Last month Israeli airlines began flying between Tel Aviv and Sharm el-Sheikh in Sinai. The new route may be good news for Israeli tourists seeking good value vacations on the Red Sea but bad news for Eilat, which relies almost exclusively on tourism, and is already competing with the lower prices of hotels across the bay in Aqaba and elsewhere in Sinai.
This latest blow follows a difficult few years for Israel’s southernmost city. Repeated Covid lockdowns and before that the closure of Sde Dov airport, which discouraged Tel Aviv residents from flying to the Red Sea resort, adversely affected the city. The opening of Ramon international airport, 21 kilometers north of the city, to replace the airport in the city center also discouraged domestic tourism and did not boost international tourism, as Israel closed its doors to foreigners due to the Covid pandemic.
All this comes as Eilat makes concerted efforts to end 20 years of stagnation. Since Isrotel’s Agamim hotel was built in 2000, no new hotel has opened in the Red Sea resort, which has even lost rooms due to the closure of the Princess and Sonesta hotels.
But the situation is now changing. There are currently 15 tourist ventures under construction in Eilat, which will add about 1,000 new hotel rooms to the city. These include the 200-room Tribe hotel, belonging to the Accor international chain, and which should be ready for occupancy in 2024, as well as Jacky Ben-Zaken’s W Hotel, with 217 rooms, which should be completed by 2025. In the low-cost sector, Abraham Hostels is building a 110-room hostel, including shared accommodation. There are also 1,800 more hotel rooms in the planning stage and another 8,737 hotel rooms in the planning pipeline.
In March there were other interesting developments. Israel Canada bought the city’s Hamam lot for NIS 50 million and plans to invest NIS 200 million in building a 320-room hotel alongside a shopping and entertainment center. Teddy Sagi Group won a municipal tender to build a 600-room affordable hotel on the site of the former airport, while the Israel Land Authority and Ministry of Tourism are issuing tenders for a 721-room hotel and commercial and industrial centers, on land at the former airport.
One of the first real estate developers to identify the new opportunities being offered by Eilat was Avi Carel, who is building a unique development in the Red Sea resort - a project combining 155 five-star quality hotel rooms and 223 residential apartments, as well as restaurants near the old airport, which is all due for occupancy in July 2024.
"I purchased the land four years ago, when Eilat had gone 20 years without anything interesting happening," Carel recounts. "They perceived this project as megalomania - a venture in an undeveloped area on the wrong side of the airport, far from the sea. All the reasons for failure. "I was a young developer who had not done a project in his life and had not even sold one apartment. None of the financing institutions wanted to look at me. Nobody believed in Eilat. The city was in complete stagnation but I looked to the horizon and I saw two engines of growth that will bring about sweeping growth - the construction of Ramon airport and vacating the old airport.
He adds, "You can see that the municipality here has changed perceptions and is thinking long term. This is a municipality that was in deficit for many years and has begun to understand that development also does good for the public coffers. In the coming years, it can benefit from the fruits of the investment that they have led in infrastructures and long-term development."
"A trend of development and balanced growth
"Eilat is going through a beautiful period with a big development boost in almost every area, after years that have not been easy," says Eilat Mayor Eli Lankri. "We mainly see a trend of development and more balanced growth based on a range of employment sources, which create a horizon for investors. This causes investors to believe in the city and brings them to it.
"2021 was a relatively good year for Eilat. It’s true that the skies were close but overall the city was full. Even if other options are developed that create competition for the city, such as the flights to Sharm el-Sheikh that will start soon, Eilat is surviving. This is a strong city with outstanding advantages. It knows how to cope and will know how to cope with competition in the future."
2021 was indeed a fantastic year for tourism for Eilat, after a difficult 2020, and this can be seen in the financial results of the major hotel chains. Isrotel, for example, ended 2021 with revenue of NIS 1.6 billion. EBITDA was NIS 493 million, 61% from hotel activities in Eilat. Dan Hotels reported revenue of NIS 971 million in 2022 with EBITDA of NIS 96 million, of which NIS 82.5 million was from hotel activities in Eilat.
