Inspired by the UAE’s Jumeirah Group, which now has 11 wholly managed hotel properties at home and overseas and is expanding fast, Gulf-based real estate and investment companies are taking on the multinationals and managing their own hotels. This trend is particularly evident in the four and five-star sectors.
But it is not just the local firms that stand to benefit by maximising their returns. It will also bring opportunities for multinational hotel brands to export expertise through training.
“As the Gulf hotel market broadens and deepens, it is enabling new, regional operators to enter the market,” says Ivor McBurney, vice-president for development, Middle East, at Hilton Hotels. “These operators have a more regional focus. It is simply a sign that the market is maturing.
“Jumeirah has developed well. It is a prominent, well-differentiated brand. But it has a relatively small number of hotels, and is a more specialised operator. Like many new hotel operators, it addresses specific market needs. Many of these new companies will probably become big names in the region, with strong regional market share.”
Gulf conglomerates such as Almulla Group, Rahala and Nakheel want to expand the brands they have created. These companies are hiring experienced managers to build a portfolio of managed properties.
“This trend is particularly evident in Dubai and, to some extent, Saudi Arabia,” says Rohit Talwar, chief executive officer of UK consultant Fast Future. “But in future, we will see it across the region. Local developers, increasingly, have big ambitions in managing hotels and leisure projects.
“A whole new generation of brands is emerging, such as The Wave in Oman or The Pearl in Qatar – destination ventures that bring together local and international hotel brands.
“A batch of projects are coming up in Ras al-Khaimah, such as Al-Marjan, Port of Arabia, Emirates Flag and Al-Hamra. Meanwhile, multinational hotel companies are moving away from ownership. Their aim is to leverage their brand as quickly as possible, through pure management of properties. Hence deals such as the recent $100m venture between Siraj and Intercontinental.”
Different companies use different models. Kingdom Holding Investments holds a 33.3 per cent stake in privately owned Swiss hotels giant Movenpick Hotels & Resorts. It is doubling its Middle East portfolio from 21 to 41 properties, expanding the Movenpick brand.
However, Kingdom is also a real estate company that builds and sells on properties, whereas Movenpick works with more than 30 property owners around the world. It plans to manage new properties built by Orascom in Salalah and Switzerland.
“We want to expand into the Asia-Pacific [region],” says Andreas Mattmuller, regional vice-president of Movenpick. “To do this, we are looking for a strong new partner. A Middle East partner would be very interesting for us. There is a lot of liquidity in the market, and many regional investors are looking to Asia-Pacific or Eastern Europe. We do not put all our eggs in one basket.”
Nakheel has quickly established itself as a property, hotels and leisure brand. Its approach to developing a portfolio of hotel brands is two-pronged: as well as own-brand destination properties, it is bringing global brands including a Trump Tower and One & Only Resorts to the Middle East.
Meanwhile, the multinationals no longer announce deals to build one hotel, instead unveiling plans to open five, 10 or 15 branded properties, and developers are facing tough competition to court the biggest global names.
But delivering a huge quantity of developments is not always possible in the current climate. Brussels-based Rezidor plans to launch designer Missoni Hotels in Kuwait, Dubai, Doha, Muscat, Cairo and Abu Dhabi. Two years after winning the licence, Rezidor has only secured one prime parcel of land in the region, in Kuwait City, through its long-term local partner, Marafieh.
“Financing and development are not issues, and neither is construction. Finding the right plot of land is the issue,” says Philippe Bijaoui, vice-president of business development at Rezidor. “Being optimistic, we almost hope that some projects will collapse and make good land available to us at a good price.”
Securing land is not the only challenge. Securing internationally recognised management companies is equally tough. “When it comes to the balance of power between a real estate developer and the hotel management company, the power is in the hands of the management company,” says Gavin Samson, director of Dubai-based hospitality and leisure consultant TRI Hospitality Consulting.
“In Dubai in particular, there are so many properties to choose from. There is still competition between management companies for prime locations, but fewer are available. Instead, big players such as Aldar in Abu Dhabi are building strategic partnerships with the biggest hotel companies.”
Aldar Properties has unveiled a strategic partnership with Intercontinental Hotels Group (IHG) to develop branded hotels in Abu Dhabi. So far, these include a 430-room Crowne Plaza and a 165-suite Staybridge Suites Hotel on Yas island, opening in 2009. In 2011, an exclusive, 300-room Intercontinental hotel will open at Al-Raha Beach, adding to the group’s existing 18,105 rooms across the Middle East and Africa.
