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An invested interest
Jones Lang LaSalle Hotels chief executive Arthur de Haast discusses the region’s lack of options for foreign hotel investors and why greater transparency is essential for the sector to progress.
Who is investing in the Middle East's 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 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 next wave of investment is likely to be drawn from markets such as Turkey, Russia, the CIS, and the Indian subcontinent. 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.
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 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. Having said that, you're seeing new markets emerging in the Indian subcontinent, China and so on, but whether that picks up the slack quickly enough if there is a slow-down from Europe is debatable.
How do you think investment trends for the region will progress?
It's an exciting region; there's a lot happening here and there's some high quality real estate being developed. I think we know from the activity we're involved in and the people we're talking to that there's a lot of interest in the region from investors.
Now for investment to take place, a number of factors need to be in place: firstly you've got to have investment product. At the moment, most of the developers are holding on to their assets.
Secondly, as off-shore investors coming into the market, people obviously need to be comfortable with the legal framework, title of property and all those aspects, bringing capital in, taking capital out, remitting it back out, remitting your profits out and so on.
But this region is pretty open in that regard, so I don't think that's an issue. The third thing is around transparency; at the moment, because there's a lack of actual activity because there's no product in the market, people don't really know what the prices are.
They know what it costs to build and they can see residential prices, which cover one market that has had transparency and liquidity. But regarding actually having benchmarks of hotels that have sold and for what price, there's very little evidence.
There's a lack of transparency, not because I think people are trying to cover it up, it's just there's no evidence of transactions happening, so until an investment market develops we won't really know where the pricing lies.
How is Jones Lang LaSalle positioned in the MENA region right now?
We've got a strong team based here in Dubai, which currently covers the whole region; as a firm we are now expanding into both Abu Dhabi and Saudi Arabia, those are the two immediate target markets; then the next step will be to look at North Africa, and the most likely locations for future growth would probably be in Egypt, just because of the sheer scale of the market there.
We're excited about fast-growing markets here, but you forget that Egypt has a huge tourism infrastructure and there's quite a lot of investment activity there.
And one of the North African countries, perhaps Morocco or Tunisia, places where they've got a good tourism infrastructure and a lot of inward investment.
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