More and more international chains are taking an interest in the Israeli hotel sector, and are taking concrete steps to open hotels here. The easyHotel has announced its entry into the Israeli market, with the chain scheduled to open its first branch in Tel Aviv's Ramat Hahayal neighborhood with 200 rooms in 2021. Last November, the chain, which currently numbers 40 hotels in 31 countries, announced that it was expanding to Israel and other countries. easyHotel, which is a sister company to low-cost airline easyJet (both are part of the easy Brands Group), said that it planned to open at least three hotels with a total of 600 rooms in Tel Aviv.
easyHotel is a budget hotel chain, with a business model taken from the civil aviation business. Guests pay for a basic product, and the hotel charges for any additional service, such as a television set. A basic overnight at easyHotel's branches in Israel will cost NIS 300-400, according to Index Real Estate and Savills Israel founder and chairman Noam Brender. Among other things, Index Real Estate represents easyHotel's franchise holders in Israel. Brender told "Globes" that among the international companies recently taking an interest in Israeli hotels is the Euro Hotel chain, which sought to find a hotel property for hotel management. Euro Hotels manages hotels in France and Spain, among other places.
Brender says, "In contrast to regular real estate deals, hotel properties must be found for a period of 20 years and so the perspective is for the long term and construction of a hotel also takes 3-5 years longer
This crisis (coronavirus) will pass, and will not affect Israel's tourist potential as assessed by international developers. The focus is on 9% return on hotels, compared with a 6.5% return on offices.
"The international chains are looking for areas with a vacuum, meaning demand that outstrips the supply. They detect a shortage of 5,000-10,000 rooms in Tel Aviv. Chains such as Marriott and Mandarin have been contacted by local developers to manage hotels. They are taking a look at the Israeli hotel sector and the feasibility of building hotels in combination with branding - properties combining a hotel and short-term rental apartments owned by private developers. These chains are also offering management of short-term rental apartments. The Mandarin chain, which can be classed as a high-end chain, is focusing on properties on the Tel Aviv beachfront. Marriott is taking an interest in a megaproject under construction in Jerusalem, following a query from the developer about managing it. We are conducting inquiries on its behalf."
Return on hotels grew with the demand
Brender attributes the growing interest by international developers in Israel to several factors. The first is the high hotel occupancy rate in Tel Aviv (a 76% annual average). The second is the return on hotel properties, which has risen with the demand. "The open skies reform opened Israel to numbers of tourists for whom hotel infrastructure was not prepared," he says. Finally, Brender mentions the Ministry of Tourism's guarantees, which amount to the 10% of the investment value in Tel Aviv and 33% in other areas. "The hotel sector is also a hot business in conversion of offices and with combinations of commerce, offices, residences, and hotels, such as the Hassan Arafa project in Tel Aviv. Twelve developers are planning to build projects according to this formula… The huge shortage of rooms in Tel Aviv is attracting developers, despite the political and security tension, and the emphasis is also on hotels with two or three stars, which is where the main shortage lies," he says.
On the other hand, it should be noted that most construction in Tel Aviv consists of luxury hotels. Developers explain that the investment in land is the same, and that the added investment for a luxury hotel is not large in comparison with a basic hotel. Brender also has an answer to this; he says, "Budget hotels don't have to be on Rothschild Boulevard; they can be on the outskirts of Tel Aviv, such as in Ramat Hahayal. Hotels of this type are being built outside city centers all over the world, and require convenient public transportation to city centers. The developers are also taking into account the light rail under construction in Tel Aviv."
In the luxury segment, Brender cites the Marriott chain, which already manages properties in Israel (Renaissance Hotel, Carlton Hotel, Jaffa Hotel), together with 4,000 properties worldwide. The Mandarin Oriental chain has yet to enter Israel, but will begin managing its first hotel in Tel Aviv in 2023. "Several Israeli developers recently contacted Mandarin and Marriott, which asked us to assess the feasibility and adaption to a specific brand name under their umbrella (Marriott, for example, includes the Sheraton, Ritz Carlton, W, Meridien, and other brands). Interest in Israel has been growing recently, and Israel is regarded as a destination with potential, but Jordan and Egypt, where prices are cheaper, are also a focus of interest for the international brands."
Published by Globes, Israel business news - en.globes.co.il - on February 25, 2020
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