By Kathi Everden
With seemingly unlimited coastline igniting developer frenzy, Egypt is booming as an investment market
If the global recession caused a dent in Egypt’s tourism revenues and numbers, the rebound is set to be spectacular — with predictions of a 14 million arrival total for 2010 now seeming realistic, given a first quarter result up 29% to 3.46 million for visitor numbers. At the same time, income is increasing, reaching US $2.7 billion — a 24% boost over 2009.
And, while arrivals last year dropped 2.3% at 12.5 million, the shortfall due to the crisis was smaller than anticipated, according to Amr El Ezabi, chairman of the Egyptian Tourism Authority (ETA).
“The decrease in visitors and income for 2009 was just 2.3%, which was a relatively good result,” he said. “2010 is shaping up to be excellent and we estimate around an 18% increase in numbers.”
Certainly, city hotels suffered a fall-back as corporate business slowed, but the leisure element benefited from Egypt’s reputation as a ‘value for money’ destination, appealing to a predominantly European audience looking for short-haul, budget sunshine.
More good news is general economic performance, with IMF figures suggesting the Egyptian economy grew 4.7% last year, and anticipating a 5.3% increase in 2010, rising to 6% in 2011.
Altogether, these positive numbers mean the slowdown on project development has to a degree been reversed, and new resorts, room numbers and infrastructure expansion are back on track to cater to the long-term goal of 16 million visitors by 2014, and 25 million in 2020.
“This year we expect to add 20,000 new rooms,” specified El Ezabi. “Government investment is going ahead too — we have nearly doubled our airport facilities in five years and have new terminals under development at Cairo, Hurghada and Sharm-El-Sheikh, while capacity is being increased at Taba. Aswan and Luxor have been totally refurbished and now we have three international airports on the north coast too.”
On the soft sell, he said marketing has been stepped up to both position Egypt as a multi-faceted destination and to introduce new resorts and opportunities to existing and potential markets.
“It showcases the diverse range of products we offer, while also creating awareness of new beach resort cities on the Red Sea such as Port Ghalib, Marsa Alam, El Gouna, Soma Bay and Sahl Hasheesh, as well as Eqypt’s upcoming attractions such as Marina El Alamein, Porto Marina and Marsa Matrouh on the Mediterranean.”
For investors, the rapid maturing and diversity of the market represent two factors that appeal, particularly for operators who can bring in new products to capitalise on a wider audience that now includes a booming domestic market.
According to Vanguelis Panayotis, director of development, MKG Hospitality, those that were about to develop at the beginning of the crisis held off, particularly on projects involving foreign investment, but the situation has its upside.
“This was not a bad thing for Egypt as it allowed the country to slow down, consolidate and re-strategise, avoiding a bubble burst,” he said.
“It is now seeing steady improvement in economic activity, developments are starting to pick up pace again, and the latter part of 2011 should be more promising following better global recovery.”
He cautioned against a wholesale return to development, citing market conditions that necessitated careful analysis before commitment to some of the new projects: “Some parts of the Red Sea appear to be saturated, although still prove to achieve results but maybe not as fast as previously — and while the North Coast offers something new and can attract a good share of the domestic and intra-regional market, it is very seasonal, posing challenges to achieve a sustainable product.”
Other areas Panayotis tick-marked with potential include emerging outer city areas of Cairo and Alexandria — with their relatively low land prices — plus secondary cities like Port Said, Suez, Damietta, Tanta and Mansoura, where budget brands could succeed.
It’s a view echoed by Peter Goddard, managing director of TRI Hospitality Consulting, who said more four-star hotels in Cairo and Heliopolis were needed: “Other opportunities include boutique hotels and resorts in key tourist destinations across Egypt.”
And, while it is acknowledged that the government is assisting with loan facilities for projects in the tourism sector and that the framework for investment and government support has improved, Goddard stressed that more needed to be done.
“There is a lack of transparency, which is an essential condition for smooth transactions — this combined with the fact that the government is often perceived to be bureaucratic and inefficient also has a negative effect on existing and potential investors.”