Lankri says, "The municipality and Ministry of Tourism invested hundreds of millions of shekels in tourism infrastructures. Take for example the amazing beach strip plan, ‘the promenade of peace,’ as we call it, which was already begun three months ago and is going to change the entire coastline from Taba to Aqaba, with an investment of NIS 800 million in the coming years. We are developing new jobs, n order to create, as we have said, this balanced growth, which is not based only on tourism but also the range of job options."
More than tourism: To turn Eilat into an independent city
The biggest test for Eilat, looking ahead, is to become an independent city. Israel's southermost city's remote location creates a certain dependence on the center of the country - in terms of goods that cannot be found in Eilat. But in order to develop and grow, the city must become stronger.
With this in mind, Eilat has formed a new strategic plan for the city, in a collaboration between the municipality and the Samkai Strategy economic consultancy company. Among other things, the plan relies on turning Eilat into an international free trade zone that will allow the development of a goods port that will compete with the huge port in Dubai, which has annual revenue of $100 billion.
Samkai Strategy founding partner Amatzia Samkai explains, "Our aim is to set another job target and not something based on grants like those and others from the state. To build a city that does not need favors from anybody, and exploits relative advantages and enjoys external sources of income, from money coming from the outside, which consolidates and balances Eilat’s economy. To let the city stand on its own feet.
Already today, there are developments like these in Eilat in the field of biotechnology, marine agriculture, and green energy but these are not fields with a lot of jobs. Therefore you need something bigger and what we thought of was to make Eilat a logistics center. The deep water canal port project had already been conceived but it was not economically viable in any way.
"The development of digital commerce, which has bought huge demand for logistics at an international level, has brought about a change. Eilat is one of the best places in the world for warehousing electronics, for example, because of the extreme dryness and high temperatures, and so the right conditions have been created for developing commerce and logistics in Eilat - we will build a deep water canal port, we will allocate a trade free region and we will establish a strong authority to manage this entire matter - in this way the huge warehouses of Amazon and Alibaba, for example, will come to Eilat."
Dr. Samkai stresses, "We drafted this plan before the Abraham Accords." Now of course the justification for such a plan is strengthened. "If I dream a little about the future and I assume that Saudi Arabia also signs an agreement with Israel soon, it is very logical that there will be huge logistical warehouses in Eilat that will send goods by land to Saudi Arabia, Jordan, Iraq and in the other direction to Egypt and North Africa. A land connection by train from Eilat to central Israel will also allow the conveyance of goods to Europe, as an alternative route to the Suez Canal."
Lankri adds, "We presented the plan to Minister of Finance Avigdor Liberman and Minister of Economy Orna Barbivai and I hope that they will soon bring it up for discussion. If this plan will be implemented it will result in big, rapid growth in Eilat. With its help, we can realize the potential for this city, which has only been partially fulfilled so far, and that's a shame. Eilat needs a government that believes in its potential.
"We need here people of vision, and we need brave leadership because we are talking about decisions that are not simple and you must remember that the big investments as part of the strategic plan will be made by the private market, not the state. It's possible to make a big change here and so that for it to happen we need to speed up the railway project. That is a condition for success. We are in a position now where the railway to Eilat is no longer a dream and it is possible to start it in a reasonable amount of time in the future."
Housing: A rise in building starts
More than a billion shekels has been invested in developing infrastructures for Eilat as a basis for its development, alongside increasing supply in terms of the number of jobs and in terms of the range of them. Whether as a direct results of these measures or whether because of what is happening at the same time, the Eilat housing real estate market has woken up in the past few years and become an important additional engine of growth.
Over the past decade Eilat has hardly grown. In 2013, the city had a population of 48,000, according to the Central Bureau of Statistics, while in 2019 it had only grown to 52,300 - annual growth of 0.43%, compared with 0.69% in Tel Aviv, 1.57% in Jerusalem and 1.41% in Dimona. There was net migration in 2019 and 2020, with 300 people leaving Eilat in each of those years.
But in recent years, major housing construction plans have been approved for 6,824 homes, while 3,500 more homes have been deposited for objections. There are also major urban renewal plans with the potential for 5,000 new apartments in the city center, the southern industrial zone and the old neighborhoods.
