Hotel ownership in Indian Ocean markets is changing, even including the steady entry of institutional capital, but investors are looking for quality assets at every price point.
ABU DHABI, United Arab Emirates—As Middle Eastern and Indian Ocean resort and leisure markets mature, the investment landscape is becoming more diverse, but the guiding principle for hotels in markets such as The Maldives, Oman and Mauritius remains the same—a focus on quality.
At the recent Gulf & Indian Ocean Hotel Investors’ Summit during a session titled “Changing investment opportunities as resort and leisure markets mature,” panelists agreed that to lose quality is a one-way ticket to a race to the bottom.
“We concentrate on premium as the mass will follow that,” said Zoltan Kali, SVP of assets and fund management of Oman-based Omran Hospitality, which he said weighs its own commercial aspects against the infrastructure and tourism plans of its principal owner, the Omani government.
Omran has a portfolio of approximately 25 hotels and 3,800 keys that spans the segments, Kali said.
Ghaly Murthala, founder and managing director of Morteza Capital, said the mass-market appeal of destinations such as The Maldives can be absorbed within a quality portfolio.
Marketing needs to be tweaked for new generations, but the quality doesn’t have to be, panelists said.
“(Mauritius) used to have the same room rates as The Maldives, but they decreased,” said David Anderson, CEO of Mauritius-based owner Sun Limited, which has four resorts in Mauritius but also one in The Maldives. “Now, though, they have started to go up, and our own remit is to grow rates quite rapidly, but we need to adapt for millennials and understand behavioral changes. I see nothing yet that is worrying, but one challenge definitely is that 70% of guests come by air through tour operators, which are hard to persuade to up rates.”
Kali warned against cutting prices too heavily.
“That these destinations can be price-prohibitive is part of their appeal,” Kali said. “As (markets) mature, we will be more flexible, but, again, those who got it right concentrated first on quality. The perception is that The Maldives is a trophy, while Oman is a hidden gem. So be smart to capitalize on this in your marketing.”
Morteza’s Murthala said supply growth isn’t a concern in the region.
“There will come more supply (in the area), but it will be more gradual than people think,” he said.
Sun Limited is publicly listed, while Omran has government funding, commercial debt financing and equity partners, including institutional investors, which Murthala said are increasing in number in their markets.
“There is a change of investment guard happening,” Murthala said. “It used to be local families but now we, too, see more institutional investors.”
Kali said hotel brands are not such a significant factor in his country, and perhaps, for now, the same goes for other resort markets.
“Oman might be considered first, the brand second, but we look at that case by case, and we’ve worked with brands that were not particularly known when we first signed them,” he said.
Kali said that some of these brands initially did not look at Oman as a resort destination.
“If we’d started with our own brand, we probably would have ended up at the same place,” Kali said.
But some international brands have found their footing in the region.
“Four Seasons has the highest (average daily rate) in Mauritius, but its location is a challenge and it had to transform it into a place people wanted to go into,” Anderson said. “Family owners always have the best locations.”
Murthala said brands have their place.
“Branding can become more important as you go up the ladder, and it remains more attractive when it comes to exits and acquisitions,” Murthala said.
The consensus is that hoteliers need to have a good backbone and infrastructure to attract their target clientele, which naturally is harder for new independents who have to do everything from scratch.
“Cycles in emerging markets are probably a little shorter, and any upswing is due to having a longer-term vision,” Kali said. “In regards to real estate, now we are somewhere near the top.”
Anderson said Mauritius is doing well right now, too.
“Mauritius never had such a strong performance,” he said. “Supply is very limited, and no more coastal locations with beaches in the true sense are left.”
Anderson added he is also bullish about trading in The Maldives.
“What is interesting there is the new supply,” he said. “Since 2016 there have been 10 new resorts every year, so we are hoping there will not be a cycle as there is big money there.”
Length of stay is also a factor.
“Families stay (in The Maldives) for an average of 2.5 weeks, which does not happen elsewhere,” Anderson said. “Yes, we are seeing a drop in Asians, but, still, I feel very bullish, and the airport will soon be able to process 7 million passengers, up from the current 1.5 million.”
Murthala said The Maldives has seen a little volatility in terms of valuations.
“They are all over the place at the moment, but there do exist some per-key costs of $4 million,” he said.
Murthala added that inventory in The Maldives has had limited success for one major reason—air transportation between Malé and the islands, where the resorts are located, is still priced at luxury levels.
Anderson said in Mauritius hoteliers always want the government’s ear in regards to airlift.
“We’re vocal with government regarding airlift, so that owners can be comfortable in maintaining standards,” Anderson said.