavily dependent on oil revenues. This situation is unlikely to change substantially over the next five years; ∑ Various economic reforms are ∑ The economy is highly vulnerable to Visitation and the Hotel underway and these are aimed any political upheaval in Iraq, a Market primarily at increasing foreign very lucrative market for Jordan. investment and privatisation. ∑ The country experienced Developments and approximately 10% growth in Developments and Initiatives visitation in 2004 that was driven mainly by an improvement in the Initiatives Private and public projects in the world economies, which triggered Private and public sector projects in the country include the following. international visitation and further country include the following. increased intra-Arab visitation; ∑ In 2004, the government approved ∑ Occupancy across quality hotels in ∑ The government has recently many structural reforms, including Amman increased from 57% in 2003 facilitated visa procedures for 34 tax and expenditure restructuring, to 72% in 2004, and average rate nations, allowing their citizens to and an accelerated plan aimed at increased by approximately 7% on obtain visas immediately at the privatisation, which will hopefully 2003, to US$74. Consequently, airport; attract an increased level of foreign the resultant RevPAR was ∑ The government is currently direct investment; approximately US$53; relaxing foreign investment ∑ The government recently revealed ∑ The 35% growth in RevPAR was regulations and tax laws in an its national tourism strategy, which reflected in an accelerated growth in attempt to establish Kuwait as a aims to attract 12 million visitors by GOPPAR of 47% on 2003, driven regional financial and trade centre; 2010; however, we consider this to mainly by the strong impact of ∑ Kuwait will soon allow more be somewhat optimistic; rooms revenue on departmental international players to enter its ∑ The government has increased the profits and thus gross operating banking sector after last year budget of Jordan’s Tourism Board profit (GOP). GOPPAR for the granting France’s BNP Paribas a by approximately 30% on 2003; quality hotel market in Amman was licence to operate in the country; ∑ A US$1 billion project (Royal US$40 in 2004; ∑ A new terminal is likely to be Neighbourhoods) is planned in ∑ Proposed and rumoured supply in developed at Kuwait International Amman, including residential the country is illustrated in Table 13. Airport, which will allow for a flow towers, hotels, commercial of 5 million passengers a year. We buildings and leisure components. Outlook and Opportunities No time-frame currently exists for ∑ We expect further growth in Proposed Cerruti Hotel – Kuwait the development; marketwide hotel performance in ∑ The Zarqa New Garden City Amman in 2005, which will be development is planned northeast driven in all probability by an of Amman. This large-scale increase in average daily rate. development will include an Successful implementation of the extensive entertainment complex, a national tourism strategy is likely to hotel and residential properties; stimulate sustainable growth in ∑ ASEZA (Aqaba Special Economic tourism over the next five to seven Zone) is pressing ahead with the years; development of the tourism ∑ We remain of the opinion that infrastructure of Aqaba and inviting Jordan has significant potential to private investors to invest in the develop its tourism industry, due to industry within the area. Various its unmatched natural resources. residential and leisure However, the country is highly developments are due for vulnerable to regional instability and completion in 2005. to any global economic downturn.

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 9 might come under increasing Table 14 Proposed Hotels – Kuwait pressure as additional hotels come on stream, especially if such hotels Number of Opening elect not to join the rate cartel. This Hotel Name Rooms Date Location Status will over time have a detrimental Holiday Inn Salmiyye 155 2005 Kuwait City Under Construction impact on hotel profits and investment returns; Kuwait Rotana Hotel 190 2006 Kuwait City Early Construction ∑ Cerruti Hotel 350 2006 Kuwait City Under Construction The new supply that is likely to enter the market will have a Safir Marina 100 2005 Kuwait City Under Construction significant effect on the operating Mövenpick Hotel 200 2006 Kuwait City Under Construction performance of the hotel industry Refad Monarch 300 2006 Kuwait City Under Construction in Kuwait. We recommend that Four Seasons 225 2007 Kuwait City Planned no new hotel development be undertaken in this market until the Ibis 175 2007 Kuwait City Planned outlook of the tourism industry in Ibis 200 2007 Kuwait City Planned Kuwait is more assured and the Sources: HVS International Research; Hotel Operators impact of the new hotels which are already under development can be monitored.

understand that this project is still Courtyard by Marriott and the LEBANON awaiting final approval from the Four Points are not part of the cartel Kuwaiti cabinet; and have achieved lower average Economics and Politics ∑ Failaka Island is one of the largest rates than the five-star hotel market; tourism developments in Kuwait therefore the total marketwide ∑ In 2004 the Lebanese economy and it aims to attract local, regional average room rate declined by 2% experienced one of the fastest-rising and international visitation. The on 2003, to US$230. The resultant economic growth levels since 1996, project lies 20 km east of Kuwait RevPAR of US$147 was down 25% registering an increase of City, and is expected to cover on 2003; approximately 4% on 2003. This was approximately 43 km2. The land is ∑ The 25% decline in RevPAR was driven by strong growth in the currently owned by the local reflected in a moderate 17% tourism sector and boosted government and is likely to be downturn in GOPPAR, to US$126. domestic confidence; leased on a Build-Operate-Transfer The lesser fall in GOPPAR was ∑ The outlook for 2005 was very (BOT) basis. The development attributable to a non-proportionate positive until the unfortunate includes various leisure and decline in non-rooms revenue events of 14 February 2005 (the residential components; combined with the usual rigid cost- assassination of the previous prime ∑ A major tourism project is now control activities undertaken by minister Mr Rafiq al-Hariri), which confirmed on Bubiyan Island that hotel managers during periods of plunged Lebanon into economic slowing demand; will include hotels, chalets and ∑ and political uncertainty; recreational facilities, and will cover Despite the slowdown in 2004, the ∑ While the short-term outlook for the 530 km2. As yet, there is no firm Kuwait hotel market remains the country is uncertain, in the long development time-frame for this top GOPPAR performer in our term economic prosperity is project. survey. This undoubtedly reflects expected across all levels. the strong impact of average room Visitation and the Hotel rate on the profitability of hotel Developments and operations; this is illustrated by the Market rate of US$230, which is 40% higher Initiatives ∑ Visitation to Kuwait continues than the next nearest city in our Private and public sector projects in the to be predominantly corporate. survey (except for the Jumeirah country include the following. Following the extraordinary Beach market which is diluted growth that was noticeable in under the Dubai overall ∑ The government is making 2003, the market experienced a performance); increased efforts to develop the slowdown, as predicted in our ∑ Proposed and rumoured supply tourism industry. Various new previous report; in the country is illustrated in Table tourism products have been ∑ Occupancy across the quality hotel 14. We highlight that, in addition designed in order to promote rural market in Kuwait dropped from to the proposed hotels mentioned areas of the country; 84% in 2003 to 64% in 2004. This in Table 14, the government of ∑ The public sector is increasingly was caused by the unsustainable Kuwait has granted more than 80 capitalising on the country’s natural demand growth (driven by the licences for new hotel developments resources when marketing the war in Iraq) in 2003, the opening in 2004, which currently have no tourism industry. This is proving to of the 306-room Courtyard by confirmed development time- be increasingly successful, with Marriott and the 160-room Four frame. international tour operators recently Points Hotel in early 2004, and starting to promote Lebanon in the opening of the 70-room Le Outlook and Opportunities several European markets; Meridien Art & Tech in late 2004. ∑ We expect hotel market ∑ The multibillion dollar ski resort in Average rate for five-star hotels in performance to be stable in 2005. Mount Sannine (Sannine Zenith the market increased in 2004. The The pricing cartel in the market Project) northeast of Beirut is

