It’s been hard to miss Turkey in the news lately, with its economic and geopolitical woes interspersed with images of happy shoppers taking advantage of the currency drop.
So what does this mean for hospitality investment?
Ups & Downs
This year started off just fine, with news dominated by the comeback of Turkey’s tourism sector. In April, Thomas Cook published its Holiday Report 2018, which showed tourists’ renewed love for Turkish holidays, as the destination was already outselling mainland Spain and the Canary Islands combined. “Package holiday bookings to Turkey are currently up 84 percent year-on-year,” the report said. “That popularity should continue as Turkey sees the highest number of return customers of any destination—18 percent, up from 16 percent last year. Thanks to its keen pricing and quality all-inclusive product, it is families that are fueling the extraordinary growth to Turkey.”
Since then, the Turkish lira has dropped, losing more than 34 percent of its value against the dollar in six months. This is good news for travelers benefitting from additional spending money, but the circumstances of the decline are serious for Turkey’s economy: unsustainable growth rate, high inflation, lack of independence of the central bank, and strong geopolitical risk factors are hindering the country’s future. In a pre-election context, these vulnerabilities have been made more difficult by the strong words exchanged between Presidents Erdogan and Trump.
How will this economic uncertainty affect the renewed confidence in Turkey’s hospitality market?
Economist Thanos Papasavvas, founder and CIO of ABP Invest, believes the opportunities remain good for longer-term investors. “I believe the crisis will continue in the short to medium term as both geopolitical issues as well as domestic economic issues will not be easy to address and resolve with the current mindset of President Erdogan,” he said. “In the medium to longer term, however, I expect market pressures as well as threats of international sanctions and diplomatic deadlocks to push Erdogan for a change in macroprudential policy. For longer-term investors willing to take on the interim volatility of financial markets this may be a worthwhile consideration and places them in a strong bargaining position. Tourism is crucial for Turkey and although tourist rates from the West have declined, Turkey has maintained her strong links with the Middle East, Russia and is strongly targeting China. Once the turmoil eases with the West, a significantly cheaper currency and the lure of a new destination will once again make Turkey attractive.”
Hospitality expert Mehmet Önkal, founding and managing Partner of BDO Hospitality Consulting, believes the current context should not have a negative impact on the sector: “I have always advocated tourism in Turkey to be a very ‘safe haven’ for investment. First of all, tourism does wonders even during difficult times due to the diversity of tourism offers and also the diversity of customers—if not from the West, from the East. Perhaps [it’s] the advantage of being a Muslim country.
“More important maybe is that we sell hotel rooms/packages in dollars or euros but almost all of our inputs are in local currency. So, for example, the local currency losing value has no effect on our revenues, the effect on our inputs is usually not immediate but delayed.”
It is not surprising then that world-leading hotel group Wyndham Hotels & Resorts sees Turkey as an important growth market. “Not only is it the sixth largest market for Wyndham Hotels & Resorts globally, but we also are proud to be the largest international hotel group in Turkey,” said President and CEO Geoff Ballotti. “As of July 2018, we have 67 hotels all across this market. We are committed to maintaining our leading position through sustained expansion in this dynamic market.”
The ups and downs of Turkey’s travel and hospitality development will be discussed at the Mediterranean Resort & Hotel Real Estate Forum (MR&H, Athens, Greece, Oct. 17-19) during a roundtable discussion led by Mehmet Önkal with representatives of Limak International Hotels & Resorts, TTYD (Turkish Tourism Investors Association), Net Holding and Paloma Hotels. Ballotti will give an interview on Wyndham’s resort strategy in the Mediterranean, Papasavvas will give an economic overview, and Thomas Cook will be represented by Anthony Leung, group head of Corporate Finance.