Having an invested interest

Jones Lang LaSalle Hotels chief executive Arthur de Haast looks at the region's hotel investment opportunities and explains why greater transparency is essential for the sector to progress.

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Who is investing in the Middle East hotel sector at the moment, and where?
The main players are from within the region, and within the region the UAE remains a significant source of capital, so not only are they investing significantly within the UAE but also right across the region - they are the major players. We don't see much change in that in the hotel sector for the foreseeable future.

Who are the other competitors?

I think at the moment it's very much a developer's market, so it's the developers who are investing to develop the product. Now some of those developers are going to reach a point over the next 12 to 24 months where they're going to think, ‘I've done my development, I want to sell out now and move onto my next project rather than be a long-term holder', although there will obviously also be developers who will hold assets for quite some time.

But at the moment one of the challenges regarding the investment market here is that there's actually very little investment market product; there's lots of development activity but very little investment product - i.e. completed hotels - on the market that investors could buy. So in a sense it's hard to know where the market's going, because without the availability of investment opportunities it's hard to know who is going to be a future investor.

But looking as we do at the global market and the trends in the market, I expect it will continue to be dominated by the region, so if investment product does come up for sale I think it will still be acquired by Gulf investors or North African investors.

I think the ripple will go out over time - I think the next wave of investment is likely to be drawn from markets such as Turkey, Russia, the CIS, and the Indian subcontinent. So do I see a lot of US investment coming in here? No, not in the near future.

Do I see Australians investing here? No, not in the near future. I think that the market will have to develop and evolve further, so the first wave of investment is likely to be from countries that are relatively close.

How do you see Africa's investment situation progressing?

I don't see Africa being a major player in terms of outbound investment; I think you're already seeing quite a presence in the market here from South Africa, from an operational perspective: you've got Southern Sun, Protea and so on operating here. So from an operational perspective they're definitely active - from an investment perspective, not so.

There's not a lot of capital in the sub-Saharan African continent that's likely to [come into the Middle East]; they've got a lot of opportunities in their own market, so I think they'll focus more on that for the time being.

North Africa I think is a little different; you've got some different dynamics there. Libya for example, has a strongly oil-based economy and therefore has investment capital available and indeed has been an investor in hotels in the past. So there are pockets of investment activity in the Northern African market.

But no, there won't be any major surge of investment from them in the near future, not in the way we're seeing coming out of the Gulf.

What future impact will the US ‘credit crunch' have on regional investment in hotels in the Middle East?

I don't think it's going to have an impact on the pace of development and the level of investment going into new developments in the region; most of that is being funded within the region, those investors are not dependent on a high-leverage model. I think a much bigger challenge for the region is the cost inflation, particularly with things like steel and construction materials, and the issue of labour, which is a challenge for both the hospitality and the construction industry.

I think that another area the region could suffer from is if there is a significant slow-down in demand. Although a high proportion of demand is from the region, this is still a market that is heavily dependent on the inbound traveller, particularly from Europe. And if there is a significant slow-down from the UK, Germany and so on, that could impact the demand side.

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