By Kelly J. Crosbie,
Author, Real Estate Franchise Owner, and Founder of REIWORLD
Not only do the World Expo 2020, in Dubai, and the World Cup 2022 in Doha are propelling enough to push for hospitality real estate market growth in the Middle East, but there is a marked inclination towards investing and expanding the ever thriving sector.
The real estate investment trusts (REITs), hotel and gaming companies, retailers, and public sector entities are not but a part of a bustling investment industry of highflying real estate investors throughout Africa and the Middle East. In that regard, the industry has witnessed an increase in 2015, and is forecasting another rise in 2016, due to the aggressive growth of retail properties, hotels, golf courses, office buildings and development projects.
One of the most exciting real estate investment opportunities is acquiring an existing brand, or funding newly developed projects, which are mostly expected to turn a profit, provided groups allocate their investment trusts to companies of utmost credibility.
The latest opening of these projects is the renowned luxury brand, the Four Seasons, which opened in Abu Dhabi at the beginning of May 2016. Lying on Al Maryah Island, in a vibrant urban sanctuary and overlooking the water, the hotel offers expansive views of the city’s skyline and the Arabian Gulf, and balances urban chic with understated luxury through 200 accommodations, including 38 suites. Similarly, the Starwood luxury brand of St. Regis, is opening a St. Regis hotel in Cairo, in October 2016. Overlooking the Nile, this special edifice has been designed by the top contemporary American architect, Michael Grave, to include a luxe 39-story hotel and a residential complex.
Hospitality Sector Resilience
Hospitality growth in the Middle East has been on a trajectory despite the bad publicity associated to the region, which can be clearly perceived through the magnanimity of property and hotel investments, such as Jumeirah, the brand that is exponentially growing in the region and overseas.
It is what Wall Street is looking for, nowadays; they are looking for projects that they can invest in, that are not always conservative and do guarantee returns, Commercial and Hotel Real Estate Expert and Investor, Craig Consentino, said.
It is likely that the demand in a Gulf country like Saudi Arabia will be affected in the coming months, due to the slump in oil prices and the numerous new entrants to the real estate market that will inevitably affect the overall market performance. Coldwell Banker Real Estate Group (CBRE) expects a further decline in 2016, yet is hopeful for a better outlook, mid year. On the upside of things, many international brands are planning on targeting the market in the 2nd largest city in Saudi Arabia, Jeddah, to increase the current number of rooms by 75%, which is bound to impact the performance levels across hotels. Riyadh is also a home to major international brands with a strong pipeline of hotels under development.
Egypt is no different when it comes to development growth. One of the largest foreign direct investors in Egypt is UAE’s Emaar Group, present in Egypt through its subsidiary Emaar Egypt. The company has an assertive building plan including some of the country’s most exciting luxury and iconic development projects that are currently in full swing.
Emaar Misr is working on establishing a status as one of the country’s largest real estate companies, through major projects such as Uptown Cairo, Mivida and Marassi, in order to provide significant impetus to the local economy by creating vibrant, mixed-use projects that define a new way of life and explore new opportunities in the Egyptian real estate sector. As for Emaar Misr’s portfolio, the projects are in different stages of development and others are due for handover, showing the exceptional performance and tremendous investor confidence.
Uptown Cairo spans over 4.5 million square meters, and features a business park, town center, mall, resorts, spa, sports and leisure facilities, golf course, and luxurious residential villages. At its heart, is Emaar Square, which is home to Egypt’s largest open mall and a five-star premium Address hotel. The 3.8 million square meter Mivida pioneers a new residential concept in Egypt, by introducing smaller, smarter, and cost-competitive fully finished and ready-to-furnish homes. Marassi is a 1,544-acre tourist resort project located in Sidi Abdel Rahman and Al Alamein, and has seven distinct lifestyle districts, 3,000 hotel rooms, a marina, golf course and healthcare facilities.
This led to the REITs community worldwide to be fascinated by the growth throughout the MENA region and expects it will continue to be strong, leading up to the Expo 2020 in Dubai and FIFA 2022 in Doha.
Hotel occupancy rates are hitting record levels throughout the Middle East, and are expected to set another national record in 2016.
“Strong demand from both business and leisure travelers is driving up occupancy levels, hotel investments and development through Africa, the Middle East and Latin America,” Consentino said. In return, Middle Eastern investors are becoming more active across a wider range of sectors. During the last year, the hospitality sector has grown in importance for global investors and continues to attract large inflows of foreign capitals. Outbound investments in hotels totaled $6.8 billion in H1 2015—a major leap compared to the $1.8 billion in 2014.
“People have money to spend again, and they are spending it on travel related investments, however they are cautiously investing their money,” Cosentino stated. In the Middle East the projected 2015 hotel occupancy rate was 77.6%, up from 2014’s record of 76.6%. The U.S. occupancy rate is projected to be a record of 65.7% this year, up from 64.4% in 2014.
Middle Eastern investors are expected to spend $180 billion in commercial real estate markets outside of their own region over the next decade, the majority of which will be located specifically to commercial and to hotel investments, reported CBRE Group.
Additionally, the trend of Dubai being seen as a global business and leisure destination should continue in the coming years, backed by the government’s pro-tourism initiatives. “Investors are confident in the potential of the UAE, especially Dubai and Abu Dhabi as they have implemented ambitious growth strategies. Dubai leads the tourism and hospitality market and has plans to attract 20 million tourists annually by 2020 leading up to the World Expo. The hospitality sector has shown competitiveness adjustments, resulting in lower average daily and occupancy rates which remain at healthy and strong levels,” stated CBRE Group.
Throughout the Gulf region, and due to the nature of Doha’s room supply which is heavily skewed towards luxury properties, Doha is able to yield high average room rates for the region; however they have been under pressure and decreasing since 2008. This pressure will be compounded further by the 15,400 new rooms in the pipeline which represent a doubling of total stock in the coming years. Development of leisure tourism will remain critical to the long term tourism growth in Doha particularly, beyond the 2022 FIFA World Cup event.
The Middle East has proved itself as fertile ground for real estate investment in general, and the Gulf’s affinity for expanding tourism and hotel sector in particular. The region shows keenness in covering every aspect of the business, ensuring a steady stream of customer demand, all the more reason the thriving business of hospitality will become an essence of the Middle East’s real estate sector.