While the moving of the US embassy to Jerusalem is so far just talk, the hope in Israel's capital for a revolution in the hotel industry is materializing, with the prospect of thousands more hotel rooms in the city.
According to Jerusalem Development Authority figures, the city gained 1,700 more hotel rooms in 2015-2016, and 5,000 more will be added over the next five years - rooms that have already been approved and channeled to specific developers.
The five-star hotels, including one belonging to the Waldorf Astoria international hotel chain, the American Colony Hotel, Hotel Yehuda, Mamilla Hotel, and Orient Hotel from the Isrotel Ltd. (TASE: ISRO) chain, have grabbed most of the headlines. These have established connections with luxury properties in Jerusalem owned by wealthy Jews from around the world. At the same time, the plans also provide for a variety of hotels that will enable local and foreign tourists with a wide range of budgets to stay in the city.
The added hotel rooms are designed to meet the steady increase in tourist overnights in the city in recent years. Foreign tourist overnights totaled over 2.5 million in 2015, accounting for 31% of all foreign tourist overnights in Israel in that year.
Simultaneously with the rising number of tourists, and in order to effectively overcome the shortage of hotel rooms in the capital, the Jerusalem municipality and the Jerusalem Development Authority have joined forces. In 2014, they originated the "green track" for opening hotels aimed at encouraging private developers to build hotels and rooms. The track is designed to substantially shorten the bureaucratic processes required for building a hotel.
The plan allows anyone with land zoned for residential, commercial, or office construction to rezone the land within a short time, and to obtain building permits for tourist accommodations. During the entire process, the developer is advised by a referent from the Jerusalem Development Authority, and his request also receives priority from the relevant agencies. The duration of the bureaucratic process has been shortened from 2.5-3 years to up to 18 months as a result.
"Jerusalem is an international brand attractive to four billion people worldwide, who dream of visiting it," says Jerusalem Mayor Nir Barkat. "In recent years, we have doubled the number of tourists visiting the city to four million a year. Hand in hand with the government, we are constantly developing and strengthening the city's tourist industry, which supports the municipal economy and Jerusalem."
Spirit of Trump
It is not certain, however, that Barkat, who is casting his eyes at national politics, can succeed where things do not depend on him. Despite the plans and the encouraging figures, Jerusalem, with all its history and holiness, is still a wasted tourism opportunity, despite years of efforts and plans to bring tourists. It is no surprise that the reason is the security tension, which regularly upsets all the plans.
At the same time, Jerusalem at least has tools for coping with terrorism. "We have a toolbox for dealing with a crisis. One hour after a terrorist attack, the city returns to normal," says Jerusalem Development Authority tourism manager Ilanit Melchior. "After the terrorist attack in Belgium, for three months they didn't know how to deal with the curfew in the streets, and they consulted us. We export knowledge of how to handle crises - how to get back to normal after a terrorist attack."
Jerusalem now has a spark of hope. First of all, the new hotels are already visible. Entertainment sites offer possibilities for all population groups, including weekends and non-kosher restaurants. The Mahane Yehuda open air market is a culinary and entertainment center, day and night. "As a religiously observant Jewish woman, I already find it necessary to ask whether a restaurant in Jerusalem is kosher before I can eat there. It didn't used to be like that," Melchior says.
"From the security standpoint, there is an opportunity here. Five years ago, we embarked on a tourism development plan in Jerusalem with former Minister of Tourism Ze'ev Elkin. Five years later, with three mega security events - Operation Pillar of Defense, Operation Protective Edge, and the stabbing terrorist attacks - the number of Israeli tourist overnights in the city's hotels is up 23%, and the number of independent tourist overnights is up 20%," Melchior adds.
To this should be added a US president who appears far more friendly to the capital with respect to both construction permits and the intention to move the US embassy to Jerusalem. At the same time, his declarations on the subject should not be taken too seriously, given that one of the people close to him - Secretary of Defense James Mattis - believes Israel's capital is Tel Aviv.
"With the election of Donald Trump as US president, there was a special feeling in the air. They didn't stop talking about the embassy moving to Jerusalem. It was the talk of the town," says Jerusalem Hotels Association chairman and Hotel Yehuda general manager Yishay Barnea. He says that hotels in Jerusalem would be very glad if the embassy moves to Jerusalem, because it is likely to provide them with tourist demand linked to the embassy. He says, however, that there is also concern. "Moving the embassy here is a little frightening for us. We don’t know what it's liable to bring. We've suffered enough from security problems. We want quiet, and to work peacefully," Barnea admits.
According to the Expedia tourism website, orders on its search engine tripled over the past quarter. "We found the way to demonstrate a presence. There are options for overnights in luxury hotels, and there are options for a cheap overnight," Malkior explains. She says that growth is coming from the less expensive places.
Under the plan initiated by Elkin, the Ministry of Tourism's support for hotels in the capital totaled NIS 513 million over the past five years. "Today," says Malkior, "we no longer have to prove ourselves. I know we're succeeding, because demand for hotels is such that the Ministry of Tourism, which a decade ago provided 28% of the investment for hotel construction in Jerusalem under the Law for the Encouragement of Capital Investments, , has already cut its grant to 20%, because it sees a city already booming."
Residential hotels
Not everything is rosy, however. Tourism in Israel, especially in Jerusalem, is far from being profitable and risk-free. One of the difficulties in the sector is the entry barrier of the large financial investment required that must be repeated over the years, assuming the hotel is profitable.
This is the reason why Minister of Tourism Yariv Levin gave developers a special gift a year ago. In the framework of an administrative order, the cabinet approved including a 20% increase in hotel construction for residences. Investors thereby receive a rapid return of part of their investment through the sale of luxury apartments.
This is also designed to make luxury apartments available in the city, and because the assumption is that wealthy investors in Jerusalem, mainly foreign residents, prefer buying comfortable apartments in hotels. "I hope it works," Barnea says unenthusiastically. "There is an investor behind every hotel, and it's important to show him that the bureaucratic process is becoming shorter and additional construction is being approved within two or three years. Keep in mind, however, that we are worried that Jerusalem will enter an intifada, and that can change the picture. There's a big difference between making plans and carrying them out, and it's by no means sure that it will happen. There's no assurance that investors will put money into building rooms. Only after I see the construction for myself will I be sure of it."
Barnea asserts that although the sector is unstable and very subject to influence by the security situation, the state of Jerusalem hotels is quite good, "in contrast to Tel Aviv, where hotels are full in mid-week and less so on weekends. Hotels here are full on weekends. Overseas tourism is also concentrated on weekends, after having been to several spots in Israel. Haredim (ultra-Orthodox Jews) and other religiously observant Jews also come here in masses with their families , and non-observant Jews are also starting to enjoy non-observant Jerusalem. The culinary Soho in the Mahane Yehuda market on Thursdays, the Yes Planet site, and old railway station site and cafes that are open on the Sabbath - there's no doubt that there is a movement of non-observant people from Tel Aviv, Ra'anana, Herzliya, and everywhere else."
Deputy Mayor and Hitorerut B'Yerusalayim (Wake Up Jerusalem) movement chairman Ofer Berkovich is responsible for economic and cultural development in the city, among other things. He gives the credit for the successes to the direction his movement led towards pluralism and secularism. "When people realize that the atmosphere has changed, the city becomes more attractive. Tourism is a key growth engine in the city, and we're investing in the tourist experience in Jerusalem. These are not recent things; we've been working on its for years, and now some of the results are visible."
Published by Globes [online], Israel Business News - www.globes-online.com - on February 12, 2017
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