Turkey’s first international-branded hotel, the Istanbul Bosphorus, opened its doors 60 years ago, but not even its owner, Conrad Hilton, could have predicted the radical evolution of the country’s hospitality scene.

Now one of the world’s most popular destinations, Istanbul hosts more than 800 properties and 50,000 rooms. In February 2015, 4,981 more were under development – a higher figure than any of its regional rivals – and 53 international brands have followed Hilton’s lead, with 25 boasting more than one property.

For so long, the ambitions of international brands in the region have begun and ended in the capital. However, buoyed by the country’s growing economy, attention has shifted to developing regional cities, coastal locations and heritage sites, and as a result Turkey is now the world’s sixth most-visited nation.

More than 41 million tourists entered the country in 2014, a year-on-year increase of nearly two million, and more than twice the number recorded a decade earlier. Feeding into the government’s ‘2023 vision’, everything from winter to health tourism is earmarked for development, aiming to attract 63 million visitors, and make Turkey the fifth-largest tourist global destination and generating $50 billion in revenue.

Annual GDP growth for 2015 may not reach 2010’s high of 9.2%, but the forecasted 4.5% is impressive, nonetheless. This strong economic performance has fuelled a construction boom, of which hospitality is a major beneficiary. With expansion expected to continue, hospitality brands are buying into the government’s vision.

Middle Eastern brands are also making their mark. Pera Palace has been operating under the Jumeirah banner for three years – a Bodrum project was announced earlier this year – and in September 2014 Rotana revealed plans to build a 30-storey hotel, apartment and office complex on the edge of Istanbul, its first venture into the Turkish market.

But while international operators are flocking to the country en masse, the investors tend to come with much more of a local accent.

"There’s next to no foreign investment in the tourism industry," says Mehmet Onkal, managing partner of BDO Hospitality Consulting. "There’s a lot of enthusiasm, but much of the world still sees investing in Turkey as risky.Investment is all from domestic investors, and mostly from construction companies, because of all the development in Turkey.

Industrial scale

"Constructors started investing in tourism and were followed by textile manufacturers; this is the leading country in the world for textiles and we have seen a lot of investment from this area. Even more recently, the automotive industry has started getting involved."

Hotel brands have been quick to build relationships with local firms. This has traditionally been driven through management contracts, but as the market beyond Istanbul matures, so do development models. The burgeoning mid-market bracket, as well as a budding entrepreneurial spirit, has seen the franchise model grow in importance.

"Buoyed by the country’s growing economy, attention has shifted to developing regional cities, coastal locations and heritage sites, making Turkey the world’s sixth most-visited nation."

"Generally, hotel brands prefer franchising, because Turkish investors want to interfere," says Onkal. "They want a say in management, to ask questions and be the management companies.

"The most common way is to give investors a franchise to run themselves, while keeping a good eye on it to see that standards don’t fall. There are so many ways of tracking hotel performance now, so that is much easier to do."

As international brands seek to expand into unfamiliar cities, many have taken to adopting a ‘manchising’ model, under which new properties are operated under management contracts for the first few years. Owners are guided and the staff trained, before the hotel is passed onto the owners as a franchise.

Many rural cities are earmarked for strategic growth, making this an increasingly popular compromise. With Turkey’s economy continuing to outperform many of its rivals, secondary cities, like Adana, where the robust textile and leather industry attracts a significant amount of international business travel, have presented excellent opportunities for operators to capture the corporate customer. In regional cities like Malatya the rise of the Turkey’s middle class has meant a growing requirement for mid-market accommodation.

"We expect the mid-market to develop a lot more than the top end, because there’s only so much room for growth in the uppermost bracket," says Robert Koren, vice-president and regional director for southern Europe at Starwood. "You have to be in the right location and in the right city, which really limits it to Istanbul with views of the Bosphorus. There are huge opportunities for mid-scale growth in secondary and tertiary cities, however."

Already in 2015, Starwood has opened a Sheraton hotel in Samsun, a hub of medical and manufacturing businesses, as well as a major Black Sea port. Later in the year, it will add two Four Points and another Sheraton to its Turkish portfolio and for Koren, developing these brands is a crucial part of the firm’s expansion strategy, as it seeks to attract corporate customers looking for comfort and convenience, rather than unrivalled opulence.

"The number of international travellers doing business in Turkey through industry and commerce has gone up significantly," says Koren. "The demand for the country as a corporate and meeting destination has increased with its international profile. It’s a lot less expensive to manufacture or produce there, and that’s opened up a lot of corporate account potential."

As well a surge in international, corporate travellers, regional industries are paving the way for domestic hotel customers. A by-product of the expanding economy is an improved infrastructure, increasing the propensity for domestic travellers and this, along with a growing middle class – and the accompanying need for accommodation for parties and weddings – represents an opportunity for hotel brands.

"We expect the mid-market to develop a lot more than the top end, because there’s only so much room for growth in the uppermost bracket."

"There is a lack of quality, affordable accommodation in these cities," says Mike Collini, vice-president of development for Turkey, Russia and Eastern Europe at Hilton Worldwide. "Across these regional cities there’s significant migration in terms of workers to Istanbul and Ankara, and people are generally travelling more.

"An established airline infrastructure is in place, the rail networks are improving and there’s considerable investment going into high-speed connections, the national road system and bus network. All this is helping people, particularly in the regional cities, and as a result there’s a strong emerging domestic market. People migrate for work, and these cities are the centre of significant production plants and manufacturing units."

Rooms for development

The Hilton brand has always had a special relationship with Turkey: the Istanbul Bosphorus was the company’s first property outside the US. There are now 32 Hilton-operated hotels across the region, eight of which were launched just last year, and 22 are in the pipeline.

"Turkey has been a fantastic example of where our development strategy has really worked out with all our brands from luxury down to economy," says Collini. "If you look at the breakdown of our brands, we now have 22 Hilton Garden Inns – six open and 16 under construction – and that’s where we’re seeing the volume of our growth. That brand, that type of hotel is essential to the regional cities."

Such is the power and diversity of the Turkish hospitality sector that Starwood will soon have representatives from all nine of its brands operating in the country. As Hilton’s regional operations come to fruition, it will seek to develop some of Turkey’s other, less-exploited assets. With the nation’s popularity as a tourist and business destination set to rise, and its economy expected to keep growing, international brands will have no trouble filling rooms.

The next big question for Turkish hospitality concerns the extent to which international investors, particularly those based in the Middle East, are willing and able to get involved.