Table: Hotel group expansion plans
|Hotel group||New hotels planned|
|Nakheel Hotels||50 new properties by 2012 including Easyhotels, One & Only, W, Corinthia, Atlantis and Tune in GCC and worldwide|
|Intercontinental Hotel Group||Up to 40 projects under way in the Middle East and Africa. Crowne Plaza, Intercontinental, Holiday Inn, Express by Holiday Inn and Staybridge Suite brands|
|Rotana||38 new hotels by 2014, including Rotana, Centro and Rayhaan, from Iraq to Sudan|
|Accor||30 hotels by 2010, including Ibis, Novotel and Sofitel brands in GCC, Egypt and Jordan|
|Movenpick||20 hotels by 2011, including GCC and Jordan, taking total to 41|
|Rezidor||16 Middle East properties by 2011, with Radisson Sas, Park Inn, Regent and Hotel Missoni properties|
|Marriott International||16 hotels by 2010, in GCC, Egypt and Jordan|
|Hilton International||16 hotels by 2012, in the Middle East, Africa and Indian Ocean region|
|Coral International||15 hotels in the Middle East and Africa|
|Kingdom Investment Holding||11 properties in the Middle East, Asia and Africa by 2010, including Four Seasons, Fairmont, Raffles and Movenpick brands|
The flip side of such huge global deals, says Samson, is that smaller investors, with just one or two hotels, will find it harder to establish themselves. “International hotel brands still command huge cachet,” he says. “We will probably see a lot of start-up brands materialise then disappear. The multinational brands are simply too powerful – they will always dominate the market. Internationally, the number of multinationals is shrinking too – just look at the sale of Hilton Hotels to the Blackstone Group.”
Many of the biggest local names are approaching the transition from hotel owner to manager with caution. Sometimes, all is not what it seems. Behind the fanfare about Emaar’s entry into hotel management, day-to-day duties are contracted to specialist company Southern Sun, says Samson.
“Many companies will get into difficulties if they have fingers in too many pies,” he says. “It is easy to underestimate how difficult hotel management can be. Companies that get it wrong will feel the pain. What matters is putting together a talented and experienced hotel management team, and that can take years.”
The pace of growth has increased shortages of trained staff, from general managers to cleaners. This will worsen as the acceleration of tourism development enables many experienced and trained hotel workers to find work in their home markets.
Growing skills shortages feed back into service quality. Heavy spenders who pay $400-500 a night for a hotel room expect service to be impeccable. Any drop in quality reflects badly on the brand. “People want to visit the region – they have to, to do business,” says Talwar. “But hotels that get it wrong will not win the business back a second time.”
Staffing issues are most pressing in the three-star property market, where guests want no-frills prices but a clean and efficient environment. Hilton Hotels and other big players are addressing skills shortages with their own training programmes. Hilton operates a web-based ‘university’ and is looking for new markets in which to recruit future staff. Movenpick has started hiring in new markets such as Vietnam, Burma and Africa.
At the moment, there are shortages of four and five-star rooms in Dubai, Riyadh, Mecca and Medina during major festivals, holidays and events. A guaranteed flow of customers makes it less urgent for hotel managers to address the skills crisis. But this could change quickly if regional occupancy levels fall.
Branding expert Naseem Javed, president of ABC Namebank International, says one of the biggest challenges facing the emerging generation of regional hotel players is that they have done too little to differentiate themselves as brands. “The region has yet to produce a Hilton or a Marriott,” says Javed. “Yes, these are new brands and the landscape is wide open, but there is not yet a clear leader when it comes to creating an iconic regional brand. Hospitality is international because travel is international. And that forces regional hotel companies to play the game by international rules.”
Meanwhile, high levels of liquidity mean that Gulf investors also have money to buy into established brands. In 2006, Dubai International Capital (DIC) bought budget hotel chain Travelodge UK for £675m ($1.34bn), launching a £3.5bn drive to add 40 hotels a year to 2020, selling London room rates at £19 a night.
In March, DIC spurned overtures from the UK’s Whitbread, owner of the rival Premier Inn brand, to buy Travelodge. The deal would have traded a profitable exit for DIC for a stake in an enlarged Whitbread group, owner of a new £3bn, 850-property budget hotel superbrand. DIC was reportedly reluctant to sell, demanding at least £900m from the sale. And there were concerns that the UK’s Office of Fair Trading would have blocked a deal that concentrated 57 per cent of the UK’s budget hotel sector in one group.
Such teething troubles aside, observers predict a new flurry of Arab investment in global hotel companies over the next three years.
Acquisitions will also help Gulf investors expand into emerging markets such as Asia, Africa and Latin America. And if the US recession spreads, shares in the biggest Western brands could come onto the market at knock-down prices.
In future, investors may start to think more strategically about hotel management ventures in their domestic markets, although Dubai’s build-it-and-they-will-come approach still dominates. Decisions about research, design, markets and niches still tend to follow only once projects are under way, and this has to be reconsidered if brands are to be created.
“In the past five years, we have seen Gulf cities generating many dozens of world-class concepts – projects and personalities that could become iconic,” says Javed.
“The danger is that culture has been sacrificed for speed. Brand building is based on one principle: attitude. But in the GCC, people say ‘let’s make an icon’. And so every building is the tallest and every project comes with shock and awe attached. But all that is little more than fireworks – exciting, but ultimately short-lived.”
437 Gulf hotels planned by 2012