New on the horizon
As the macro picture sharpens up, the micro environment also sees improvement with STR Global reporting occupancy up 8.9%, ADR increasing 5.3% and revPAR rocketing 14.7% in results YTD up to August 2010.
MKG Hospitality’s HotelCompSet benchmark reveals similar results, with occupancy levels reaching 76% and revPAR cresting at US $62.
“These results would also have been higher if not for a decrease in August brought about by an early Ramadan,” Panayotis qualified.
Typical of the rebound is Taba Heights Marriott where general manager Jan Heesbeen said the hotel was ahead of budget and last year’s figures.
“We look as if we will be back to 2008 levels for occupancy, which was a fantastic year and rates are stable — while there will always be some sort of rate war, Taba Heights is holding its own,” he said.
“With new resorts coming in, there may be another shake-up by mid-2011 after which we hope things will stabilise.”
For the moment, the key figure of $62 revPAR emphasises the disparity of the hotel sector where mass market, often unbranded, hotels in areas such as Sharm-El-Sheikh and Hurghada dump rates to achieve numbers, fostering the country’s image as a budget bucket brand.
According to Claude Chesnais, managing director hotels for Orascom Development, even premium hotels are losing out.
“Five-star hotels are being sold at four-star prices, and at times of crisis, many Egyptian owners traded the need for cash against cheap rates. International management companies tried sticking to normal rates, but the market was and still is difficult ... although it is improving marginally,” observed Chesnais.
However, this scenario is set for a sea-change with key names potentially ushering in a new era of upmarket luxury resorts.
“The destiny of Egypt is as a destination for all kinds of tourism, including both luxury and budget travel,” said ETA’s El Ezabi. “Originally we were taking market share from Spain and Greece but this was not yield business — now the product is gradually being differentiated with several high end names such as Four Seasons and Ritz-Carlton pushing up the rate, but still achieving 75% occupancy.”
“We are also looking at niche markets such as golf and spa and wellness — where we are seeking partnerships with the private sector to push investment in these directions, and in fact have a pilot project for a certified spa hotel in Hurghada, which will be the first of many.”
Meanwhile, the past 18 months have seen a swathe of contract announcements as many international groups tap in to the potential offered up by Egypt across the various sectors.
Jumeirah, Angsana, Four Seasons, Rocco Forte Collection, Address, Armani, Taj and Nikki Beach are among names expanding in the country (see upcoming properties chart), and according to Sary Arab, regional COO for Nikki Beach Hotels & Resorts, the injection of such brands into the country will serve to bring in new markets as well as moulding a different image.
“The Hacienda Bay-Nikki Beach partnership will give guests a one-of-a-kind experience and will place the development along with the ranks of top class resorts in Sardinia, Marbella and St Tropez — never before has this type of boundless luxury and opulence been offered in Egypt,” he said.
The 125-room resort and Beach Club, with 100 residences, is expected to attract Nikki Beach regular clientele, who, Arab explained, were constantly on the lookout for new locations.
“A lifestyle hotel offering luxury accommodation, glamorous design and high end entertainment will set the stage for the arrival of a new customer profile to Egypt, and the Mediterranean coast specifically.”
Other boutique ventures include the Louis Vuitton/Orascom partnership, Cheval Blanc, which will deliver a 44-villa resort located on a private island in the Nile at Aswan by 2012.
“There is a gap in the market for premium hotels, especially of the small designer type,” said Orascom’s Chesnais. “We are also finalising La Maison Bleu at El Gouna which will have just 10 suites, and be super luxurious.”
Another project at El Fayoum will be a 62-key hunting lodge, which is aimed at the local market, while Orascom also aims to tap into the market for budget brands, tying in with Rotana in order to roll out its Centro brand in various city locations, he added.
The multi-brand strategy is a theme which can be seen across all hotel developers with Hilton, for example, identifying numerous opportunities for expansion.
“I believe we have just scratched the surface as there is immense potential across various sectors including budget, business, meetings and events, wellness and even adventure,” said regional senior director of development, Carlos Khneisser. “Its versatility appeals to all our brands from mid-market Hilton Garden Inn to the luxury Waldorf Astoria.”