10 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International to be one of the most prominent Table 15 Proposed Hotels – Lebanon emerging markets in the GCC; ∑ Private investment and public Number of Opening sector spending are expected to Hotel Name Rooms Date Location Status strengthen during 2005, which Metropolitan Hotel 1 150 2006 Beirut Suburb Under Construction should stimulate further economic growth regardless of the anticipated Four Seasons 230 2007 Solidere Under Construction decline in oil prices; Grand Hyatt 300 2007 Solidere Approved ∑ Despite the recent terrorist plot to Raouche Rotana Suites 176 2007 Beirut Central Under Construction attack Western targets in Oman, the Solidere Rotana Suites 150 2007 Solidere Early Construction country’s relations with the USA remain strong and the country’s Boutique Design Hotel 100 2008 Solidere Early Construction political stability is unlikely to be Old Holiday Inn 300 2008 Beirut Central Confirmed damaged. Landmark Hotel 300 2008 Solidere Confirmed Five-Star Hotel 250 2008 Raouche Confirmed Developments and Saint George Hotel 250 2008 Beirut Central Under renovation Initiatives Ritz-Carlton 90 2009 Solidere On Hold Private and public sector projects in the Hilton Beirut 250 2009 Beirut Central Confirmed country include the following.

1 Extension to the existing hotel – apartments; it will feature a park and the largest ballroom in Lebanon ∑ In 2004, the government relaxed the Sources: HVS International Research; Hotel Operators country’s property laws, allowing GCC nationals to own property in moving ahead. The 7,500-hectare Outlook and Opportunities the Sultanate; 2 ∑ In 2004 a Ministry of Tourism was (75 km ) resort will be the largest ∑ natural ski resort in the Middle East Due to the recent political upheaval established in Oman, and it has and will include three villages (an in Lebanon, we expect the hotel subsequently announced its international sports village, an eco- market in Beirut to witness a strategic tourism master plan that aims at increasing the tourism farm village and a lake view considerable downturn in 2005. contribution to the GDP from 1% to village), a ski resort, various hotels, However, we remain confident that the long-term prospects for hotels in 10%; two 18-hole golf courses, and other Beirut are positive. Assuming no ∑ entertainment facilities. The government continues further internal political upheavals, increasingly to promote Oman to Visitation and the Hotel the hotel market should grow European countries; nevertheless, strongly from 2006 onwards; more than 70% of the visitation to Market ∑ An increased level of investment in Oman still emanates from the GCC ∑ 2004 was another record year for the locally branded serviced region; tourism industry in Lebanon. It is apartments in Beirut has been ∑ The Waves, one of Oman’s largest estimated that more than 1.2 million noticeable recently. These properties tourism development projects, was international visitors entered the target the GCC leisure demand. launched in February 2004. The country during the year, a growth of However, we consider it crucial for project involves , 20% on 2003; such properties to have an infrastructure development and site appropriate international brand and improvement. It will include a golf ∑ The hotel market continues to rely market positioning that would also course and a marina, leisure mainly on GCC leisure visitation draw the local expatriate corporate facilities and hotels; (which continues to grow market. This will smooth the impact ∑ Plans exist to transform the Al significantly) and partially on the of the seasonality of the GCC Sawadi Area into a tourism international corporate market. In demand over performances and destination. The master plan 2004, however, an increased level of returns. includes the transformation of the European visitation to the country area into a ‘city within a city’, was noticeable. This inspired hopes featuring extensive leisure facilities; of a significant improvement for the OMAN ∑ The infrastructure development hotel industry in Beirut; continues on a network of caves at ∑ Beirut hotels saw occupancy grow Economics and Politics Al Hota aimed at transforming these by 12 percentage points in 2004, to ∑ natural features into a major tourist 71%. Average rate increased by 9%, Despite strong oil prices in 2004, attraction that will include hotels; GDP growth in Oman was only to US$168. RevPAR thus increased ∑ Various tourism projects are also 1.2%, driven by the country’s falling by 31%, to US$119; planned in Salahlah and Ras Al oil production; ∑ GOPPAR of US$85 was up by a Hadd. ∑ Economic and social staggering 46% on 2003; ∑ accomplishments have been Visitation and the Hotel Recent openings in the market noticeable in Oman over the last few include the 135-room Four Points by years. These include an improved Market Sheraton in Verdun and the 150- infrastructure, better education ∑ In 2004, the market experienced room Hazmieh Rotana Hotel; systems and an improvement in the considerable growth in tourism ∑ Proposed and rumoured supply in overall standard of living of demand of approximately 9%, the country is illustrated in Table 15. Omanis. The country is considered which was driven mainly by growth

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 11 Table 16 Proposed Hotels – Oman QATAR

