London - Success Stories

Opportunities for Limited Service Hotel Developments in the Middle East

"Based on our initial requests, HVS International created an innovative methodology to assess the potential for business economy hotels within the region, and provided an excellent overview, at a high level, for the potential of considerable investment within this sector. The study was supported by their annual research via the Middle East Trends article and their knowledge of the Middle East Markets. The final report was followed up with a personalised presentation of the findings, which provided us with a first hand opportunity to discuss the results in detail and challenge the business case as presented. Excellent work that was well executed within a tight timeframe. Thank you."

Patrick Smith,
Vice President,
Asset Management

Project

The client (IFA hotels and resorts) is a prominent Middle East hotel investor who owns a portfolio of hotels and resorts in Europe, the Middle East and Africa. The company is rapidly expanding and constantly looking for potential investment opportunities. In 2004, the company was approached with an opportunity to form a joint venture with a renowned hotel operator to develop and invest in branded limited service hotels in the Middle East and North Africa.

Such hotel asset classes do not exist in the Middle East, and the client requested advice on whether there is a market for this type of hotel, what kind of returns should be expected, and where should the geographical targets be.

The HVS Assignment
Based on HVS International's extensive knowledge and experience in the Middle East markets, we first assessed the current and historical performance and characteristics of the full service hotel markets in the region (15 markets were considered). This, together with an assessment of the macroeconomic, demographic and hotel investment/development trends in each market, enabled us to identify the markets that could potentially offer attractive opportunities for limited service hotel developments.

Based on our library of operating statistics of various hotel markets, HVS then analysed the historical relationship performance (occupancy, average room rate, RevPAR and profit margins) between full service and limited service hotels in various European markets. This enabled us to draw indicative performance relationships amongst the two types of asset classes. Such measures were then adjusted to reflect the various characteristics of the hotel markets in the Middle East.

Subsequently, HVS forecasted the potential operating performance of limited service hotel assets in each identified 'target' market in the region, taking into account the operating performance of the full service hotel industry, the market characteristics, and any future trends that might impact the level and type of hotel visitation.

Our projections (together with an estimated development cost) formed the basis of a return on investment analysis, which provided the investors with a range of the potential returns that should be expected from such investments. Our conclusions included a matrix showing the sensitivity of any fluctuation in development costs and revenues over the potential returns. We also indicated the constraints inherent in such hotel properties to the client (from a market and investment standpoint).

The Solution
The client is able to make a better strategic investment decision, understand the overall characteristics of the hotel markets in the Middle East, and set geographical targets and goals for his investments.

Results
HVS provided the client with an executive summary style report, together with a PowerPoint presentation.

Representatives of HVS International travelled to meet the client and to present our conclusions and recommendations.