Israel needs investment to keep up with tourism boom
Israel needs investment to keep up with tourism boom
04 DECEMBER 2019 9:19 AM

Hoteliers in Israel and abroad are excited about the country becoming more appealing to tourists. But with the rise in demand, sources said there’s not enough infrastructure to support it and more hotel rooms are needed.

GLOBAL REPORT—From business to leisure to religious tourism, Israel’s market is on the rise, and hoteliers are excited. However, there’s still some catch up needed when it comes to room supply, according to sources.

Leon Avigad, founder and CEO of Leopard Hospitality and founder and co-owner of Tel-Aviv based boutique collection Brown Hotels, had one word for Israel’s tourism: Booming.

Over the last few years, tourism in Israel has changed drastically and incoming tourism has grown as the market has stabilized and security has improved, said Lior Raviv, CEO of Israeli hotel chain Isrotel. He added that occupancies have gone up significantly and hotel development is beginning to increase.

“The ratio of the growth of tourists is bigger than, for now, the ratio of the growth of hotel rooms,” he said. (There) definitely is a need for more hotel rooms.”

Jill Daly, *director of the Midwest region for the Israel Ministry of Tourism, said the demand for hotels is there, “now we’re just having to be able to supply it.”

According to year-to-date data as of October from STR, parent company of Hotel News Now, occupancy in Israel increased 4.2% to 72.3% year over year. Average daily rate grew 7.8% to 860.66 Israeli new shekel ($249.68) and revenue per available room grew 12.4% to 622.28 new shekel ($180.52).

Israel at a glance
Daly said growth in the market has been amazing.

“We’ve seen a huge increase, and it’s year after year after year,” she said. “I think the most significant, that kind of paints the picture, is from 2016 to 2018 it’s been a 42% increase in incoming tourists.”

The top market share comes from the U.S., making up 20% of the 1 million incoming tourists in 2018, she said, adding that the airline industry is investing more in terms of additional lift to Israel. In January 2019, Israel opened a new international airport in Eilat, with routes from many European carriers.

Israel’s economy is growing between 3% and 5% per year, Raviv said, and it is expected to remain strong. He said Israel should have the capacity for 10 million tourists, but there’s a need for more infrastructure to support that. He added that he doesn’t see Israel getting to a point of oversaturation.

Jerusalem mainly leans on the American market while northern Israel relies on local tourism, he added. During the winter, he said there is a large amount of European tourists. He hopes to earn more market share from Chinese and Russian travelers.

“I believe that there is a serious potential in those two markets … the minister of tourism could do a lot more,” he said.

Raviv said markets are beginning to diversify. For example, Tel Aviv was well known for beachfront hotels, and now development is moving into neighborhoods and the city’s center. In Tel Aviv alone, there are around 7,000 hotels, he said.

In three years, he anticipates that number will double.

In addition to hotel rooms, he said Tel Aviv has around 15,000 rooms or apartments that are listed with Airbnb.

“Airbnb has risen so much in Israel, and because of the lack of hotel rooms … those hotels are relatively expensive,” he said. “I believe the more hotels that are going to be open and the more regulation that is going to be set on Airbnb, the number of Airbnb rooms will be reduced and the number of hotels will go up.”

He said Isrotel currently operates 20 hotels in Israel, has eight under construction in Tel Aviv and a number of openings to come. He anticipates his company will have a total of 30 hotels in about four years.

The Beresheet Hotel is one of Isrotel’s properties, located in Mitzpe Ramon, Israel, within the scenic Negev Desert. (Photo: Isrotel)

Avigad said tourism in Israel is at an interesting time and there are several international brands entering with “huge national exposure,” and he thinks there needs to be more of that.

He credits it to the “cool vibe” that Jerusalem has along with a strong, steady flow for creativity. He said the economy is robust right now and the current geopolitical landscape is helping to bring tourists.

He’s seeing more push from travelers wanting to take day trips, hopping from the Galilee to Jerusalem to the Dead Sea.

Brown Hotels recently acquired four Tel Aviv properties by the Zvieli Group and will integrate those into Brown Hotels’ operations.

As of October 2019, STR data shows there are 51,747 existing hotel rooms in Israel. A total of 4,084 rooms are in construction and 2,706 in the final planning stage.

Investor appetite
Daly said investors are seeing the value of hotels increase, and appetite is from both domestic and foreign investors.

“(We’re) seeing other hotel chains that are entering the market into Israel that have not been before,” she said, referencing Kempinski Hotels as one example. “It’s a new opportunity for new investors that are coming, but then there’s the opportunity in terms of local, domestic investors as well.”

She said there’s some midscale hotels opening, but a majority of rooms and availability are in the luxury segment. In general, it’s a combination of new-builds, conversions and repositioning, she said.

*Correction, 4 December 2019: The story has been updated to correct a source’s title.

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