Number of Opening Economics and Politics Hotel Name Rooms Date Location Status ∑ 2004 was an exceptional year for Bar al Jissah Resort – Shangri-La 714 2005 Muscat Suburbs Under Construction Qatar in many ways. The biggest Hilton 300 2008 Muscat Planned milestone was passed on 5 June Al Sawadi Tourism Project 1,000+ 2009 Al Sawadi Planned when HH Emir Sheikh Hamad Bin Khalifa Al Thani promulgated Al Salahlah Resort 200 2009 Salahlah Planned Qatar’s first written constitution, a Ras Al Hadd Resort 200 2009 Ras Al Hadd Planned historic step forward in achieving The Waves Project 750 2009 Muscat Planned the promised goals of equality, freedom, peace and prosperity for Other confirmed Project 750 2009 Suburbs Planned his country and its people; Sources: HVS International Research and Hotel Operators ∑ Qatar is experiencing the highest economic growth in the region. The rapid expansion of the natural gas industry is driving Qatar’s GDP in GCC visitation; Asian visitation; growth, which was expected to be ∑ Occupancy at quality hotels ∑ The country continues to lack a approximately 9% in 2004; increased by 12 percentage points in positive or strong image as well ∑ In terms of international politics, the 2004, to 69%. Average rate in the as a specific tourism identity. country remains largely dependent market was US$82, a rise of 24% on However, given the government‘s on its close ties with the USA. 2003. Therefore, the resultant commitment to growing the RevPAR was US$57, a whopping industry, the country’s tourism Developments and 50% up on 2003; ∑ identity is likely to become Initiatives Aggregate GOPPAR for the quality increasingly perceptible in the hotel market improved by an medium term; Private and public projects in the impressive 62%, to US$39 (albeit at a ∑ country include the following. low GOPPAR conversion); Should there be no political upheaval in the region, we expect ∑ Proposed and rumoured supply in ∑ Preparation work has started on the the country is illustrated in Table 16. further growth in hotel operating site for the US$5.5 billion New Doha performance in Muscat in 2005; International Airport. It will be the Outlook and Opportunities ∑ Opportunities exist for developing first airport to be designed and built ∑ Oman has unique potential to grow various types of ‘hotel derivatives’ specifically to handle the new its tourism industry, when in Oman including resorts, full Airbus A380-800, and will be able to compared to other GCC countries. service hotels, limited service handle 50 million passengers a year Given its natural resources and hotels, and, potentially, serviced by 2015; location, the country could apartments, assuming an ∑ Construction of the Asian Games undoubtedly experience significant improvement in the economy and City is well underway. Once the growth in both GCC, European and tourism from 2006 onwards. development is completed – in time for the games, which are to be held in Doha – over 30 sports facilities will be in place; Table 17 Hotel Supply by Country – Number of Rooms and ∑ Doha Golf Club is undergoing Estimated Capital Employed renovation and expansion after a customer survey revealed the need for increased amenities to attract the Bahrain US$ 640 million family market. The expansion programme is likely to include a Lebanon US$ 509 million swimming pool with a Jacuzzi, a Egypt US$ 1.3 billion fitness centre, a function hall, two residential buildings for staff, a new Jordan US$ 574 million academy building, a television Proposed New Rooms Kuwait US$ 370 million building and an additional nine- hole golf course; Oman US$ 780 million ∑ The Pearl of the Gulf development Qatar US$ 951 million is underway. Apart from having over 7,500 high-quality dwelling Saudi Arabia US$ 808 million units, the island development will Syria US$ 367 million also have three luxury hotels, retail units covering approximately UAE US$ 4.05 billion 60,000 m2, and community 0 5,000 10,000 15,000 20,000 25,000 infrastructure such as entertainment Number of Rooms centres, restaurants and parks; 2 Sources: HVS International Research and Estimates ∑ The construction of the 32 km North Beach Development started

12 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International Table 18 Proposed Hotels – Qatar Outlook and Opportunities ∑ The economic outlook for Qatar is Number of Opening very positive in the short to medium Hotel Name Rooms Date Location Status term. In terms of tourism, the Four Seasons 232 2005 Doha Under Construction country is increasingly positioning Five-Star Hotel and Apartments 245 2005 Doha Under Construction itself as a meeting and conference, sport, educational and health Doha Rotana Hotel 385 2006 Doha Under Construction tourism destination and is Al Fareej Resort 250 2006 Doha Under Construction becoming established as the Sofitel 300 2006 Doha Under Construction sporting capital of the region; Renaissance 1 250 2007 Doha Under Construction ∑ Occupancy in the market is likely to Courtyard by Marriott 1 200 2007 Doha Under Construction decline slightly in 2005, once the new supply enters the market. Marriott Executive Apartments 1 120 2007 Doha Under Construction However, we anticipate a recovery Shangri-La 250 2007 Doha Under Construction in 2006, despite the new supply that Hyatt 245 2007 Doha Rumoured will enter the market during that year; Pearl of Gulf Hotels 1,000 2008 Doha Planned ∑ North Beach development 2 1,000 2008 Doha Planned The tourism identity of Qatar is slowly taking shape. This will be Hilton 277 2008 Doha Under Construction more noticeable from 2006 onwards, 1 All three hotels form part of one development once the Asian Games and public 2 Rumoured to have ten hotel properties promotional activities have taken Sources: HVS International Research; Hotel Operators place.

in early 2005. This project will Arata Isozaki, Qatar National SAUDI ARABIA include various resort hotels, two Library, the major repository for golf courses, 3,000 lifestyle villas, bibliographic references on the Economics and Politics 12,000 apartments, 300,000 m2 of country, will be a landmark and ∑ According to the EIU, economic retail outlets and extensive a ‘minaret of knowledge’. The growth in 2004 reached 5.3%, commercial space; library will include the National which was driven mainly by strong ∑ History Museum, galleries, a Arecent technical and engineering oil prices and a growth in the feasibility study has been completed children’s centre, enclosed book stacks, reading rooms, a restaurant, country’s oil output. In 2005 in connection with the ‘Friendship growth will be triggered by rising Bridge’, the world’s longest fixed a lecture room and a conference hall. Construction will be completed oil output and still-firm prices, as link, which will link Qatar and well as by a rise in government Bahrain via a 45-km causeway; by 2006 in time for the Asian Games. consumption; ∑ The Museum of Islamic Arts, due ∑ The private equity markets are for completion by 2006 in time for Visitation and the Hotel becoming increasingly liquid, the Asian Games, will be a notable Market which will undoubtedly improve landmark for the city of Doha and the level of non-public capital will provide the highest standards ∑ International leisure visitation to investment in the country; in technology. The Islamic Museum Doha continues to emanate from ∑ Despite the efforts made to will display the Qatar National GCC countries; the government eliminate domestic Islamic terror Collection of Islamic Art – a world anticipates a further improvement attacks, a number of attacks on class collection of ceramics, in this source market over the next Western targets and on symbols of metalwork, jewellery, woodwork, five years, as well as in European Al Saud authority continued to glass and other items made in visitation; occur in 2004, which undoubtedly countries all over the Islamic world ∑ The US army base in Qatar had a negative impact on from medieval Spain to Central Asia continues to drive a large perceptions of the country’s safety. and India; proportion of demand for hotel A number of expatriate ∑ Designed by the famous architect accommodation in the market; professionals living in the country ∑ In 2004, occupancy for quality have relocated their families to hotels in Doha was 72%, unchanged neighbouring countries, notably Proposed Qatar Olympic City on 2003. Average daily rate in the Bahrain and Dubai. market grew significantly, by approximately 40% on 2003, to Developments and US$146; this resulted in 45% growth in RevPAR; Initiatives ∑ The quality hotels in the market Private and public projects in the achieved an average GOPPAR of country include the following. approximately US$119, up by an ∑ The supreme council of tourism impressive 45% on 2003 levels; continues to aim at attracting ∑ Table 18 illustrates the proposed internal tourism as a first step. The hotel supply in Qatar. country’s tourism strategy is now