At the end of 2019, Eilat had 19,155 housing units, growing to 19,368 at the end of 2020. But the significant figure is that there were only 145 housing building starts in 2019 but that number grew to 510 in 2020. The average price of a home in Eilat is NIS 1.365 million, compared with NIS 1.092 million in 2017 - a rise of 25%
"Our group has been operating in Eilat for nearly 40 years and we've always had good projects here," says Yossi Avrahami Civil Engineering Group CEO Tsahi Didi. "But since Covid we see a change in the trend. If in the past, interest in the residential market was mainly from foreign residents, today there are Israelis who understand that it is worth them owning vacation homes or an apartment for investment in Eilat, for a number of reasons, including the high price of hotels.
"Prices here are rising in all areas. In Airbnb we see crazy prices for apartments per night that there never was before. In sales offices, we also feel an awakening and our projects have jumped 20% in sales prices. We very much believe in the city and its tourism, and love it very much."
Eilat Economic Company CEO Avi Cohen says, "I've lived in the city for 36 years and the current boom in development, real estate, commerce, hotels and housing is unprecedented. What is happening today is a breakthrough. All the big developers in Israel are building hundreds of housing units here.
"The roof agreement that we signed adds 18,000 housing units to the city, representing an almost doubling of the existing situation. The Shachmon neighborhood has already been fully marketed and there are five more neighborhoods planned. The second quarter above the port and the sea, the 11th quarter in Shachmon, the old airport quarter, the golf quarter in the north of the city and another neighborhood on the slopes of the northwest mountains and the salt pools neighborhood. There are also 1,500 Airbnb apartments so that the residents have also become part of the accommodation tradition.
"Alongside this it is important to understand that if there won't be real job opportunities, then there won't be real apartments but apartments for travelers for the occasional overnight stay. Covid only strengthened this understanding. We are making major efforts to diversify jobs and at the same time develop tourism, which also influences housing. If tourism doesn't develop then the city won't grow. Every new hotel room is worth a new employee."
The financing: "For years the banks were scared to come"
"The developers are flocking here and so is money from financial institutions who believe in the city," says Carel. "This is very important money. When the power of the banks and non-banking institutions are in the city, things look completely different. I think that Eilat has entered its golden age and from here it can only develop and reach places we cannot describe, through regional cooperation and setting up an international bay, Eilat-Aqaba, which will bring 10 million tourists annually."
Didi adds, "We have never been refused by the banks but there were many developers that had to cope with situations like that, many new companies that tried to enter the city. For many years, the banks were scared to come here but recently they have understood the potential of this city and that is very important news for the city.
"Many developers are not aware that there are very high entry obstacles to Eilat in terms of implementation. Salary costs for the engineer and the family that have to be relocated, transporting goods to the city, workers have to be brought and housed here. It adds 30%-40% to the costs and many developers don't take this into account when they try to enter Eilat. You have to know Eilat to work there.
"It's true that there already today economic advantages for companies to come and work in Eilat and develop the region but the big problem is its distance from the center. A fast train that coud get here in a reasonable time would be a solution. As long as the city is not brought closer to the center by transport infrastructures, the problems won't go away because Eilat always needs supply of goods and services from the center. It's a very big obstacle and budgets must be allocated in order to surmount this."
Dr. Samkai adds, "Eilat is not far from the other cities in Israel, it is cut off from them. This is a difference that is not always understood through to the end. Everybody who lives in Eilat has to work there and that's what distinguishes it from everywhere else in Israel, even the Golan Heights. So you have to find how to enhance employment and make more quality jobs, and that is the aim of the strategic plan that we have formed.
"In terms of this, financing bodies are in the picture. I am in contact with senior executives of one of the biggest US banks who has said that 'tomorrow morning' he can provide financing for 100 years for the canal port. One of the largest port companies in the world in the UAE already wants to build a port. The State of Israel simply needs to say that it allows it.
"Everything is waiting for the government decision. At a national level we are talking about a very important process - strengthening Eilat in particular and the entire area between Eilat and Beersheva in general and this will contribute to a national strategic approach, and strengthening the area around here and a regular stable significant income from the commerce sector, so that our exports are not only based on high-tech. Eilat cannot remain in its present circumstances forever. That would be a catastrophe."
Published by Globes, Israel business news - en.globes.co.il - on May 29, 2022.
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