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The
Hospitality Industry in
Turkey:
By: Bernard Forster Country Overview Turkey is one of the few countries in the world that spans two continents. From its borders with Greece and Bulgaria to the west, Syria and Iraq to the south, and Iran, Armenia and Georgia to the east, Turkey's 781,000 km² of land encompasses a rich variety of terrain, climate, local culture and dialects and has a total population of 65 million. Although Turkey’s land borders are 2,753 km long, its coastlines are almost three times as long, stretching for 8,333 km. Turkey is bordered by the Black Sea to the north, by the Aegean Sea to the west, and by the Mediterranean Sea to the south. As a result of Turkey’s geographical position, at any given time it is possible to witness different weather conditions in different parts of the country. The western and southern coasts present a typical Mediterranean climate, with short, mild winters and long, hot summers. The northern coast is cooler and receives more rain. The inner regions of the country have a continental climate with hot, dry summers and relatively cold winters. Such unique and favourable summer climatic conditions, the variety of the landscape and the coastal regions, together with the country’s unique mixture of Eastern and Western cultures and traditions, make Turkey an attractive tourist destination for international travellers. Political Background Turkey is a multiparty democratic republic. Turkey signed a customs union with the European Union in 1996 and became a candidate for EU membership at the Helsinki summit in December 1999. The Kurdish issue remains an area where progress is required in order to improve relations with the EU still further. National Economic Overview
Turkey is a dynamic emerging market economy. The country has a population of about 65 million people—over 73% of which lives in urban centres—and a reputation for private sector entrepreneurship. In 2000, Turkey's GNP was about US$200 billion equivalent to about US$2,900 per capita). Agriculture accounts for some 16% of GDP, industry for 24%, and services for 60%. Turkey's investment rate is in the range of 24% of GNP, while imports and exports together represent about 50% of GNP. A continuing shift in employment from the primary sector to industry and services is expected to raise productivity in the long term, but unemployment is forecast to increase to 12% by 2006 from 10% in 2002. In recent years Turkey has experienced high inflation and high short-term interest rates. At the end of 1999 Turkey embarked on an ambitious stabilisation plan, aimed at achieving single digit inflation by 2002. Central to the plan have been firm monetary and exchange rate policies to provide a nominal anchor for reducing inflation expectations, sounder public finance aimed at eliminating the principal source of inflation pressures, and wide ranging structural reforms designed to liberalise and modernise the economy. A severe banking crisis erupted in November 2000 and subsequently Turkey experienced large capital outflows. The crisis resulted in much higher interest rates, which put a burden on the budget and the banking system. According to the Organization for Economic Cooperation and Development (OECD), economic stability depends on Turkey controlling their interest rates and ensuring that those are sustainable at a reduced rate in order to fuel economic growth and performance. Strengthening the banking system and following through on privatisation commitments are key elements in re-establishing policy credibility. Successful completion of all aspects of the stabilisation programme and related governance reforms are likely to ensure that Turkey becomes a more modern, market oriented and efficient economy. The Economist Intelligence Unit (EIU) expects Turkey’s fragile three-way coalition government to cling to office for as long as possible to avoid an election, which is not due until early 2004. An early election could become more likely when the economy starts to recover strongly, but this recovery is not expected before 2003. Key points to watch out for, according to the EIU’s latest Turkey Country View (21 March 2002), are:
An unsustainable fiscal deficit dominates the policy agenda and constitutes the biggest threat to economic stability. Huge interest payments on domestic debt are responsible for the overall fiscal deficit forecast. In recent years, politics have hindered the implementation of the policies necessary to reverse the major economic imbalances of the country, such as inflation. Tourism overview Turkey has seen a marked increase in foreign visitation during the last few years and it has established a strong position as a business and holiday destination, providing a wide range of year-round tourism alternatives (although total visitation is highest during the summer months). The government has set policy to give priority to developing the infrastructure, which will greatly aid the ongoing development of tourism. Tourism now accounts for the second-largest source of foreign exchange earnings in Turkey. Arrivals Table 2 illustrates the number of foreign visitors arriving in Turkey between 1991 and 2001.
As can be seen from Table 2, the number of foreign visitors arriving in Turkey increased by an annual compound growth of nearly 8% in the last ten years. Tremendous growth in visitation was experienced between 1992 and 1997, following the end of the Gulf War. Turkey experienced a significant fall (-23%) in the number of foreign tourists in 1999. This was as a result of the capture of Separatist Kurdistan Worker’s Party (PKK) leader Abdulah Ocalan in February of that year and demonstrations in Istanbul, national elections in April, and two major earthquakes in August and November. Turkey experienced a quick rebound in overall visitation in 2000, and 2001 showed another 11% increase over 2000, even though visitation was down by about 6% in the month of December 2001.
Germany is the primary feeder market, and provided about 25% of the total number of foreign visitors arriving in Turkey in 2001. Germany has historically been the major European source market for foreign arrivals in Turkey. However, these numbers are somewhat skewed by the fact that Germany provides a home for a large number of Turks who have come to the country some twenty to thirty years ago when Germany ‘recruited’ foreign labour for its industries. These Turks, now often second or third generation in Germany, and with German passports, are also classified as foreign tourist arrivals when visiting friends and family in Turkey. The second significant source market is the Russian Federation, which provided around 12% of the total number of foreign visitors arriving in Turkey in 2001. This figure has grown from just 4% in 1990. However, among western European countries, some important changes need to be mentioned. The number of tourists from Belgium and the Netherlands have shown remarkable annual compound growth rates of 17% and 14%, respectively, over this period. Seasonality Tourism in Turkey follows a rather distinct seasonality pattern, as can be seen from Table 4. The continuous line shows the general trend in tourism arrivals during the year.