Starwood too is looking at varied brand expansion, claimed regional VP acquisitions and development, Neil George: “Aloft offers great possibilities in rate-sensitive markets such as Egypt, while Cairo is a vibrant international city with a penchant for nightlife, making it an ideal W market — Marsa Matruh presents growth opportunities and Alexandria remains a market with great potential too.”
For IHG, CityStars in Cairo and Port Ghalib are two of its cornerstone projects, but regional VP commercial, Tom Rowntree, said the group was focusing on midscale. “We see growth in midscale due to the young population of the region, shift in buying behaviour and advent of low cost carriers,” he said.
“Holiday Inn is a great fit for the beach too, and I think there is space in the market for both branded and unbranded properties there. We also see potential to expand Staybridge Suites into Cairo’s sub cities.”
Another success story has been the integrated resort at Port Ghalib, where IHG is seeing movement in the meeting and events market: “This year we have had sizeable groups from Europe as well as domestic meetings and we expect this to increase, while dual destination bookings with our properties in Cairo are also on the rise.”
Meanwhile, refurbishment of its showcase Cairo Marriott has helped keep that group in play, given the influx of premium rooms in the capital, while a new resort at Sahl Hasheesh — the renovated Old Palace — adds a further flag in the market, said regional director of sales and marketing, Jeff Strachan.
“We would expect to see Courtyard by Marriott growth in Cairo, plus potential for the Marriott Executive Apartments brand,” he said.
More exposure for Rezidor brands is expected too, according to VP business development, Elie Younes who raised expectations of new Radisson Blu and Park Inn by Radisson properties in the Red Sea in the near future.
“We are also looking to extend our presence in Cairo city centre and introduce both Park Inn by Radisson and our lifestyle brand, Hotel Missoni to the market.”
The wish-list for Mövenpick includes a Cairo city centre location plus a resort in Sharm-El-Sheikh as a priority, said SVP Africa, Roger Kacou, who added that the group had recently consolidated its presence in the country to improve standards and provide upscale facilities.
“One example is our new Royal Garden Suites at the Aswan hotel, we have had a room refurbishment at El Gouna and our new Abu Soma resort opening next year will set a trend for a resort mixed with business, in hardware and services.”
Meanwhile, aiming for another market and emphasising the revival of the classic luxury Egypt culture product, often overlooked in the dash for the beach, Sofitel is rebranding and upgrading two of its icon hotels as Legends — the Old Cataract in Aswan and the Winter Palace in Luxor — while the Shepheard in Cairo is undergoing the Rocco Forte treatment at its location on the Nile, and Oberoi is considering extending its premium cruise product, perhaps on Lake Nasser.
“The success of products such as the Oberoi Zahra Nile cruise ship and resorts like the Oberoi Sahl Hasheesh has encouraged luxury tour operators to promote Egypt and long term, small luxury hotels will re-establish Egypt’s position in this market,” said sales and marketing director, Atef Goubran.
Topping off the push into luxury are Four Seasons and Ritz-Carlton, with the former set to move in to El Gouna and Luxor with new resorts, said regional director of marketing, Cesar Rouchdy: “To round up the full experience in Upper Egypt, we also would need to have a ship on the Nile,” he commented.
Four Seasons can be credited with changing perceptions of the five-star market in Egypt with its four-strong network, and Rouchdy emphasised the need for quality accommodation at resort level as well in the cities.
“Our estimated leisure/business split is 80/20, varying between a 70/30 divide in Cairo and 90/10 in Sharm-El-Sheikh, while Alexandria is equally split at 50/50.”
The premium sector also benefits from more diverse source markets, with Four Seasons attracting US, European, regional and Asian clientele, he added.
Equally international, Ritz-Carlton is set to debut in Cairo in 2012 with the Palm Hills golf resort and city centre properties, and area vice president Pascal Duchaffour said the group was speaking to developers to manage hotels in destinations such as Alexandria and Marassi.
“Cultural tourism is on the upswing and a Nile cruise ship could be a possibility, while Cairo, and Egypt in general, will always be a draw for tourists and business travellers,” he concluded.