How repositioning Mediterranean hotels can drive growth and profit

The Mediterranean panel at IHIF. Photo credit: Katherine Doggrell

BERLIN, Germany — Panelists at the International Hotel Investment Forum advised investors in the Mediterranean region to renovate existing hotels rather than develop new sites. 

The return of destinations such as Turkey, which have suffered from a drop in visitation as a result of terror attacks in recent years, is driving enthusiasm for the region, and the brands are looking to make their mark.  

If You Build It...

“There are more than enough opportunities for refurbishment," said Gregg Gilbert, principal at Benson Elliot Capital Management. "If you are focusing on development you are missing a trick. It’s very difficult to get financing for new development. If you have a lease, you might be able to get financing, and this is in mature markets. With our timeline, we can’t develop a new destination and be worried about airlift and promotion.  

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“There are very few development opportunities in Spain. In the Balearics, it’s banned. I wouldn’t say 'never,' but it would depend on the development. In cities, there is a lot less risk, so you feel more confident on the exit and on demand being steady in both leisure and business [travel]. It’s difficult to talk about growth across the market without talking about the repositioning in the Spanish market on the coast. The way to protect yourself from the resurgence of other markets is to keep your product upgraded.” 

Anyone from Ireland or Great Britain will always have to get away to look for the sun, so demand will always be there, said Neville Graham, managing director international member services at Best Western Hotels & Resorts.

"I don’t think that Tunisia opening up will affect demand. If you factor in new markets like China, that’s new demand that was never there before, so there will still be the chance to grow," Graham said. “What drives it is the consumer. They are always looking for new experiences and new places to explore. What is key is access, [particularly] air traffic. It’s not always a case of ‘if you build it, they will come,’ but if the right infrastructure is in place, then they will come.”

Arena Hospitality Group has renovated and upgraded it hotels and entered into a new market and clientele, according to Arnoud Duin, VP of finance.

"Our vision is that when Turkey is fully back on the market, it might have an impact, but we see we are in a new league now and we see opportunity for growth," he said. “Croatia still has a reputation from the past, but all the properties in the last few years have been upgraded. They used to be state-owned, but a lot of capital has come in. It’s going to be more luxurious. It’s still the beginning in Croatia.” 

Turkey's hospitality market is recovering after the attacks of 2015 and 2017, said Mehmet Onkal, founding and managing partner, BDO Hospitality Consulting. “Most of the product we have is updated and needs repositioning. Rather than creating new destinations, we need to reposition them because the new destinations will dilute the existing ones," he said. "Branded residences are really increasing and they’re important, luxury brands. This is happening all over Turkey, not only in the resort areas.  

“Our Mediterranean coast is saturated, but we don’t have any brands. We’re looking at developing tertiary cities in Turkey. Primary and secondary cities are well developed. We’re looking for budget hotels, not focused-service.

Onkal said that Turkey does not have internationally branded resorts.

"The brands don’t want to operate resorts, and the resorts don’t want brands. So we are trying something new—maybe a lease, maybe a guaranteed lease, maybe a percentage-profit lease so that we can get the brands into the country, into the seaside,” he said. 

Onkal said that he expected occupancies to be up 30 percent for 2017, although he described average daily rate as “dragging” and expected it to increase only 10 percent.  

Changing Seasons

The panelists also addressed the issues of the region’s seasonality. In Croatia, for example, the season runs from June to October. “Most of our properties are closed in the winter, but we are focused on sports in the winter," Duin said. "We have a sports center, so we try to attract foreign teams to come and train on our football pitches. We have athletic facilities, and with these activities, we are trying to build a shoulder season.” 

For Onkal, this means medical tourism. “A medical facility and a hotel next to it—this is how it’s possible to expand the seasonality,” he said.  

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.

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