0% VAT and closed skies boost Eilat

Eilat coastline Photo: Shutterstock StockStudio Aerials
Eilat coastline Photo: Shutterstock StockStudio Aerials

Eilat's retailers rely on tourism but high hotel prices may drive Israelis abroad when the skies fully reopen.

Eilat is booming with tourists flocking to the Red Sea resort and buying up VAT exempt goods. Many Israelis are reluctant to travel abroad because of all the Covid related forms, restrictions for the unvaccinated, and the fear of testing positive and being standed overseas. The number of visitors to Eilat each month are the equivalent of 60,000-70,000 households, the size of cities like Ramat Gan and Bnei Brak. Some come just to 'waste money' and the visitors change every two to three days.

Eilat has three of Israel's most successful shopping centers and two more large commercial centers are scheduled to open in the coming few years - Big's Soho Mall and Harel Wizel's Fashion Outlet.

Eilat has 3.7 square meters of retail commercial space per resident (not including visitors), which is 3.3 times the national average of just 1.11 square meters of commercial space per resident. Eilat's very existence depends on domestic and foreign tourists and the temporary workers employed there. Eilat has no other major economic engines of growth, except tourism. During Covid lockdowns it was a ghost town.

Eilat's stores target the city's residents as well as foreign and domestic tourists and the mainly temporary employees working in the Red Sea resort.

Eilat has 52,000 residents living in 18,000 households. The population has grown by an annual average of 1.1% since 2010, below the national average of 2%.

The city has not been successful in attracting new residents and over the past decade only 1,300 new homes have been built. Eilat is in the middle range 6 socioeconomic decile bracket and overall Eilat's residents spend NIs 80-85 million per month on retail goods.

The city also has 16,000 employees temporarily living in the city with purchasing power of NIS 20-25 million per month. In 2019, 200,000 foreign tourists visited the city - 17,500 per month, staying for an average of four nights and recording 740,000 overnight stays. In 2019, 2.3 million Israelis visited Eilat - 192,000 per month.

Prior to the Covid pandemic, a survey we conducted found that one third of Israeli families had holidayed in Eilat with the average expenditure per family of NIS 950 (not including accommodation). The average Israeli tourist spends NIS 220 per day (not including accommodation) comprising NIS 60 on food and NIS 160 on non-food products. The average foreign tourists spends NIS 320 per day comprising NIS 110 on food, and NIs 220 on non-food products. On average a family of foreign tourists spends NIS 2,750 on their Eilat vacation (not including accommodation). Total monthly purchasing power of tourists in Eilat is NIS 130-140 million, not including supermarket spending which is relatively small.

Tourists spend their money mainly in restaurants (such expenditure has been reduced in recent years with more all-included vacations), fashion, health and beauty products, entertainment and leisure, and electronic goods. In particular, Eilat has much of Israel's market in selling mobile devices.

The bottom line is that Eilat residents and temporary employees living there spend NIS 100-110 million per month and tourists spend NIS 130-140 million (plus NIS 7 million in supermarkets. These figures do not include mobile devices. Overall monthly spending in Eilat is about NIS 250 million, the same as a large city in Israel.

During the Covid lockdowns, Eilat was deserted but with the reopening of the economy and domestic tourism in 2021 (without foreign tourists), the city's hotels and commercial center did better business than before the pandemic.

Eilat has 200,000 square meters of commercial space, of which 155 square meters is net retail space. 25% of this space is in the industrial zone, 18% on the seafront promenade, 11% in the neighborhoods, and 13% in the not very successful city center.

Eilat's three major commercial centers are very successful. The Mul Hayam Mall (Azrieli) has 1,300 square meters of space, or 6% of the city's commercial space. This is a relatively small, old mall with no room for the biggest stores of the international brands. Nevertheless, this mall records one of the highest revenues per square meter in Israel and it is expected to be upgraded following its acquisition by Azrieli.

Ice Mall has 15,200 square meters of commercial space, representing 8% of commercial space in Eilat, and has 150 stores. The mall has enjoyed a major rise in economic performance in recent years, similar to the Mul Hayam Mall.

The city's third major shopping center is Big Eilat, which has 17,000 square meters of commercial space representing 9% of the commercial space in Eilat. Big Eilat is the country's most successful outdoor mall and its sister center Big Soho is under construction.

In summary the economic performance of Eilat three shopping centers is very high. Occupancy on the seafront promenade is 95% and the three shopping centers have a waiting list big enough to fill another shopping center. Existing shopping centers cannot fully satisfy the demands of retail chains who are looking to open very big stores. There is economic justification for another 10,000-20,000 square meters of commercial space in Eilat in the coming years.

Under construction are the Fashion Outlet and Soho shopping centers and expansion of the existing Big center as well as W Center on the seafront promenade, and Seven Stars and Avrahami shopping centers, opposite the old terminal center, which divided the tourist area from the city center. To satisfy all these new stores, it is necessary for purchasing power in Eilat to grow, or some of the existing stores must close. The new shopping centers will also be an opportunity to revive the old city center by developing new activities and attractions for tourists.

While VAT remains at 0% and until the skies fully reopen for foreign vacations, Israeli tourists will continue to flock to Eilat. Hoteliers are taking advantage of all this situation and raising prices. The question is whether this will boomerang on them when the skies are full open and Israelis will prefer to fly to Greece. The author is the CEO of economic consultants Czamanski & Ben Shahar Ltd.

Published by Globes, Israel business news - en.globes.co.il - on January 31, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

Eilat coastline Photo: Shutterstock StockStudio Aerials
Eilat coastline Photo: Shutterstock StockStudio Aerials
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