Islamic hospitality sector emerges

02 May 2008
Investors are backing a new breed of culturally sensitive hotel that can provide the facilities and environment demanded by the increasing number of Muslim tourists in the region.

When a small, 25-room hotel opened in Riyadh in March, it attracted global media coverage. The Luthan Hotel & Spa is the first hotel in Saudi Arabia where women can publicly attend conferences, swim, dine or use the gym, unveiled and at any time they please.

All staff at the Luthan are female, from director to porters. The venture is owned by 20 businesswomen and princesses headed by Princess Madawi bint Mohammed bin Abdullah, chair of the board of investors.

Behind the story of a small Riyadh hotel lies a much larger trend, of emerging demand for hotels that cater to the needs of a Muslim clientele. And behind that is yet another story, of growing interest from sharia-compliant investment funds in the booming regional tourism industry.

“Along with the vast liquidity in the Middle East markets, there is a growing sense that investors need to follow their principles,” says Christopher Hartley, chief executive officer (CEO) of Dubai-based Shaza Hotels. “And the huge growth in travel and tourism represents a major opportunity for sharia finance.”

Satisfying demand

Gauging the scale of demand for such hotels is not easy. Few studies have focused on supply and demand trends in this niche. However, one industry source argues that demand is sufficient to fill one-third of the new hotels under construction in the GCC.

“The Muslim world is becoming more middle class,” says the source. “The regional tourism market is not all about rich, holidaying Saudis any more. In general, Muslims are travelling more, on business and on holiday. And they want suitable hotels when they travel. If Saudis travel to Dubai, for example, there are few dry hotels.”

UAE-based brands targeting this new niche include Sharjah’s Coral International, which is expanding its portfolio of Coral, Corp and Ecos properties, and Flora Group of Dubai. Dubai’s Abraj Capital is also backing another new venture, Grand Seraj Hotels & Resorts, a sharia-compliant chain with a portfolio of four brands.

“I think we will see the concept of Islamic hospitality start to mature around 2010,” says Naseem Javed, president of US branding consultant ABC Namebank International. “People want to travel the way everybody else does. It is about knowing that the food will be halal without having to ask. For observant Muslims, everything will be comfortable and familiar, with no need to feel embarrassed about making special requests.”

Islamic finance

Hala Matar Choufany, director, Middle East, at US hospitality and leisure consultant HVS Global Hospitality Services, says demand will be particularly strong from Gulf family groups. “It will appeal to observant families,” she says.

Shaza Hotels is not only positioning itself as a Middle East hospitality brand, it has also been created using a sharia-compliant financial models. Launched in 2006, it brings together Capital Guidance Financial Group, a privately owned investment house that invests in the US and Middle East, German hotel brand Kempinski and private investors, mainly from Qatar.

The company’s funding is estimated at $500-600m, with an equity portion of $250m, fully leveraged with debt financing. It expects to go public through an initial public offering (IPO) between 2014 and 2016. Targeting the five-star family market, Shaza Hotels is developing a portfolio of city centre properties.

Initially, it will own and operate properties in Cairo, Bahrain Bay, Marrakech and Geneva, and manage properties in Dubai, Doha, Muscat and Bahrain. These properties are part of a six-year plan for 20 Shaza Hotel properties, half of which are owned by the firm and half of which are managed.

Shaza’s demand forecasts are bullish. “If there are 30,000-40,000 hotels under construction in Dubai, we believe that up to a third of these need to be managed with some form of sensitivity to local customs,” says Hartley.

“That is probably true across the region and yet no brand has successfully positioned itself, to date, as a big, regional, culturally sensitive brand. We are working within an eight-year window to make money for the fund, and are confident we will generate returns of 22-23 per cent for our investors.”

Gavin Samson, director of Dubai-based leisure and hospitality consultant TRI Hospitality Consulting, says this estimate could certainly be true in Saudi Arabia, where the tourism development strategy focuses on religious tourism. “When you look at all the hotels being developed in the GCC, few are Islamically branded or financed, particularly in Dubai and the more developed tourism markets,” says Samson. “But Saudi Arabia is one of the fastest-growing markets, and there is definitely potential here.

“Mecca and Medina are being developed for religious tourism. Rotana is moving in with its own Islamic brand. Such hotel ventures could certainly account for a third of new projects in Saudi Arabia, whereas Dubai caters to a European market. And even if the European market drops, Dubai will cater for visitors from China and other parts of Asia who do not necessarily want hotels run on Islamic lines.”

Arab hotel brand Rotana is launching the Rayhaan brand, targeting the growing intra-regional tourism market. The group has 62 regional hotels and plans to add a further 38.

Regional expansion

The plan, says president and chief executive officer Selim el-Zyr, is to open 20 Rayhaan properties in cities including Abu Dhabi, Dubai and Doha, and in Sharjah, Saudi Arabia and Kuwait. Saudi Arabia in particular is a priority market. Rotana wants to have a property in every major city in the kingdom.