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 13 Proposed Sofitel Zamzam – Makkah Saudi Arabia Table 19 Proposed Hotels – Saudi Arabia

Number of Opening Hotel Name Rooms Date Location Status Mövenpick 138 2005 Jeddah Soft Opening Radisson SAS Royal Suite 57 2005 Jeddah Under Construction Mercure Jeddah 88 2005 Jeddah Under Construction Park Hyatt 142 2006 Jeddah Under Construction Mövenpick 131 2006 Al Under Construction Sofitel 200 2007 Al Khobar Under Construction Novotel 200 2007 Riyadh Under Construction Novotel Riyadh 206 2007 Riyadh Under Construction Express by Holiday Inn 1 500 2007 Various Planned Sofitel 220 2007 Al Khobar Under Construction Twin Tower Hotel 200 2007 Jeddah Under Construction King Faisal Hospital Hotel 150 2007 Riyadh Planned Sofitel Zamzam 1,200 2007 Makkah Under Construction Proposed Five-star Hotel 200 2007 Planned Suite Palace Hotel 50 2006 Jeddah Under Construction defined and its implementation has Radisson SAS 212 2007 Madinah Under Construction already started; Park Inn 210 2007 Riyadh Under Construction ∑ A multimillion project has been unveiled in Al Khobar: the City Park Inn 148 2007 Al Khobar Under Construction Fanar project, which is a waterfront 1 Various properties within the country ‘Future City’ destination built Sources: HVS International Research; Hotel Operators around a 300,000 m2 man-made lagoon. Located on the Al-Khobar- Dammam Corniche, the 3.3 million 2 m City Fanar will feature a it is unlikely that Saudi Arabia will However, we anticipate some mixed-use environment offering attract any considerable level of growth in domestic leisure demand residential, commercial and leisure leisure tourism in the near future; in some areas of the kingdom, facilities, including a blend of ∑ The terrorist activities in Saudi notably Jeddah, Al Khobar and entertainment, dining, shopping, Dammam; marinas and hotels; Arabia in 2003 and 2004 had a ∑ detrimental impact on the ∑ We anticipate a recovery in the Plans exist to expand the Hajj occupancy of quality hotels in level of demand for hotel terminal at the King Abdulaziz Riyadh, occupancy declining from accommodation in Riyadh in International Airport in Jeddah. The 64% in 2003 to 55% in 2004. Average 2005. terminal currently lacks capacity to room rates in the market remained serve the needs of the growing stable in 2004, at US$105. This number of pilgrims who now use resulted in a 13% decline in RevPAR SYRIA the facility. on 2003, to US$58, and a 17% fall in GOPPAR on 2003, to US$40; ∑ Economics and Politics Proposed Park Inn Hotel – Al Khobar Saudi Arabia Despite the overall slowdown in visitation, occupancy across quality ∑ Syria’s economic growth was 2.2% hotels in Jeddah increased to 54%, in 2004, as a result of the domestic one percentage point up on 2003. sector picking up, increased This could be attributable to the demand for non-oil goods and, sustained levels of domestic leisure notably, improvements in demand for hotel accommodation agriculture; in this market. Average rates in the ∑ Further economic growth was market climbed to US$114 anticipated for 2005, triggered by a compared to US$104 in 2003. This number of investments in the oil growth was reflected in a 31% rise in and gas sector and an improvement GOPPAR on 2003, to US$41; in the private sector. However, ∑ Proposed and rumoured supply Syria’s economic and political in the country is illustrated in outlook has deteriorated Visitation and the Hotel Table 19. substantially following the Market assassination of Lebanon’s former Outlook and Opportunities prime minister, Rafiq al-Hariri, in ∑ Visitation to Saudi Arabia continues mid February; this led to increased to be dominated by corporate and ∑ Leisure tourism to Saudi Arabia is tensions with the USA; religious tourism. Due to the unlikely to experience significant ∑ The country’s short-term economic conservative culture of the country, growth in the foreseeable future. outlook is uncertain.

