Local hotel brands are increasingly targeting overseas expansion after enjoying success in their home markets. Published in MEED, 28 April 2014
The Middle East is a pretty good place to be a hotelier these days. In February, average revenue per room was running at just over $166 a night, putting the region second only to the Caribbean according to hospitality research firm STR Global.
There are plenty of investors trying to get involved in the market, with STR Global estimating that 504 hotel properties are currently being developed around the region with a total of 122,631 rooms.
Above the doors of many of those new hotels will be the logos of global brands familiar to business travellers and tourists the world over. Names such as Intercontinental, Hilton and Kempinski are scattered across the region, from the Gulf to the Maghreb. More recently, some of the mid-market brands such as Premier Inn and Holiday Inn have also been targeting the region.
Increasingly, however, these international brands are facing competition from local operators. It has been a gradual development in the market over the past two decades, but the trend for more local hotel brands appears to be one that is picking up momentum.
Much of the activity is coming from the UAE, where local hotel operating companies have been expanding at an impressive rate in recent years, both within their home market and, increasingly, around the region and beyond.
Rotana Hotels, for example, was set up in 1992 and opened its first hotel in Abu Dhabi a year later. It now has 50 properties across 11 countries around the region. As well as its core Rotana brand, it also runs hotels under the Centro name, which is aimed at the mass market, as well as the alcohol-free Rayhaan chain and the Arjaan hotel apartments.
The group, which appointed Omer Kaddouri as its new CEO in January, has set itself the target of having 100 hotels by 2020. Kaddouri had previously been chief operating officer and took over from co-founder Selim el-Zyr, who had led the company for 21 years.
“When Rotana was developed, the idea was to compete with all the chains that were in Abu Dhabi and Dubai, and around the region at that time. The founders saw there was a gap in the market for a local chain,” he says.
The group’s ambitions have gradually expanded as its portfolio has grown. “Ten or 15 years ago, the vision was for us to have a Rotana hotel in every major city in the Middle East,” Kaddouri adds. “Now, we are talking about having one each of our brands in every city in the Middle East. We’re a hotel chain that is regional and has aspirations to move to a global platform.
“One of the challenges we face is the international brands are already planted in the major cities around the world. Another thing is they have a head start on us, so we still have to catch up, but we’re happy at the pace we’re moving.”
In the coming months and years, Rotana will open hotels in countries including Iran, Turkey, Jordan, Tanzania and Mauritania. In time, it may tackle more mature markets such as the UK, but the main focus in the immediate future is likely to be the broader Middle East region and sub-Saharan Africa.
Another UAE chain, the Jumeirah Group, part of government-owned Dubai Holding, was set up five years after Rotana. It has fewer properties in its portfolio,but has already made the leap into numerous international markets, with 21 sites in 10 countries across the Middle East, Europe and Asia.
It has plans to open at least eight more hotels spread across China, India, Indonesia and Russia and, within its home region, it is also planning four more properties, with one apiece in Egypt, Jordan, Morocco and Oman.
In October, Jumeirah raised a $1.4bn unsecured syndicated loan to help fund this expansion. Both local and international banks were involved in the financing, including Abu Dhabi Commercial Bank, Dubai Islamic Bank, Emirates NBD, HSBC, Mashreq and Standard Chartered.
Developing a new hotel brand clearly takes time and a lot of money, particularly if it is aimed at the luxury sector as with Jumeirah. Other Gulf investors in the hospitality industry have preferred to go down another route.
Action Hotels, for example, has built a portfolio of six hotels in Kuwait, Oman, Jordan and Australia. The company was set up by Kuwaitis, but is headquartered in Dubai. It has opted to develop its hotels while signing long-term contracts with international brands such as Holiday Inn, Premier Inn and Ibis to manage them.
Action Hotels raised £30.5m ($50m) through a listing on the junior AIM stock market in London in December and will be using the proceeds to open a further eight hotels in the next few years. Its CEO, Alain Debare, is not tempted by the idea of the firm developing its own brands and becoming an operator as well as an owner.
