The hotel industry knows the future of the Middle East lies in midmarket hotels. Now its hoteliers have a firmer idea of how this government-mandated push is to be implemented.
DUBAI, United Arab Emirates—A year ago, hoteliers in the Middle East were introduced to the ability of midmarket hotels to fuel the region’s development by attracting the middle class, diversifying from a reliance on oil, retail income and luxury hotels.
At this year’s Arabian Hotel Investment Conference, speakers underlined how midmarket hotels have become a significant part of their development strategies. Participants on a panel titled “The investment climate warms up to the midmarket” offered several important tips:
- First-mover advantage is key;
- give developers maximum value;
- keep a focus on driving returns;
- ensure inter-regional product consistency;
- maintain operational efficiencies; and
- scale up as soon as possible.
Panelists added that while the midmarket segment remains unpenetrated in most of the Middle East and thus has good growth and profit potential, the downside is that land prices remain high.
Elie Milky, VP of business development for the Middle East and Africa at Carlson Rezidor Hotel Group, said a huge boon is that the midmarket segment “is something new that guests are trading both up and down for.”
Hotel brands and owners have already started jostling for position, panelists said.
“There are different layers. It’s a wide stretch,” said Rami Moukarzel, VP of development and acquisitions for the Middle East and North Africa at Louvre Hotels Group.
Chris Nader, VP of development at Kempinski Hotels and its new midmarket product Mysk by Shaza Hotels*, said he wants to position Mysk by Shaza away from the typical market.
Nader called Mysk by Shaza an “upscale-minus” brand. He added the label is clearer than “4-star” or upper upscale.
“We’ve seen so much demand from investors in the region,” Nader said, “and there is a clear correlation between investment and (average daily rate). We’ve had lots of time to study this, and we can give attention to every baby as we are a small company.”
The drive in the space comes at a time when owner sophistication has never been greater, panelists said.
“There are more sophisticated owners, so we’ve needed to adapt,” Moukarzel said. Managed and franchised properties “are a model thrown about a lot, but we do try that, before flipping it into a franchise, as it is all about operational efficiencies.”
The moderator of the session, Robin Rossmann, managing director of HNN parent company STR, said there has also been a rise in professional, independent management companies, which have only recently started to grow in the Middle East.
Moukarzel said new business models, increased awareness and new product are all elements needed to create a mature destination with affordable hotels and better transportation services.
Operators also need to be utterly involved, panelists agreed.
“Key is actively revenue-managing. You must be active in every part of the business,” said Alain Debare, CEO of ownership, development and asset-management firm Action Hotels.
“Keep back of house minimal, and place importance on public spaces,” said Jaidev Menezes, corporate director of business development at Emaar Hospitality Group. “Our GMs sit in the lobby.”
Nader said a maturing market still results in an occasionally strayed focus.
“Owners in the region are moving away from the pride of owning luxury, but they still on occasion cannot help themselves from asking the brand to add a restaurant or even a ballroom, and we have seen owners rush to build without brands or feasibility studies,” Nader said.
Government diversity, operator strategy
The panel agreed that the landscape for midmarket product in the region has been made possible by the role of government in diversifying companies’ tourism and economic strategies.
That push allows hoteliers to concentrate on efficiencies, a process that is helped by getting into the space as early as possible.
“The 60% margins enjoyed in Saudi Arabia are days no more. Now is the opportunity to keep cost increases in check,” Milky said. He added that while efficiency is the focus, sometimes hotel firms are forced to seek out star ratings to secure financing and development for additional assets.
Samer Sabra, VP of investment and development at Ghina Real Estate, said communication is critical.
“Operators must help developers be on the same page in terms of how to keep pushing to get efficiencies,” Sabra said.
Moukarzel said that efficiency can have long-term benefits.
“If we’re brought in early, we can be flexible with costs, and if you can control them, then there are margins, but you also need quality developers and to keep in mind that midscale product is a people experience,” he said.
*Correction 10 May 2017: A previous version of this story did not fully identify the brand name.