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Boutique hotels find footing in Middle East
April 1 2013

Boutique and lifestyle hotels in the Middle East provide an opportunity for travelers and investors seeking something new.

Highlights
  • Boutique hotels are an “emerging opportunity” in the Middle East, said Hannes Schied of Horwath HTL.
  • Investors view branded boutiques as a safe play than small, independent hotels.
  • Some markets, such as Tel Aviv, have seen the emergence of boutique hotels much more quickly than others.

GLOBAL REPORT—As the Middle East continues to grow its infrastructure and market itself as a unique traveler destination, guests are seeking out lifestyle and boutique hotels to embrace the cultural experience.

Boutique hotels are an “emerging opportunity” in the Middle East, said Hannes Schied, managing director and international liaison partner for Horwath HTL. Luxury brands are pervasive throughout the region, although their lifestyle brand counterparts, such as those owned by major chains such as Starwood Hotels & Resorts and InterContinental Hotels Group, are only now entering the region, he said.

Schied said investors view these “manufactured boutique” hotels as safer plays than small, independent boutiques, which have yet to find their footing. He pointed to brands Armani Hotels & Resorts, Hotel Missoni by the Rezidor Hotel Group and the W Hotels by Starwood Hotels as examples.

The market is not mature enough for independent hotels, Hala Matar Choufany, managing director of HVS Dubai, said.

“Boutique hotels become popular once you have solid infrastructure in the country,” she said. “In developing markets, the security and safety the (lifestyle) brands bring to guests are key. Anyone from Europe and the (United States) coming to the Middle East have a preference for staying with the big brands due to their familiarity and perception of the quality provided over unbranded boutique hotels.

“When the market starts maturing and the reality of the product offering, the standards change. It becomes easier and easier to establish a boutique hotel.”

There are outliers where such a transition is already taking place. In Tel Aviv, where the necessary infrastructure already is in place, the independent boutique trend is “an interesting phenomenon,” explained Ben Julius, founder of Tourist Israel.  “Over the past three or four years, new boutique hotels are opening in Tel Aviv,” he said, especially as foreign travelers become aware that Israel isn’t just for religious pilgrimages but has a strong secular and cultural side as well.

STR Global, sister company of HotelNewsNow.com, defines boutique hotels as branded or independent properties in the luxury, upper-upscale and upscale segments typically having fewer than 200 rooms and an estimated average daily rate of $175. The hotels generally offer unique, contemporary and distinctive design, promoting a stylish, luxurious, aspirational or avant-garde feeling.

Middle East investors
Hotel owners and investors in the United Arab Emirates are generally from rich and affluent families, and they want a professional and well-known management company to take the reins, sources said.

Schied said some investors would rather put $200 million into a 200-key branded hotel than a nine-key boutique property because the risk isn’t as great.

Choufany said the domestic investors comprise the majority of investors in the region, and they won’t risk investing in small, independent boutique hotels when branded lifestyle hotels have more promise of financial stability.

“The big guys have infrastructure,” she said. “From an investment standpoint, it’s not as lucrative (to have a boutique hotel) as having an international brand.”

Still, some investors are bucking convention in more robust markets.

Avi Zak, CEO of 60-room boutique Vital Hotel, opened the property in 2005 believing the boutique hotel experience was essential in Tel Aviv. “Up until then, the local industry believed that only big hotel chains with sea locations were to be built,” he said. “We have actually changed that assumption.”

Attracting guests
Since the hotel opened, Zak said the boutique element allows staff to focus on customer service. Keeping foreign business travelers and domestic customers satisfied has helped keep occupancy and rates high.

Personalized customer service is the main priority at 60-room, six-suite Vital Hotel in Tel Aviv.
 

Guests at the hotel are treated to a personalized experience, Zak said, and the small hotel is able to make customer service a main focal point.

“We are able to feel each and every customer and fulfill most, if not all, of his or her needs,” he said.

Rosewood Hotels & Resorts has had a presence in the Middle East since 2000, said Erich Steinbock, regional VP of Rosewood Hotels & Resorts and managing director of the 197-room, 27-suite Al Faisaliah Hotel and the 187-room Hotel Al Khozama in Riyadh, Saudi Arabia.

Steinbock also highlights the focus on the guest that “result in international luxury standards and comforts that exceed many locations around the developed world,” he said. “Combined with regional influences, we create bespoke memorable experiences.” The company plans to open Rosewood Abu Dhabi later this year, as well as a resort outside of Riyadh City, Saudi Arabia, and another Rosewood Resort in Dubai in 2014.

Because of the strong expatriate community in the Middle East, people have high purchasing power, Schied said, meaning they’re interested in the luxury concept of boutique hotels.

“Boutique hotels are more or less a global trend,” he said. “The type of traveler looking for boutiques is affluent and sophisticated travelers … boutique hotels provide a unique experience and image.

“The trend is smaller boutique hotels; they’re more for the experienced traveler. They look for unique hospitality experiences,” Schied said. “For the regional travelers, they love branded properties. They love the luxury. It separates the market.”

In Israel, the small eight-to-15 room boutiques cater to younger people, professionals, independent tourists looking for something different and authentic, and “people finding out about them from style magazines,” Julius said.

“The target is the European and U.S. market,” he said. “Tel Aviv is a city of culture, a culinary city and a nightclub city. People are attracted to that.”

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