14 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International disadvantageous to foreign firms. Table 20 Proposed Hotels – Syria These changes are likely to be implemented by mid 2006; Number of Opening ∑ Hotel Name Rooms Date Location Status According to the EIU, although real GDP growth will slow it will also Rotana Suites 110 2005 Damascus Under Construction remain strong, averaging around Sheraton Sednaya 107 2005 Sednaya Under Construction 6.0% over the next few years. The Afamia Tourist Resort Hotel 290 2005 Latakia Early Development non-oil sector, which contributes more than 90% to the total GDP, will Four Seasons 297 2006 Damascus Under Construction remain strong too, led by the Sheraton 200 2006 Aleppo Early Development services industry with the tourism Proposed Hotel 250 2006 Damascus Rumoured sector contributing 10% of GDP. The economy is set to expand and Sofitel 231 2006 Lattakia Early Development investment in more heavy industry, Proposed Five-Star Hotel 200 2008 Tartous Planned such as petrochemicals and metals, Proposed Four-Star Hotel 300 2008 Tartous Planned is expected to continue; Source: HVS International Research ∑ Travel and tourism contributed approximately 10% to the economy in 2004, and this is expected to rise to 10.5% in 2005. Capital invested in Developments and from US$66 in 2003 to US$69 in this sector enjoyed a share of about Initiatives 2004. This led to significant growth 28.5% of total investment in 2004, in GOPPAR of approximately 40%, and this is expected to rise above Private and public projects in the to US$31; 29% in 2005. country include the following. ∑ Table 20 illustrates the proposed hotel supply in Syria. ∑ The government has supported the establishment of six regional Outlook and Opportunities Chambers of Tourism in an attempt to grow the tourism industry. The ∑ The recent political rift between Damascus and Countryside and Syria and the USA is likely to have a Aleppo Chambers are already up considerable impact on the hotel and running and should give the industry in Syria in 2005; private sector chance to come up ∑ Syria benefits from attractive with its own ideas on developing natural and cultural resources, and the industry; we remain in no doubt that, if ∑ The Antaradus coastal resort at capitalised on, these would Developments and considerably boost the tourism Tartous will be Syria’s first fully Initiatives integrated resort and will feature industry in the country. two hotels and various leisure Private and public sector projects in the facilities. Construction is expected market include the following. to start in mid 2005; UNITED ARAB ∑ The UAE was recently voted among ∑ The Syrian government seems to be EMIRATES the world’s top five aviation increasingly committed to markets by IATA. Further developing its tourism industry. Economics and Politics expansion work in Dubai to the tune Various legislative and incentive of US$4 billion, of which US$1 programmes are being set up in an We note that most of our research and billion will be spent on the creation attempt to boost the industry. analysis is focused on the . of a third terminal and a second However, the recent clash between ∑ The relatively liberal social and concourse (able to accommodate the Syria and the USA is likely to economic policies are likely to be Airbus A380), will also result in the diminish the country’s prominence maintained by Sheikh Khalifa bin opening up of the airport to budget on the global tourism map. Zayed al-Nahyan who took over as airlines and an increase in the president of the United Arab airport’s capacity to 70 million Visitation and the Hotel Emirates (UAE) and ruler of Abu passengers per year in 2006. Further Market Dhabi from his father, Sheikh Zayed growth is expected; ∑ bin Sultan al-Nayan, who passed ∑ In addition, cargo-handling Tourism arrivals in Syria away in November 2004. It can be capacity at the airport is being experienced considerable growth in reasonably expected that he will gradually extended to meet ever 2004, compared to 2003, growth accelerate the economic which was triggered mainly by an liberalisation initiated by his father; Kempinski Emirates Palace Abu Dhabi increase in intra-Arab visitation; ∑ New regulations likely to be ∑ In 2004 occupancy for quality hotels implemented include foreign in Damascus grew by approximately ownership of property and a four percentage points, to 69%. majority share in locally Average rate, however, declined by incorporated firms. World Trade approximately 2% on 2003, to Organisation requirements will also US$100; lead to a reform of a number of ∑ The resultant RevPAR increased corporate rules that are currently

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 15 increasing demand. Throughput in Table 21 Proposed Hotels – UAE capacity is expected to increase from 600,000 tonnes to 2.7 million tonnes Number of Opening by 2018; Hotel Name Rooms Date Location Status ∑ The first phase of a 77-km metro line Marriott Executive Apartments 43 2005 Dubai – Green Community Open network, including the construction Arabian Court Hotel 172 2005 Dubai Open of the first 35 km, is expected to start Al Jaddaf Hotel 330 2005 Dubai Under Construction in October 2005, with completion Metropolitan Extension 342 2005 Dubai – Jumeirah Under Construction expected in September 2009. One Al Murooj Rotana Hotel 400 2005 Dubai Under Construction line will run from Al Ittihad Square Villa Rotana Suites 130 2005 Dubai Under Construction to Rashidiya bus station via the Kempinski – 400 2005 Dubai Under Construction airport and Deira city centre, while Le Meridien Grosvenor House 217 2005 Under Construction the second line will be built between Salahuddin Road and the American Cerruti Hotel 137 2005 Dubai Under Construction university in Dubai, via Sheikh Radisson SAS Hotel 252 2005 Dubai Under Construction Zayed Road. The second stage is Park Hyatt Hotel 225 2005 Dubai Under Construction due for completion in 2012, and Capital Towers Hotel 160 2005 Dubai Under Construction studies are already underway into Capital Towers Apartments 40 2005 Dubai Under Construction the further extension of the network Amwaj Rotana Resort 300 2006 Dubai – Jumeirah Under Construction to Wafi, the proposed Festival City Rose Tower Rotana Suites 482 2006 Dubai Under Construction development and the new Sofitel 450 2006 Dubai Under Construction International Airport. The total cost Sofitel 245 2007 Dubai Under Construction of the project is estimated to be US$3.9 billion; Conrad Dubai Hotel 350 2007 Dubai Early Development ∑ Ibis Hotel 396 2007 Dubai Early Development The development of Ras Al Khor Bridge over , which Hotel 220 2007 Dubai – Offshore Rumoured will provide direct access to Dubai Hilton Executive Apartments 290 2007 Dubai – Jumeirah Early Development Festival City, is still on track to be Mövenpick Pearl Dubai 620 2007 Dubai – Media City Under Construction completed by 2007. The bridge has Mövenpick Resort 298 2007 Dubai – Jumeirah Early Development become necessary to ease Four Seasons Hotel 250 2007 Dubai – Festival City Early Development congestion as more traffic will be InterContinental 430 2007 Dubai – Festival City Early Construction produced by those using Terminal 3 InterContinental Apartments 70 2007 Dubai – Festival City Early Construction at Dubai Airport and the Festival Crowne Plaza 330 2007 Dubai – Festival City Early Construction City development; Banyan Tree Resort & Spa 50 2007 Dubai – Jumeirah Early Development ∑ The world’s largest maritime development, which consists of a Banyan Tree Hotel 150 2007 Dubai Early Development 2 Express by Holiday Inn 400 2007 Various locations Planned 2.3 km man-made peninsula, will focus on marine services, Radisson SAS (Crescent) 200 2008 Dubai – Palm Site Development management, ship design and Radisson SAS (Trunk) 400 2008 Dubai – Palm Early Development manufacturing. The maritime city is Atlantis Palm Resort Phase 1 1,200 2008 Dubai – Palm Early Development being built between Port Rashid and Thalasso Resort 400 2008 Dubai – Palm Site Development Dubai Dry Docks, and the project is Innpro Development 400 2008 Dubai – Palm Site Development due for completion in 2006; Metropolitan Hotel 250 2008 Dubai – Palm Site Development ∑ Dubai Properties, part of Dubai Al Seef Resort and Spa 220 2008 Dubai – Palm Site Development Holding, has sold the first phase of Iberotel 300 2008 Dubai – Palm Site Development , dubbed a ‘city within Robinson Select 300 2008 Dubai – Palm Site Development a city’, which covers a total area of 2 Fairmont Hotel 375 2008 Dubai – Palm Site Development 64 km between Ras al Khor Bridge (under construction) and Sheikh Al Fattan Hotel 122 2008 Dubai – Palm Site Development Zayed Road, including extending Taj Palace 250 2008 Dubai – Palm Site Development and widening the popular Dubai Other Hotels (Estimate) 3,400 2008 Dubai – Palm Site Development Creek. The total investment is Ascott Apartments 150 2008 Dubai – Burj Dubai Approved expected to be well over US$8 Armani Hotel 250 2008 Dubai – Burj Dubai Approved billion; Forex Rotana Suites 450 2008 Dubai Early Construction ∑ Dubai Waterfront (DWC) is being Atlantis Palm Resort Phase 2 800 2009 Dubai – Palm Site Development developed as a new gateway to the Kempinski 340 2005 Abu Dhabi Open emirate of Dubai. Destined to Al Futaisi Resort 200 2005 Abu Dhabi Open become an international landmark, Fairmont 265 2007 Abu Dhabi Under Construction Dubai Waterfront will be the Khalidiya Rotana Suites 444 2007 Abu Dhabi Under Construction world’s largest waterfront offering, and is located 35 km southwest of Sofitel 370 2007 Abu Dhabi Under Construction Dubai, bordering Abu Dhabi, on the Aldar Properties Development 400 2008 Abu Dhabi Planned last remaining undeveloped coastal Kempinski Resort tba tba Fujairah Planned waterfront of the emirate. The first Robinson Club tba tba Fujairah Planned phase of DWC will focus mainly on Fujairah Rotana Resort 240 2006 Fujairah Under Construction the development of Madinat Al Sources: HVS International Research; Hotel Operators Arab, which will be the heart of a vibrant new city. The centrepiece of