“I don’t think there’s any intention to develop our own brand,” he says. “We’re very happy with the operators we work with and I think they’re very happy with us. There’s definitely a lot of value in the owner-operator relationship. The brand recognition is so powerful. They drive very good levels of business. From the day they connect, these brands drive about 40 per cent of the business. And they provide the operational expertise. As a result of that, most of our hotels have been breaking even on the first month of operations.”
Other companies are taking a middle path, both signing up international brands to operate some of their hotels while also developing their own brands. Doha-based Katara Hospitality, for example, owns hotels managed by the likes of Ritz-Carlton, Sheraton, Marriott and Mövenpick, but it is also developing its own Merweb brand.
Later this year, it will open the Merweb City Centre in central Doha. The hotel will have 265 rooms and 97 apartments. Katara Towers will follow in 2017 in the Lusail district of the Qatari capital. Katara also operates the Burgenstock brand, which has three properties in Switzerland.
In its early days, Katara, which is owned by sovereign wealth fund Qatar Investment Authority, concentrated on its home market of Qatar, but since 2006 it has been developing its international presence. It now has 23 properties that are either up and running or being developed in the Middle East, Europe, Africa and Asia. According to CEO, Hamad Abdulla al-Mulla, the firm is keen to expand into more countries in the future.
“Our strategy for diversification targets several types of hotels spread across a wide geography,” he says. “We are looking for further investments in key European markets, including the UK, and we will further enhance our presence in the Mediterranean countries. We are also considering investments across the ocean, in North America, while looking to increase our reach in Southeast Asia.”
Overall, the group plans to have 30 hotels and resorts in its portfolio by 2016, and add a further 30 over the following decade, but Al-Mulla says “we will also continue to focus on the Qatar hospitality market”. “For us, we will always consider Qatar a priority,” he adds.
As the approach of most of these companies suggests, the emphasis for much of the hotel trade continues to be on luxury developments. However, just as the international mid-market brands have been expanding into the region, so there is growing interest among local operators to develop their own mid-market brands.
Kaddouri says he expects the mid-market Centro brand to be the fastest-growing among its portfolio in the coming years, but it is certainly not the only mover. Bahrain’s Ramee Group has also been developing products for different segments of the market. It currently has 35 hotels spread between its home market , as well as Oman, the UAE and India with a mix of two-, three- and four-star properties.
Back in the UAE, two local real estate developers Emaar Properties and Meraas Holding announced in June last year that they would develop hotels under a new Dubai Inn brand, which will be focused at the affordable end of the market. That represents a new approach for Emaar’s hotel division which has previously concentrated on the high-end space, with brands such as Address Hotels & Resorts and Armani Hotels & Resorts.
This all fits in with the vision set out for Dubai’s tourism industry by the authorities of achieving 20 million visitors by 2020.
If the emirate is to achieve that, it will need to develop a broader range of properties at different price points, rather than simply continuing to focus on the luxury five-star segment that has characterised its tourism industry until now.
There is likely to be a similar trend across the GCC as a whole. The investments being made by governments in transport infrastructure are likely to draw in more visitors, both for business and leisure, and not all will be able, or willing, to pay several hundred dollars a night for their rooms. Vast new airports are being developed in Dubai, Abu Dhabi and Doha, for example, and others are being upgraded. A region-wide railway is also moving ahead.
At the same time, the GCC economies generally are growing at a healthy rate, fuelled by high oil prices. This suggests that a well-managed hotel group should find lots of opportunity for growth in the coming years and there is no reason why local hotel brands should not be able to claim a decent share of the market.
“The Middle East is a very fast-growing region,” says Kaddouri. “There is lots of activity, lots of things moving ahead. The governments are assisting greatly. Look at the new airports. All of this investment is just encouraging more business to come into the region. I don’t think we could be in a better spot.”