HVS: International brands show increased interest in Israel investment

A new report from global hotel consultancy HVS found that in spite of Israel’s ongoing geopolitical instability, the country’s hotel sector may see some growth.

With a number of new properties due to open over the next four years and leisure destinations in the country remaining relatively resilient, international hotel chains are still showing an interest in the region. Smaller scale boutique hotels are proving a key trend, particularly in Tel Aviv and surrounding areas. 


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“Visitation to Israel may have fallen, but total bed nights have declined by only 1.4 percent, which is not as severe as anticipated. New supply coming on stream over the next few years includes properties flagged by Marriott, Starwood, Kempinski and Isrotel,” commented report co-author and HVS analyst Jill Barthel.

Hotel occupancy in 2014 fell by a relatively modest 2 percentage points to 69 percent compared with the previous year, while visitation to Israel fell by 3.6 percent, including a decline in cruise visitors.

However, an overall shortage of hotel rooms has meant that average rates rose during this period, from US$205 to US$209.

The country’s brightest spots are the leisure destinations of Eilat and the Dead Sea, which attract a good proportion of Israel’s 35 percent domestic tourism. 

Internationally branded hotels entering the market recently include Ritz-Carlton Herzliya (opened December 2013) and the Waldorf Astoria Jerusalem (opened May 2014), while the opening of the W Tel Aviv-Jaffa Hotel has been postponed until 2017. 

“The hotel market in Israel continues to provide interest and excitement, and despite the tensions the country is experiencing interest from international brands remains strong,” report co-author (and HVS chairman) Russell Kett said in a statement. 

Hotel Supply and Demand
Israel's Ministry of Tourism has grouped all one- to five-star hotels into four "levels" based on the nature of the hotel (recreational or urban) and the average size of a double room (excluding suites and public areas). 

Level One hotel supply (equivalent to five-star) grew at a compound annual rate of 6 percent between 2010 and 2014, the strongest growth rate of the four levels. Notably, while these hotels account for 13.1 percent of the overall supply, they make up 25.7 percent of the total room supply. 

The most recent internationally branded hotels entering the market were the Ritz-Carlton Herzliya and the Waldorf Astoria Jersualem, which opened in December 2013 and May 2014, respectively. The W Tel Aviv-Jaffa Hotel, which originally was due to open in 2015, has been postponed to the beginning of 2017. As shown in Chart 12 below, following several years of limited new openings, international brands are expressing increased interest in Israel's market.

A growing trend, especially in Tel Aviv, is the emergence of several new smaller-scaled boutique hotels. One of the newest additions in that regard is the Norman hotel, which opened in October 2014 within two restored historic building. The Elma Hotel opened in May of this year north of Tel Aviv in Zicharon Ya'akov. 

Earlier this year, Fattal International Hotels and Resorts, which operates 34 hotels around Israel, announced that it would open four new hotels over the next year at an investment of NIS 500 million, or around US$126 million. The hotels will be in Herzliya and Tiberias and two in Tel Aviv, Globes reports.

The four new hotels come on the heels of Fattal opening three hotels in 2014 in Ashdod, Ashkelon and Netanya, having added 1,000 new rooms over the past two years.