16 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International Proposed Mövenpick Resort – UAE developments. The first phase is Dubai, putting Dubai firmly on due to open in 2007 while the whole course to become the city with the development is expected to be greatest concentration of shopping completed in 2016; Dubai Land is facilities in the world, according to expected to attract some 200,000 Retail International, a London- visitors daily; based shopping centre specialist. ∑ Dubai Health Care City (DHCC) is Industry experts expect investment progressing well, with the total site in shopping malls and related comprising two phases, including infrastructure in the emirate to have disease treatment and its exceeded US$6.8 billion by 2006. An prevention, and wellness facilities. additional ten shopping malls are The first phase, located behind Wafi under construction, such as Dubai City, Dubai, is approximately Mall, with over 450,000 m2 of retail 380,000 m2 in area. Several major space and scheduled for 2006; the the project will be Al Burj, one of the companies have already signed up at Dubai Land, tallest buildings in the world. The for space in the free zone, including which is scheduled to open in 2007 DWC forms part of the Arabian Johnson & Johnson and Astra and on course to become the largest Canal, which will be 75 km long; Zeneca, which has moved its Gulf in the world; and Al Futtaim regional office from the UK to Group’s US$800 million Mall of ∑ The construction of The Palm, DHCC; Emirates on Sheikh Zayed Road; Jumeirah is progressing smoothly. ∑ 2 ∑ Nakheel began work in 2001 and the The 6.5 km The US$800 million infrastructure on the first island is development is on track to open in development opposite The Palm, targeted for completion in 2005. We September 2006. The development Jumeirah (land side) encompasses understand that the island will by the Al Futtaim Group will consist several towers for office, residential feature approximately 2,400 villas, of a large retail and entertainment and hotel use and includes a theatre two marinas, theme parks and area, and will be home to Four and an opera house. The approximately 25 hotels (40 hotel Seasons Hotels and Resorts’ first development is on schedule to open plots are available). Based on our hotel in Dubai. Other hotels will in 2007. research, the majority of resorts on also feature. The estimated cost of The Palm, Jumeirah are expected to this project is around US$2 billion; The following are among the developments be completed in 2008 and 2009; ∑ At the Dubai Marina, the first in Abu Dhabi. phase of Emaar’s development is ∑ The Palm, Jebel Ali is a project ∑ Abu Dhabi International Airport is nearing completion. The 2.4 km2 similar to The Palm, Jumeirah and being extended, with work development, of which only will be built off the Jebel Ali coast. including a second runway and an approximately 40% will be available This second island will be upgrade of the main terminal for construction, includes six approximately 50% larger than The building. The total cost for the apartment towers and 64 villas, and Palm, Jumeirah and is scheduled for project is estimated to be US$600 the official word is that all of the completion around 2008; million; ∑ apartments have been sold. Some ∑ The third and final development by 700 apartments, more than half of The government has begun work on Nakheel in The Palm series, The the total, have been bought in bulk a new 280-metre tunnel that will Palm, Deira, will merge Dubai’s by local businessmen. Ultimately link Abu Dhabi International oldest district with the new iconic the intention is that there will be a Airport with Mussafah, as part of image of The Palm. Similar in further 170 to 200 towers in the one of its major road network features to The Palm, Jebel Ali and marina development, with a total projects designed to ease current The Palm, Jumeirah, this development cost of around US$6.2 and future traffic congestion. The development will be the largest, at billion. The construction of the tunnel is one 2 80 km . The Palm, Deira is larger Residence project, being built on the of the Abu Dhabi National than Manhattan Island or Paris, and coastal side of the marina, is at an Consultative Council’s proposed is roughly comparable in size to the earlier stage than the first part of infrastructure projects for the next area of Greater London; Emaar’s project. The mini city will 20 years, and its stated aim is ‘to ∑ Nakheel’s ‘The World’ is envisaged be located in Jumeirah and the change the city’s status into a to be reclaimed by 2008. We marina is likely to stretch from the greater city’; understand that about a third of all Dubai International Marine Club to ∑ Lulu Island, one of the biggest the islands have been sold, but the Sheikh Zayed Road. The whole tourism ventures in the world, company has been coy about project is due for completion in involves the construction of hotels, releasing details of which particular 2008; restaurants, gardens, an aquarium, countries might still be available, ∑ The transformation of Old Dubai is a museum, fun parks for children with asking prices ranging from in full swing. It includes the and a wildlife reserve. Work on the US$10 million to US$36 million; restoration of old buildings and the island, located some 600 m off the ∑ One of the biggest tourism projects construction of new ones. This Abu Dhabi coast, has already in the region, Dubai Land, with an project stretches from the Amiri started, with the planting of more estimated investment of more than Diwan area on the creek to the Al than 600,000 palm trees. Another US$5 billion, will be located inland, Seef Road and encompasses the project located close by involves along Emirates Road, facing The construction of additional leisure building a tourism village dotted Palm, Jumeirah. Dubai Land will be attractions; with palm trees; built on an area of 185 km2 and ∑ Several major retail malls are ∑ The Abu Dhabi Municipality and will have about 45 themed planned or under construction in Town Planning Department has

