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DLA Piper report

Middle Eastern and North African hoteliers look to the UK for growth

In a report released on 2nd May 2010 by international law firm DLA Piper on the first day of the 2010 Arabian Hotel Investment Conference (AHIC) in Dubai, it is revealed that the UK has been identified as a key target for investment opportunities by hotel financiers in the Middle East and North Africa (MENA) region. This follows a difficult year, when average room rates in the region were discounted by up to 60%…

In a report released on 2nd May 2010 by international law firm DLA Piper on the first day of the 2010 Arabian Hotel Investment Conference (AHIC) in Dubai, it is revealed that the UK has been identified as a key target for investment opportunities by hotel financiers in the Middle East and North Africa (MENA) region. This follows a difficult year, when average room rates in the region were discounted by up to 60%.

The survey of hoteliers in the MENA region was commissioned by DLA Piper’s international Hospitality & Leisure Sector Group and explored the issues and challenges facing the sector as the economic landscape heads into recovery. The survey found that more than three quarters (76%) of the region’s respondents feels ‘bullish’ about the year ahead, with the majority seeking wider investment and development opportunities in the wake of the global recession.

While the region’s optimism is clear, respondents were quick to temper it with an element of conservatism, with 82% predicting that sustained recovery is unlikely before the end of 2012. This same cautious sentiment was first exposed by the DLA Piper European survey report earlier this year, in which only 2% of European industry leaders predicted sustained upturn before 2011.

Looking forward to the next three years however, hospitality industry leaders across the MENA region are overwhelmingly positive, particularly in terms of increased investment opportunities. While it is anticipated that the European hospitality sector will look towards China and India as areas for growth, DLA Piper’s MENA report highlights that both the UK and North Africa are hotspots for business growth, closely following the Middle East itself where respondents believe the best opportunities are on offer.  The majority of respondents (91%) predicted that large hotel chains would increase their market share in 2010, with 63% asserting that the budget and mid-market sectors represented the most attractive opportunity for investors.

The majority of respondents (91%) also envisage that there will be increased opportunity for joint ventures in the hospitality sector in the region.

Karen Friebe, Global Co-Chair, Hospitality & Leisure Group at DLA Piper said: “It is extremely interesting that, as the MENA hospitality sector enters the early stages of an upturn, there is a keen and strong interest in exploring the opportunities on offer through potential joint ventures.  Opportunistic investors will be keen to capitalise on the variety of growth options that joint ventures pose; access to greater capital, capacity, expertise and general reach.  They are also a way of sharing risks with a venture partner, which a cautious investor will appreciate.”

The report also studies the impact of the economic downturn on the Middle East and North Africa hospitality sector.

While tourism has acted as a driver for economic growth in the MENA region over the last decade, room rates appear to have been hit hardest by the financial crisis. 87% of respondents cited this as having the single most significant impact on their business, compared to 45% of European industry leaders who were asked the same question earlier this year. Statistics now show that discounts during 2009 were as much as between 40 and 60%.

Karen Friebe commented on these findings: "Naturally, we saw, and continue to see, consumers taking advantage of the economic situation to secure a better deal, and never before have they had more choice across a wide range of sectors, from budget to luxury. However, pricing packages need to continue to be innovative and geographic location will become increasingly important in this challenging and competitive environment. Hotels with prime locations will be able to be more price resistant, as having the right brand in the right location remains vital for medium to long term success, for owner and operator alike.”

Karen Friebe is advising her clients in the sector to remain optimistic yet cautious in the coming year: “One thing is apparent – the road ahead will remain bumpy for the short term to medium and there are likely to be further changes to the hospitality landscape in the region. Continuous assessment of business plans should remain a top priority, in order to identify and capitalise on potential opportunities that the current market has to offer. Surviving, adapting and overcoming the difficulties presented by the global recession are key watchwords for 2010.”

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