Ferzan Çelikkanat, general manager of Turkey-based hotel developer ER Yatirim, will participate in a panel on investment opportunities in the “troubled” Mediterranean markets of Turkey, North Africa and Egypt at the upcoming Mediterranean Resort & Hotel Real Estate Forum, Nov. 30-Dec. 2, at the Fairmont Rey Juan Carlos, in Barcelona.
Ahead of the conference, Çelikkanat discussed the state of hospitality investment in Turkey, pre- and post-coup attempt and subsequent to the Russian crisis (when Turkey downed a Russian jet), why Turkey remains attractive to investors in spite of the recent turmoil, and where the bulk of investment is coming from.
1. How would you describe the current state of hotel investment and development in Turkey?
Çelikkanat: There are two answers. The first is related to the period before the coup attempt on July 15 and the crisis between Turkey and Russia, and the other answer is related to subsequent events.
Turkey was in a productive period, especially Istanbul, before the Russia crisis and coup attempt. Despite the dangerous developments in the region, especially in Egypt, it has not experienced a contraction in demand. And with the disclosure of the third airport, in Arnavutköy, tourism investment in the region has increased.
Because of the high cost of land and limited land in the coastal area, small- and medium-sized hotels, especially in Anatolian cities, has made big progress. Rather than new builds, investments in the coastal areas have been conversions and renovations. With the competition of brands making investments parallel to tourism investments, new sub-brands were added to the market. When we look at the size and received incentives, we see that the size of investment is concentrated on medium- and small-scale plants.
However, the Russian crises and July 15 coup attempt brought caution to investors. Investments and investors took a wait-and-see approach, in this cautious period that we are in now. This is the reason why the geopolitical improvements in the following two or three quarters will provide more accurate data in order to be able to comment about investments in Turkey.
2. Given the recent turmoil that Turkey confronted—the coup d’état that was ultimately quelled—what are the ramifications on future hotel development and investment?
Çelikkanat: Turkey has always been a difficult country because of the challenges posed by geography, but always has known how to overcome these difficulties—and in each period has successfully managed this process. However, we need to make a positive out of these events—higher profit in hazardous areas. Investors who know this don't give up on Turkey because of this reason. Even in the Istanbul Stock Market the profit of this risk, earnings appetite was seen clearly. But this unfortunately describes us as a “risky but profitable” country.
Including foreign investors, nobody can give up on Turkey—and the potential of Turkey. Even the Iranian and Cuban markets are in the “emerging list” with their potential investments. In Turkey, investment doesn’t stop and continues to grow.
3. What are the types of hotel projects getting financed and developed? Are they predominantly branded?
Çelikkanat: The improvement in the tourism sector, and the idea that Turkey is a year-round destination, has stirred investment in the urban business hotel segment, even outside cities such as İstanbul, İzmir, Ankara and Antalya. While the local and international hotel chains are increasing their numbers of hotels, on the other hand they have been developing new sub-brands parallel to the customer profile which is constantly changing. Hotel chains have been trying to be in the market not only with high-segment brands but also with three- , four-star and budget brands. We have also been receiving serious partnerships, equity funds and joint-venture offers from big international hotel chains related to hotel projects that we are developing. Brands are eager to enter the market with sub-brands—from Hilton to Marriott, and Sheraton to Accor.
I believe that the number of three- and four-star hotels and especially hotel investments in Anatolia will increase with the continuing investments and the new investments that will begin in 2016. Supply and demand in three- and four-star segments has not been satisfied yet.
4. How would you characterize the resort business in Turkey? Are there signs of development in that segment?
Çelikkanat: Actually, everybody started to say that Turkey really needed a serious change in resort hotel management. We have started to diversify the resort concept, mainly with golf, convention and health tourism. With the new incentive regions and laws, investments in resorts will continue.
5. What type of investor is currently investing in Turkey’s hospitality industry? Is there a type of investor the country is looking to attract?
Çelikkanat: When we look at the statements of Customs and Trade Ministry, 1,190 foreign capital companies were established in Turkey as of the third quarter. Regarding the capital structure, foreign capital represents more than 322 million Turkish liras. This amount is almost five times the foreign capital amount in the first quarter. The bulk of foreign capital is coming from China. There is also a serious amount of capital inflow from Japan, United Arab Emirates and Qatar.
It is difficult to predict the net amount reflected solely in tourism investments, but we know that tourism investments, hotel acquisitions and share acquisition are among the investment types. There has been serious demand for cash-flowing hotels.
6. How would you place Turkey in the broad context of Mediterranean hotel development?
Çelikkanat: If Turkey can change its marketing strategy toward the qualified and high-income level guest profile and move away from the all-inclusive system, it is a country which can easily be the number-one destination in the Mediterranean. The important point here is how to package the product. Turkey has had difficulty in this regard. For example, if you sell the same for cheaper than Spain, it means that you make a mistake somewhere in the packaging and perception management. If we can handle this PR, our product is strong.
The Mediterranean Resort & Hotel Real Estate Forum will be held at the Fairmont Rey Juan Carlos, in Barcelona, Nov. 30-Dec. 2. For more information, the agenda and speakers, and to register, visit www.mrandh.com.