EMEA’s Next Generation
Moscow is today’s must-have destination. What’s next? Chains are shopping new markets from Durban to Dakar.
By Mary Scoviak, Contributing Editor -- HOTELS Magazine, 2/1/2007
In Europe, the Middle East and Africa (EMEA), the RevPAR-rich Old Guard will see another good year in 2007. Their appeal is as strong as ever for both travelers and developers. But, they are not the only targets. New markets, new travel options and new affluence are creating new opportunities for emerging markets throughout the region.
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London and Paris are never off the performance or development maps. Consultants expect them to continue to vie for Europe's rate leadership as they did in 2006.Not Just London, Paris
Even without the Olympics, London remains one of Europe's most sought-after development destinations. Paris' dramatic run for the rate championship in Europe in 2006 galvanized its appeal as well. Still, changing demographics and immovable barriers to entry have chains looking for other European deals while they wait for the right opportunity in Western Europe's two key gateways.
Stefan Flury, senior vice president, Europe, Mövenpick Hotels & Resorts, Adliswil, Switzerland, predicts that development activity will continue to move eastward. "To start, it will continue to be capital cities in Eastern Europe, Russia and the Commonwealth of Independent States (CIS). But we also will see companies like ours pursuing development in secondary cities in Russia and the CIS because of their vast populations and economic potential," he says.
Even in Western Europe secondary cities are becoming the option of choice. "Real estate prices are more attractive, so companies can strike more attractive deals," Flury adds. The "West" no longer means just the usual players. Flury forecasts heightened activity along the shores of the Adriatic as well as the Mediterranean and Atlantic coasts.
Even with a decline in tourism arrivals, Moscow posted RevPAR gains of 20%-plus in its peak periods in 2006. The fact that more than 1,000 hotel rooms will leave the system through conversion to other uses can only put more pressure on rate. "Moscow cannot build occupancy. It is all about rate. Now, when you can get a room determines when you go to Moscow," says Martin Rinck, chief development officer, the Rezidor Hotel Group, Brussels. Demand is spilling over not only to St. Petersburg, but also to a range of key population centers from Yekaterinburg, Rostov-on-Don and Kazan, Russia, to Kiev in the Ukraine. Whatever the numbers, they do not work for every concept-at least not yet.
 Increased arrivals from lowcost airlines and an improving business climate make Central European cities such as Budapest key targets. Watch for the next generation of hotels to up the ante with offers such as Corinthia Grand Royal Budapest's new residential component. |
Others worry about timing. "There has been a lot of build-up in Moscow. We would want to see that demand mature before we went in," says Stephen Giblin, chief operating officer, Dolce International, a conference center specialist based in Montvale, New Jersey.
Philippe Attia, Dolce's Paris-based managing director, senior vice president (operations) Europe, sees more near-term appeal for cities such as Budapest and Prague. "They will continue to have interesting growth. They attract the leisure and weekend business, but they are becoming attractive to conference organizers looking for new markets as well," he says. New European Union (EU) entrants Bulgaria and Romania could be next generation targets. "Tourism in the Eastern Bloc will increase as more low-cost carriers fly into the region," says Jan Tissera, president, TravelCLICK International, Barcelona.
But not every market is a must-have, according to David Munn, group finance director, Rocco Forte Hotels, London. "We are looking hard at Eastern Europe, and we are running our slide rule over other former Eastern Bloc countries. But, we are not rushing in. We want to make sure the destinations can support rate. It is not yet clear whether all of the countries joining the EU will benefit equally," he says. Non-EU members "closely linked" to the former Soviet Union are also under study. Expanding privatization programs make countries like Ukraine "quite attractive," Munn says.
In the West, Lisbon may be one of the cities to watch. "It is an emerging city for business, and it has many cultural attractions," Attia says. Spain has not lost its appeal. Madrid and Barcelona should be in for good RevPAR performance this year, says Karl Anton Schattmaier, CEO, Steigenberger Hotels AG, Frankfurt/Main, Germany. Further development will follow-not only in these key cities but also along the Mediterranean and on the island of Mallorca.
