‘Investment diversification key to growth’

The growth of intra-Arab travel and budget brands dominated last month’s Arabian Hotel Investment Conference. SARMAD KHAN reports
Trumph Jr and Zok discuss investment at the AHIC 2006

OF $45 billion invested in the hotel sector globally last year, the Middle East only captured a small amount – but the potential for growth is immense, said speakers during the Arabian Hotel and Investment Conference (AHIC), held April 29 to May 2 in Dubai. Risk reduction and investment diversification remain key to growth in a scenario where Egypt and Libya are likely to receive further attention from investors even as the UAE remains steadfast at the top spot in terms of hospitality growth.
With emphasis on intra-Arab travel growth and more solid representation of budget brands across the region, the AHIC had international experts speaking on all aspects of the hospitality sector’s growth. Delegates at the event were unanimous that the global approach to business in the Middle East is changing as corporations switch to a long-term strategy.
Dr Daniel Thorniley of the Economist Intelligence Unit’s Corporate Network said the region’s projected growth of more than five per cent per year looks sustainable. “While the oil booms in the 1970s and 1980s were wasted, this time we are seeing regional reinvestment and a long-term strategy in the Middle East both by the governments and the corporations. Until two years ago, the region was a relative backwater, with the exception of the oil and gas sector. Companies didn’t worry about brands and marketing, but now the region has reinvestment, growing stock markets, a better market environment, massive liquidity, and spending,” he said.
Predicting a growth in Arab intra-regional travel, with Egypt and Libya picking up and UAE staying on top, he tipped Turkey as the next hot market after Dubai.
Multiple discussion and breakout sessions from the main conference covered a variety of subjects ranging from economic trends across the region and the world to investment trends in 2010, besides looking at top destinations, the future of economy lodgings, East Africa, condo hotels and timeshare, debt and mezzanine finance, brand crossroads, the environment, human resources, how to fill hotel beds in the rapidly changing world of electronic distribution, the integration of sports in the hospitality industry and Islamic Finance, among others.
The Investment Roundtable drew a lot of attention as industry leaders including Istithmar’s Muneef Tarmoom, Donald J Trump Jr, the Trump Organisation’s executive vice president of development and acquisitions; Kingdom Hotel Investments’ Sarmad Zok; and Arthur de Haast, global CEO of Jones Lang LaSalle Hotels looked at who is generating what returns in the Middle East as well as examining foreign investment in the region.
Diversification of investment was named the key factor to success, as speakers believed it will be some time before the region attracts a significant amount of international capital. “Instead of investing in one property, its better to enter the regional market and invest small in a diversified regional investment fund. This way, you will see direct feedback quickly and can decide whether to increase your commitment,” said Muneef Tarmoom, CEO of Istithmar.
De Haast pointed to the mid-market accommodation sector to guarantee good returns for investors in the region. “This is a solid long-term investment, bearing in mind the growing business profile of the Middle East and its need for more accommodation solutions outside the luxury hotel offering.”
He said that it would be some time before the region sees a significant amount of international capital, because while there is no shortage of capital in the region, “international investors have to build some risk return into their premium.”
Budget brands were termed as the next growth market with the launch of economy brands across the Middle East and branded budget hotels are seen as essential to maintain visitor growth over the next decade in the Gulf.