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 17 Table 22 Proposed Hotels by Brand/Operator – Number of rooms

7 Starwood

6 Shangri-La Rotana

5 Rezidor SAS Mövenpick 4 Metropolitan Marriott 3 Le Meridien

Geographical Distribution Kempinski 2 InterContinental Hyatt 1 Hilton Four Seasons 0 0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000 Number of Rooms

Note: The vertical axis shows the geographical diversification of the proposed supply – the higher the scale, the more diversified geographically The horizontal axis shows the proposed number of rooms The width of the spheres shows the market share per brand

Source: HVS International Research

chosen Dalma Island, 180 km west currently engaged in actioning the Incentive segments, resulted in a of Abu Dhabi, and neighbouring Comprehensive Development Plan great year for the city’s hoteliers. settlements to be redeveloped as a for Abu Dhabi 1990-2010, prepared Average rate in Dubai (including tourist centre under the Regional by the department in cooperation City hotels and Jumeirah Beach Development Plan. The US$40 with the United Nations hotels) increased by an outstanding million project includes a new Development Programme (UNDP). 27% to US$144. Consequently, harbour, a shopping centre, Among the proposed projects are a RevPAR, at US$124, was 39% higher mosques, cinemas and various national museum, a zoo, a marine than it was in 2003; entertainment and recreational museum, a national public library ∑ The 39% growth in RevPAR was facilities; and a public square with a reflected in accelerated growth in ∑ Work is underway to expand the landmark similar to London’s GOPPAR of approximately 49%, to city’s seaside Corniche Road and Trafalgar Square. The Plan seeks to US$110; transform it into a major tourism enhance the role of Abu Dhabi as a ∑ Abu Dhabi’s first class hotels and recreational centre at a cost of model capital city and boost its matched their compatriots in Dubai around US$190 million. The project tourist attractions. with their impressive growth in aims to expand the seaside road and performance. Occupancy in 2004 ensure the free flow of traffic, Visitation and the Hotel increased by 14 percentage points, provide more parking spaces in Market to 82%, and average rate rose by 4% the city centre and modernise the to US$91. The resultant RevPAR recreational areas along the ∑ According to the airport authorities, increased by 27% to US$75 in 2004. Corniche with gardens and the total number of arrivals in The resultant GOPPAR grew by a attractive recreational and Dubai in 2004 increased by phenomenal rate of 75%, to US$75. entertainment facilities; approximately 21% on 2003. The The accelerated growth in GOPPAR ∑ airport is now close to capacity (21.7 Land reclamation, which could perhaps be attributable to the million passenger movements), but commenced from Mina Zayed and fixed cost structure in a hotel an extension project is well extends to the Hilton Beach Hotel, operation at the Abu Dhabi market; has been completed and a underway; ∑ Proposed and rumoured supply in realignment of the Corniche Road ∑ Dubai’s hotels experienced the region is illustrated in Table 21. along the reclaimed land will have phenomenal growth in occupancy three new lanes in either direction in 2004, achieving 86%, which was Outlook and Opportunities extending for around two seven percentage points up on 2003, kilometres from Al Salam Road to and likely to be one of the highest ∑ Dubai continues to impress with Mina Zayed. Once completed, the occupancy figures worldwide. Very continued growth and occupancy in Corniche will also have parking for little new supply was added to the 2004 of more than 85%. We expect 4,000 cars; city in 2004, and this, together with strong occupancy (albeit a potential ∑ The Abu Dhabi Municipality and further strong demand, particularly decline) to continue into 2006 and Town Planning Department is in the Leisure and Meeting and 2007, if no events beyond the control

18 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 HVS International of the emirate occur. However, the Ibis, and Park Inn (the limited ∑ We expect hotel financing to become new supply entering the market will service brand of Rezidor SAS gradually more aggressive over the undoubtedly put increasing Hospitality); medium term, caused by the pressure on the potential ∑ Over the next five years, we also improvement in hotel operating performance of the market; anticipate an increased level of performances (GOPPAR), the increased ∑ Major developments, particularly development in boutique hotels in competition within the banking those likely to fuel long-term the region. These hotels will aim at sector and lenders’ better understanding tourism demand, such as Dubai attracting a niche regional and of hotel real estate cycles; Land, the extension of the airports international clientele; ∑ HVS International is regularly in Dubai and Abu Dhabi and the ∑ The enhanced liquidity and approached by local or regional new development at Jebel Ali, will availability of funds (debt and investors/stakeholders looking for facilitate this growth; equity) within the Middle East, potential hotel investment ∑ Residential developments continue together with improved hotel opportunities in the region. We do to mushroom and the impressive operating performances, is likely to not expect international investors to sales pace achieved to-date justifies further stimulate capital immediately consider the region as further development; it also ensures employment in hotel properties. We a potential target for hotel that even if an unforeseen event expect that a number of public investments. However, as signs of a beyond the control of the city offerings will take place over the Middle East peace process become governors occurs then visitation is next two to three years for some real more distinct, and as a more global likely to bounce back more rapidly; estate and hotel investment funds, consumer and investor confidence ∑ It is our opinion that the new hotel as well as (potentially) for some is perceived within the region, we supply entering the market will be local operators; expect the international investment largely absorbed by additional ∑ We consider it likely that a number arena to start considering the Middle induced demand; of consolidations will take place in East for potential investment ∑ opportunities in hotel assets; The announcement by InterContinental the region over the next five years. ∑ Hotels Group that it would be These are likely to include acquisitions An assessment of the historical entering the Dubai and Abu Dhabi of existing hotel investment performances of international hotel markets with its budget Express by vehicles and/or operators. Potential markets would suggest that the Holiday Inn brand is the next step to geographical targets include Egypt, Middle East has trends that a more balanced hotel offering in Dubai and Beirut; somehow differ from those of various international markets. the market, especially with budget ∑ Hotel developments continue to be Therefore, in addition to the airlines slated for slots once concentrated primarily in Dubai. extension work at Dubai airport is potentially lucrative investment We anticipate an increased appetite completed. opportunities, hotel investments in for Qatar, Bahrain, Oman and Beirut the Middle East might allow for risk (assuming that a more stable diversification for any portfolio of political environment emerges); HOTEL DEVELOPMENT international hotel assets; ∑ The most active operators in the ∑ Opportunities in the region remain AND INVESTMENTS region in terms of brand expansion for investment in mixed-use are Rotana Hotels, InterContinental ∑ Hotel investment and development developments, branded serviced Hotels Group, Rezidor SAS in the Middle East is likely to apartments, timeshare units, Hospitality and Mövenpick Hotels become increasingly sophisticated, branded limited service hotels and and Resorts; as new (potential) hotel investments niche boutique hotels; ∑ It has been noticeable that various funds instigate activities in the ∑ We expect hotel operating performances operators are increasingly planning region; in general to experience another to develop their limited service ∑ This year we have identified good year in 2005, assuming no brands in the region (triggered by the approximately 165 proposed hotels further political upheaval. increasingly perceptible opportunity that are likely to enter the market No investment decision should be made for such hotel properties). throughout the region in the next based on the information in this survey. For five years. These properties further advice please contact the authors. represent around 54,000 additional FUTURE TRENDS AND rooms. We estimate that the capital About our Team investment in these hotel real estate OPPORTUNITIES projects totals approximately US$10 HVS International has a team of Middle billion. This clearly reflects the ∑ Given the historical operating East experts that heads our operations increased investor appetite and performance of the hotel industry in in the MEA region. The team benefits liquidity in the region; the Middle East and the recent boost from international and local cultural ∑ Although hotel developments in demand, we expect the region’s backgrounds, diverse academic and continue to be geared towards five- hotel markets to experience hotel-related experience, in-depth star hotels, the appetite for branded considerable growth in average expertise in the hotel markets in the limited service assets and serviced daily rooms rate in the foreseeable MEA region and a broad exposure to apartments is increasingly future; international hotel markets in Europe. noticeable. We expect between 20 ∑ At this stage, we consider that the Over the last 24 months, the team has and 30 branded limited service first international fund providers to advised on more than 75 hotels or hotels to be developed in the region the hotel investment arena in the projects in the region for hotel owners, over the next five to seven years. Middle East will be the lending lenders, investors and operators. Brands will primarily include institutions, followed by the more Together, this team has advised on more Express by Holiday Inn, Rotana, risk-aggressive type of investor; than US$7 billion of hotel real estate.