It is difficult to see a mature market such as Germany as an up and comer, but that may be the case. Unemployment is down and GDP growth could be dramatic again this year. Although the country will not have the World Cup to buoy performance, an economy that "is finally out of first gear" could stimulate further development interest in cities such as Frankfurt and Hamburg.
 With more rooms leaving inventory, the performance outlook continues to shine for Moscow hotels such as the Ritz-Carlton. Watch for chains to vie for more outbound Russian business by adding staff members fluent in Russian and providing tasteof- home meals and amenities. |
Changing travel patterns are opening up broader development opportunities within Europe. Munn forecasts more aggressive growth in the luxury travel sector as corporate profitability improves and travel restrictions are eased. "There is a new willingness amongst our guests to mix and match travel experiences. They do not think twice about flying a low-cost airline and staying in a 5-star hotel," he says. Nor will the "flight to quality" end anytime soon, Munn says. "The emphasis on a quality hotel experience means 2007 can focus on driving rate."
Tissera foresees the best performance prospects in the luxury sector for hotels in Dubai, London, Moscow, Paris and St. Petersburg. "For mid-priced hotels, it will be best in Spain and the emerging Eastern European countries," he adds.
Beyond Dubai
Dubai dominates any discussion of development and performance in the Middle East, much like China overshadows the rest of Asia. But, as in Asia, other countries are learning by example. "It would be hard for any country to come on with the development pace of Dubai. It has the capital, and it has the marketing money. There are posters for Dubai in every airport in the world. What we will see are other countries that follow Dubai's example, but play in two or three niche markets," says Andrew Cosslett, chief executive, InterContinental Hotels Group (IHG), London. Among the key players to watch are Oman and Qatar. Unlike Dubai, which continues to expand its offer, these dynamic, younger markets are specializing in sectors that set them apart. Oman is merchandising its growing number of galleries, museums and cultural attractions as well as its diving, photography, sporting and trekking activities. Qatar is diversifying beyond its business base to lure travelers with amenities from its beaches and an "entertainment city" to glittering shopping malls. "Oman and Doha/Qatar have similar dynamics but different approaches. While Oman develops its market with caution, keeping traditional cultural aspects in mind, Doha/Qatar follows a path that is similar to Dubai's," says Christian Fiederer, vice president, EMEA, WORLDHOTELS.
 The World Cup put Germany in the spotlight, driving up occupancy and RevPAR. New hotels such as Rocco Forte Hotel's Hotel de Rome in Berlin (l.) hope to catch the initial wave of what many believe is the early stage of a longer term German recovery. |
Increased airlift and an attractive climate for business are fueling development activity through the region. Global Hyatt Corp. sees "a stronger focus on up-market/luxury" demographics and improving infrastructure that could justify new flags in Abu Dhabi, Doha, Kuwait, Jeddah, Riyadh and Beirut. Rezidor is weighing deals throughout the region. Having taken over a hotel in Dubai, the Brussels-based chain is shopping opportunities from Iran to Israel and Jordan. "Key cities in these countries have a long-term future. We are looking past 'now' to the point at which they will recover," Rinck says.
Israel, like Lebanon, is a country that stands at a crossroads. "When people watch CNN or Sky, they only see what is happening in Gaza. Israel has to overcome the perception that the entire country is a war zone," says Eli Gonen, the Tel Aviv-based president and CEO, Sheraton Israel and president of the Israeli Hotel Association. The tourism ministry recently commissioned a study by Ernst & Young to find a way to accomplish that. "We need more hotels, and we need more of the existing hotels to renovate. We also need to have the government approve the Ministry of Tourism's recommendations for a more aggressive marketing campaign," Gonen says.
The opening of Four Seasons in Jerusalem should help boost visibility, he says. It also signals what Gonen believes is the right market positioning for Israel. "The average visitor spends US$1,200 per visit. In my view, this market is about having fewer visitors who spend more. The exception is the potential for conference business. In 1997, Jerusalem was the fifth choice in the world for conferences. Now, it is probably near the bottom. However, if we can build up confidence that this is a 'regular' country, we can market to organizers looking for new destinations," he says.