The summer tourist season begins in the first week of May and ends in the last week of October. The months of highest visitation are those between July and September, with the peak month being August, providing about 15% of total annual visitation. There is far more leisure visitation than commercial or business visitation to Turkey as a whole, considering that traditional European summer holiday months are the strongest visitation months in Turkey. Given the varied holiday patterns of the key source markets, coupled with the Turkish weather pattern, we envisage that this seasonality trend in tourist visitation will continue in the years to come. Access More than 72% of visitors to Turkey arrive by air, compared to 16% who travel by road and 10% who arrive by rail. The major airports are Antalya and Istanbul, which together receive around half the foreign arrivals to the country. Turkey’s rail network is predominantly used to transport cargo and is considered to be very slow. Locals travel by car and coach, which is particularly popular. Several nationwide coach companies provide frequent services to all major cities in Turkey and provide some competition to the domestic airlines as coach travel is significantly lower in price. Leading Tourism Destinations Istanbul is the most important destination for city breaks and business travel, while the resorts around the Aegean and Mediterranean are the leading tourist destinations in the summer season. Istanbul Istanbul, Turkey’s centre of trade and industry and the country’s main gateway with a population of some 10 million to 12 million people, is a popular year-round destination and shows excellent potential for city breaks and the conference and incentive markets. Key tourist attractions include Aya Sofya, Topkapi Palace, the Blue Mosque, the Grand Bazaar, and the Mosque of Suleiman the Magnificent. UNESCO has declared Istanbul a World Heritage Centre. The Ministry of Tourism plans, through marketing promotions, to increase Istanbul’s annual total number of foreign visitors from the current 2.5 million to 10 million by 2003. We consider this level of growth to be optimistic, especially post September 11, and due to Turkey’s vicinity to Iraq, where a widening of the Afghanistan conflict could have a significantly negative impact on foreign arrivals growth. It should be noted that visitor numbers increased by over 60% since 1995, even though Istanbul experienced first-hand an earthquake together with economic and political unrest during this period. Average length of stay in Istanbul is just over two days. Ankara and Central Anatolia Ankara, the capital of Turkey, with a population of around 3.6 million, generates largely government-related commercial visitation, and very limited tourism demand. The city provides limited tourist attractions, with the exception of the Ataturk Mausoleum (‘Anit Kabir’) and the Museum of Anatolian Civilisations. Central Anatolia, the region surrounding Ankara, provides some stunning visitor attractions, such as Cappadocia, famous for its early Christian churches hewn into mountains which form a spectacular lunar-like landscape. Cappadocia is located south of Ankara, and can be reached in about four hours by car. The average length of stay is around 1½ days. The Mediterranean Sea Antalya is the principal resort on the Mediterranean. The German holiday markets particularly favour Antalya; however, the main tourist season only lasts from April to October, which limits the annual occupancy rates of the main hotels in the area. The region is attempting to prolong the season by encouraging investment into niche markets such as golf. The relatively temperate year-round climate (July and August are very hot and humid) would lend itself to a longer season for niche products. Visitor numbers to Antalya increased by over 60% between 1995 and 2001. The average length of stay is one week. The Aegean Sea Popular resorts along the Aegean include Bodrum, Mugla and Marmaris, and the area has some of Turkey’s most famous archaeological sites, including Troy, Ephesus and Pergamon, and the hot springs of Pammukale. Izmir, the country’s third-largest city and second-largest port, provides strong commercial demand to the area. This area, along with Antalya, is considered to be the most popular leisure tourism destination for international and domestic travellers alike. Mugla’s visitor arrivals quadrupled to nearly one million in the past five years. The average length of stay is in excess of one week. Southeast Anatolia This region is not yet very well-developed; the largest city in the area is Diyarbakir. This area consists predominantly of mountains and subsistence farming. Black Sea The narrow coastal belt bordered by the rugged Black Sea Mountains contains many small settlements and fishing villages with limited tourism facilities. Domestic visitors who want a quiet self-catering family holiday typically visit this area. However, in recent years several ski resorts have been developed; Bolu is particularly well known. It is rumoured that there has been some interest in hotel development here. The evolution of hotel supply in Turkey As can be seen from Table 5, the increase in supply of hotels and overall visitation to Turkey showed positive annual compound growth between 1981 and 1998 (no later data are yet available). There was, however, a decline in growth rates between 1990 and 1998. We understand that this decline was directly related to new hotels being developed, which forced out small independent hotels and guesthouses.
Istanbul Performance and Hotel Values Table 6 illustrates upscale hotel performance between 1993 and 2001 in US dollars in comparison to annual hotel values as shown in the annual Hotel Valuation Index (HVI) published by HVS International.
This table shows the close relationship between hotel
values and their room revenue performance, as the rooms department produces the
highest ‘f This is to some extent a result of the
government’s more positive stance, but is also due to a strong forecast increase
in visitation.
Conclusions
Investment Opportunities in Turkey
Financing
Thus, we are continuing to receive enquiries from investors in both Europe and the USA, interested in considering the opportunities that currently exist to acquire suitable properties.
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About the Author:
Bernard Forster is an Associate Director with HVS International’s London Office, specialising in hotel valuation and consultancy. He joined HVS International in 1997, previously working in the IT sector as well as several years in various operational management roles in hotels in Switzerland and London. Bernard holds an MSc in Property Investment from City University, London and a BSc (Hons) in Hotel Administration from Oxford Brookes University. He has conducted and managed a wide range of hotel feasibility studies and valuations throughout Europe and Africa.
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