“Rayhaan is not a sharia-compliant product - that is not our agenda,” says El-Zyr. “But we see an opportunity to develop alcohol-free properties for travellers who may have small children or simply want to avoid bars. We have already signed agreements to manage two wonderful properties in Dubai.”

Meanwhile, Dubai’s Almulla family has launched Almulla Hospitality, planning to invest $2bn in creating the world’s first sharia-compliant international hotel chain.

The move involves Almulla moving from real estate - as Abjar International Hotels, whose family properties include Dubai’s Ritz-Carlton, Sheraton, Renaissance and Ramada hotels - into managing a portfolio of three sharia-compliant brands: Cliftonwood Hotels, Adham Hotels and Wings Hotels.

It plans to create a 90-property global port-folio, financed and managed according to Islamic principles (see box, page 55). The venture aims to tap into rising demand from what
the World Trade Organisation (WTO) has estimated is a $12bn-a-year outbound GCC leisure travel market.

The WTO forecasts that regional travellers will increase their outbound travel spending by 5.5 per cent a year to $44.8bn by 2010. Saudi-based travellers currently spend $6.7bn on foreign travel, followed by UAE travellers spending $4.9bn collectively, or an average of $1,700 per person per trip.

Abdulla Mohamed Almulla, chairman of Almulla Hospitality, says if the Middle East is developing $1 trillion worth of new hotels - 900 properties - by 2020, his group aims to capture 10 per cent of this new market, launching 90 hotels and building a portfolio of 150 properties worldwide. Target destinations include Saudi Arabia, the UAE, Jordan, Egypt, Malaysia, Thailand and Europe.

“The Muslim traveller market is growing around the world, due to increasing wealth,” he says. “It represents 10 per cent of the world tourism market, and is one of the fastest-growing segments.

“We have assigned Jasper Capital Group to structure a financial model that will make us achieve our objectives. Islamic, sharia-compliant hotels are in demand from high-net-worth individuals and Islamic institutions. Currently, we are seeing the first wave in the development of sharia-compliant hotels.”

Meanwhile, Dubai conglomerate KM Holdings is using its $2.3bn Islamic-compliant real estate fund to enter the hotel business. In 2007, it created Tamani Hotels & Resorts, an international chain of hotels for Muslim clients with halal, organic food, no alcohol, charitable donations and culturally sensitive decor.

Its properties include Dubai’s 54-floor, 530-room Tamani Hotel Marina, with one floor set aside for women and staffed by female butlers. It plans to develop up to 12 hotels by 2010 - in Abu Dhabi, Jeddah, Riyadh and Doha, and eventually in India, Malaysia and Indonesia.

Sharia compliance

However, when it comes to Islamic hotel offerings, there is some confusion about what such properties entail. It is illegal for hotels - or any other trading outlets - to sell alcohol in Kuwait, Saudi Arabia, Sharjah and Iran. But the question of what makes a hotel purely Islamic is more complex.

“At a recent conference, it emerged that hotels that do not serve alcohol or pork are still not necessarily sharia-compliant,” says Ivor McBurney, vice-president for development, Middle East, at Hilton Hotels.

Shaza Hotels aims to avoid such controversies by keeping things simple. It will not launch beach properties. It will serve halal food and avoid alcohol, and ensure single-sex access to spas and hammams (bath houses).

“Beyond that, it is brushing up against personal belief areas and questions of inter-pretation,” says Hartley. “We will not get into that or take it any further than any other sensible-thinking brand in the Middle East. This is about a cultural experience that reflects traditions of hospitality long forgotten in the West.”

McBurney attributes the rise of Islamic hotel products to a maturing market, and the explosion in Arab intra-regional travel. About 10 years ago, GCC hotel occupancy rates fell below 30 per cent in the summer. Today, occupancy rates rarely fall below 75 per cent, as Gulf nationals opt to holiday in the region.

“This is also about marketing,” says Choufany. “It is about creating a differentiating factor and about marketing to new segments of travellers. But it will be important that companies get it right, and that they realise these properties cannot appeal to all markets. They will have to choose between one market and the other.”

Key fact: $12bn - Outbound GCC leisure travel

Sharia compliance rules

  • Markers present indicating direction of Mecca

  • No alcohol to be served on the premises

  • No entertainment such as nightclubs

  • Halal food served; no pork allowed

  • Staff to be predominantly Muslim

  • Male staff for single men and female staff for women and families

  • Separate male and female wellness facilities such as gyms

  • Gender-segregated prayer rooms

  • Conservative TV channels

  • In-house religious figures that host seminars and preaching sessions

  • Art should not depict the human form

  • Traditional uniforms

  • Beds not to be placed in the direction of Mecca

  • Toilets not to be facing Mecca

  • Quran, prayer mats, subha (prayer beads) in each room or at the front desk

Source: Almulla Hospitality

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