Damage control marketing is going to have to be part of the picture for most countries in the region that want a larger piece of the development pie. Egypt's resilience shows it can be done. Nations such as Lebanon will have to prove they can follow suit. "Lebanon was close to re-emerging just four to six months ago. It had two high-quality hotels coming on line until the outbreak of civil disturbances. It is so sad that Lebanon was not allowed to re-introduce itself to the world market," says Paul McManus, CEO, The Leading Hotels of the World.
 Middle Eastern development is moving beyond Dubai to Oman, Abu Dhabi, Qatar and Saudi Arabia. The theme still focuses on 5-star properties, such as Saudi Arabia's Hilton Qasr Al Sharq (l.). |
Is It Africa's Turn?
Africa beyond North and South Africa may just be a blip on the development radar, but it is showing up. "Not just South Africa, but Africa as a whole is entering a new phase of potential development opportunities, with Nigeria leading the way," says Gebhard Rainer, Global Hyatt Corp.'s senior vice president, divisional office, Europe, Middle East, Africa, Lausanne. Tapping this natural gas/petroleum producer's upside will not be easy, as recent incidents along Nigeria's pipelines prove. Charges of corruption linger, as do problems. However, as in other risk-adjusted emerging markets, Nigeria's importance as the world's eighth largest petroleum exporter and Africa's eighth most popular tourist destination is working to tip the risk/reward ratio. "The opportunities in countries such as Nigeria indicate important milestones for emerging markets in Africa," Fiederer adds.
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Initial plays in Nigeria will be 4- to 5-star, managed hotels targeting corporate business. Lagos is an obvious priority. But, Rinck says, brand activity will not stop there. "A city such as Port Harcourt could cope with a Radisson. At this point, Abuja is more likely to support a Park Inn. True, political stability is an issue. People ask, 'Aren't you afraid to go there?' We went into Kuwait when it was not all that stable. Now, it is our best performing hotel in the region," Rinck says.
Rezidor is developing a hotel in Dakar. Hotel companies such as Corinthia are following business further into the continent. "There is a continued need for top hotels in Togo, Gambia and Sudan," says Tony Potter, Corinthia's new CEO. Rinck is looking to Dakar, a capital which benefits from Senegal's reputation as a peaceful state and the limelight of being an end of the much publicized Lisbon to Dakar motor race. The Ivory Coast will be on Rezidor's radar "when it settles down a bit." Development in these countries will be strictly corporate demand-driven in the near term.
The second wave should see a new generation of high-end resorts. "Leisure travel certainly will open up new opportunities, specifically in the luxury segment where new and exotic destinations are much in demand. These opportunities will have to be screened carefully in order to provide the service, support, integrity and transparency necessary for an international chain," Rainer says. Although North and South Africa will be the primary beneficiaries, the success of brands such as Kempinski in Tanzania and Madagascar point to a new menu of choices for operators looking to provide one-of-a-kind leisure experiences. Luxury operators also may be looking to develop exclusive retreats around Nigeria's game reserves, waterfalls, wildlife parks and beaches.
New markets are emerging even in star locations such as North Africa and South Africa. With business returning to Libya, Corinthia is adding to its luxury portfolio in Tripoli and is close to signing a deal in Algeria. Tunisia is on its list of targets. Longer term, Potter forecasts more resort development on the Libyan coast. In South Africa, skyrocketing land prices in Cape Town are pushing development to Port Elizabeth, one of South Africa's major ports, and Durban, which is expanding its convention center and adding a business park.
 A diversified economy and improved infrastructure should mean another strong performance year for South African hotels such as Leading Hotels of the World member Saxon. |
Any new market that hopes to rival South Africa's success will have to forge the same multifaceted appeal. "South Africa is an old European culture with mature industries. It has a wine industry, good roads, sophisticated people. It is not a created atmosphere," McManus says. Nor is any nation a "deep" market at this point. Development of game lodges in South Africa is slowing down (or stopping), says Colin Grimsell, director, Hotel Performance Consultants, Rivonia. "Small game lodges regularly appear on auctions, and estate agents brochures," he says. What works are concepts that can be differentiated, such as luxury tented camps. Selling uniqueness will be critical for African countries that want a fair share of the long-haul, high-end travel market.
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