HVS International Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 19 About the Authors Offices and Services

Elie Younes is an Associate Director Europe North America HVS Washington DC with HVS International’s London HVS London HVS New York Suite 102 office, heading the Middle East and Russell Kett 372 Willis Avenue 1300 Piccard Drive Africa region together with Bernard Dominique Bourdais Mineola, NY, 11501 Rockville, MD, 20850 USA Forster. He joined HVS International Bernard Forster USA in 2001 having had four years’ oper- Karen Smith (516) 248-8828 (240) 683-7123 ational experience in the hospitality Elie Younes (516) 742-3059 (fax) (240) 683-7120 (fax) industry in the Middle East. Elie ben- HVS Hodges Ward Elliott HVS San Francisco efits from his diverse multicultural Charles Human Suite 620 background and speaks , English, and French. He Rudy Reudelhuber HVS Chicago 116 New Montgomery Street holds an A level in Mathematics and Physics, a Bachelor Suite 1A San Francisco, CA, 94105 degree in Hospitality Management from Notre Dame 14 Hallam Street 445 West Erie Street USA University, an MBA from IMHI (Essec Business School – London W1W 6JG Chicago, IL, 60610 (415) 896-0868 France – and Cornell University – USA) and is currently UK (415) 896-0516 (fax) USA preparing his MSc in Real Estate Investment at Cass (44) 20 7878-7700 (312) 587-9900 Business School in London. Since joining HVS (44) 20 7436-3386 (fax) HVS Boulder (312) 587-9908 (fax) International he has advised on many hotel investment 2229 Broadway projects, strategic developments and other hotels, resorts, HVS Madrid Boulder, CO, 80302 HVS Phoenix and serviced apartments related assignments in Europe, Philippe Bijaoui USA 4913 E Mitchell Drive the Middle East and Africa. Elie is our Middle East expert. C/Capitán Haya, (planta 15) (303) 443-3933 28020, Madrid (303) 443-4186 (fax) Phoenix, AZ, 85018 Bernard Forster is a Director with Spain USA HVS International’s London office, (34) 91 417-6937 HVS Vancouver (602) 667-6655 heading the Middle East and Africa (34) 91 556-2880 (fax) 4235 Prospect Road (602) 269-1864 (fax) region together with Elie Younes. He N. Vancouver, BC, V7N 3L6 Canada joined the company in 1997 from Asia HVS Weston, CT (604) 988-9743 Accor Hotels & Resorts where he HVS Singapore 262 Lyons Plain Road was working in the IT division, 100 Beach Road (604) 988-4625 (fax) Riversbend focussing on property management #32-04 Shaw Towers HVS Toronto Weston, CT, 06883 systems, yield management systems 189702 Suite 202 USA and guest history systems for Accor Singapore 2120 Queen Street East (203) 226-6000 Hotels in Europe, the Middle East and Africa. Previously (65) 6293-4415 Toronto, ON, M4E 1E2 (203) 221-0068 (fax) Bernard worked in various operational management roles (65) 6293-5426 (fax) Canada for the Savoy Group in London (now Maybourne Group) (416) 686-2260 as well as in F&B for the Dolder Grand Hotel in Zürich. HVS Hong Kong (416) 686-2264 (fax) HVS Boston Bernard holds an MSc in Property Investment from the 183 Jade Villa 4th Floor City University, London, a BSc (Hons) in Hotel Ngau Liu Chuk Yeung Road HVS Miami 607 Boylston Street Management from Oxford Brookes University and a Saikung Suite 216 Boston, MA, 02116 diploma in Hotel Administration from Institut Hotelier 8925 SW 148th Street China USA ‘Cesar Ritz’, Le Bouveret, Switzerland. (852) 2791-5868 Miami, FL, 33176 (617) 424-1515 (852) 2792 2358 (fax) USA (305) 378-0404 HVS SERVICES HVS New Delhi (305) 378-4484 (fax) South America ● Valuation Services C-67, Anand Niketan HVS São Paulo HVS Dallas 2nd Floor Av. Brig. 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All rights reserved. ● Gaming Services ● Published by: HVS Compass Interior Design HVS International, 14 Hallam Street, London W1W 6JG ● Marketing Communications Tel: +44 (20) 7878 7700 Fax: +44 (20) 7436 3386 ● Technology Strategies For further information please contact Elie Younes, ● European Hotel Financing tel: +44 (20) 7878 7728, email: [email protected] ● HVS/The Ference Group: Operational & or Bernard Forster, tel: +44 (20) 7878 7719, Management Strategy Development email: [email protected] Global Expertise – Local Knowledge 20 Middle East Hotel Markets – Outlook, Trends and Opportunities 2005 © HVS International