Hotels pay the bill for unrest in Mena region

While global hotel sales are expected to rise this year, the Middle East is expected to suffer from the unrest says a new report

DUBAI, UNITED ARAB EMIRATES - May 1,2011: Left to Right- Richard Thompson, Editor, MEED, Elizabeth Randall, Managing Director, STR Global, Dr.Henry Azzam, Chairman, MENA, Deutsche Bank and Jonathan WoShow more

Sales of hotel properties around the world are expected to increase by as much as 40 per cent to US$30 billion (Dh110.19bn) this year, but reduced investment into the region because of unrest will hurt the hospitality industry overall, according to a report.

Hotel property transactions worldwide surged by 140 per cent last year to $24.3bn following a difficult year in 2009 as financing conditions deteriorated and the tourism sector was hit hard by the global downturn, Jones Lang LaSalle Hotels said yesterday.

The Middle East and North Africa region makes up just a small percentage of these hotel property transactions, with most investment in the region going into new development rather than sales of existing hotels.

With the Middle East market dominated by regional funds, global investors were just starting to look at investing in hotels in the region, the consultancy said. But they have now put their plans on hold.

"If you're an Asian investor looking at this region, at the moment they tend to say 'I was thinking about investing in that region', but now they see it more as big- picture," said Arthur de Haast, the global chief executive of Jones Lang LaSalle Hotels, speaking on the sidelines of the Arabian Hotel Investment Conference. "Although the unrest is far away from here, they tend to lump it together and say they're going to hold as they wait to see what happens."

He said it would now be at least next year or 2013 before "any meaningful amounts of investment" came into the region's hotel sector. A number of investors from India and South East Asia in particular had been considering investments, he said. "This is still a relatively illiquid market at a global level," said Mr de Haast. "This market is still very much a development-led market. People who developed hotels in this region are still holding these assets and as the hotels ramp up again, many hotels are still adapting to the supply-demand imbalances."

Signs were positive in Dubai, which has become a haven during the upheaval in some other parts of the region.

"In markets like this here in Dubai, we are seeing the imbalance come back in favour of the demand side of the equation, which means that conditions for investment into existing assets is going to improve now," said Mr de Haast

Meanwhile, the Moroccan Agency for Tourism Development said it had set up a multibillion-euro investment fund for tourism projects in the country, which was attracting investment from the region's sovereign's wealth funds.

STR Global, a research company in London, said there was evidence the new supply of hotels in the region was being absorbed.

"We are seeing demand increasing and supply start to level off, which indicates that the new supply has been absorbed," said Elizabeth Randall, the managing director of STR Global. She said room rates were "approaching the positive territory", adding it was the first time in a year this trend had been seen.