The Middle East’s hotel market seems to exist in a state of permanent paradox. On the one hand, strife, conflict and economic chaos make hospitality seem all but irrelevant. On the other, you have opportunity, levels of unprecedented growth and an industry that seems to encapsulate almost perfectly the direction the region is moving in.

If anything, this dichotomy should suggest an area that is too complex, vast and plural for the kind of generalisations analysts are wont to make. Both sides of the story deserve telling, but what conclusions can be drawn? According to the latest figures from the United Nations World Tourism Organisation (UNWTO), 52 million international visitors travelled to the Middle East in 2013. So where did they go, and how is the hotel industry responding to this sort of traffic?

Open goals

Whether they play in November or June, in 2022, the world’s greatest footballers and hundreds of thousands of their fans will converge in Qatar for the Middle East’s first World Cup.

To meet this demand, major plans have been announced to attract seven million tourists a year by 2030, and to build an extra 100,000 rooms for them to stay in. Work on this is already under way. The new Hamad International Airport opened in Doha last year, dramatically expanding the country’s airport capacity from nine million to 30 million passengers.

By the second quarter of 2014, the number of hotels in the capital city had risen by 60% on the previous year, with 74 hotels open and 13,595 keys available, mostly in the luxury and upscale market.

With such a clear strategic goal, the only real danger for Qatar is that investment in infrastructure and hotels happens too fast. During the first half of 2014, the state attracted 1.5 million visitors, a record for the time, but still a long way off the tourism authority’s stated target.

The race to build is on, but according to a report published last year by Deloitte, while hotel demand did increase at around 11% per annum between 2008 and 2013, supply increased by around 13%. Analysts identified a mismatch, with occupancy levels for the year at 65%, and the market competing hard for customers.

"For those cities looking forward to future mega-events, particularly Doha, the challenge will continue to be successful planning for the post-event legacy."

"An element of caution is needed in off-peak times to ensure excess supply does not drag down performance," a study by PWC of the region’s market concluded. "For those cities looking forward to future mega-events, particularly Doha, the challenge will continue to be successful planning for the post-event legacy."

Dubai is also preparing for a major global event. Development in the oil-rich emirate slowed in the aftermath of the global financial crisis, but with an improving economic backdrop and with the exciting prospect of Expo 2020, hotel development and performance is once again making headlines.

Just like Qatar, Dubai’s Department of Tourism and Commerce Marketing is planning large-scale new development for the six-month global event, with 140,000-160,000 new rooms being built before 2020, and 10,000 others being refurbished. Unlike its rival, though, that ambitious supply pipeline is unlikely to damage current performance. According to the same PWC study, growth rates of 1.7% (occupancy) and 4.7% (ADR) are expected for the coming 12 months.

Though not preparing for any major global event, Saudi Arabia is also looking promising in 2015. According to data gathered by STR Global, the country has the most rooms under construction (17,135) of anywhere in the region. Alongside strong investor appetite, one of the main factors behind this growth is government support. With new airport developments and large-scale railway improvements, three of the state’s key cities – Riyadh, Jeddah and Medina – are among the most exciting hotel markets in the Middle East.

Problem areas

It would be wrong, of course, not to mention those countries that are not doing so well. There are certain areas where, just a few years ago the economy – and with it the hotel market – looked promising that are now in ruins. Syria has all but fallen apart and Iraq, which was at one stage starting to show signs of growth, is in chaos.

Other countries like Egypt (now under the authority of Abdel Fattah el-Sisi) and Lebanon (experiencing blowback from the Syrian civil war) are also suffering. According to STR Global, both experienced significant drops in occupancy rates (18 and 25%) and revpar (20 and 30%) in the first quarter in 2014. The situation in these countries is not as bad as the situation elsewhere, however, and there are still grounds for hope, according to Chiheb ben Mahmoud, Jones Lang LaSalle’s head of hotels, Middle East and Africa.

"The Levant market continues to suffer from war-related insecurity," he says, "but there is a strong push in Egypt, as well as from several prominent GCC investors, to get tourism and hospitality rolling and growing again in the area and contributing to the country’s economic and social challenges."

That optimism can only be a good thing, and as some countries in the Middle East lose out on the back of regional instability, others will inevitably gain. Far from harming its rapid development, the Arab Spring has made things much better for places like Dubai, as investors, tourists and business travellers look for destinations more stable than previously automatic choices like Egypt, Jordan and Bahrain.

For countries unaffected by the Arab Spring that have clear, strong growth targets, diversifying room supply is an urgent priority. The Middle East, particularly Dubai and the other Gulf Cooperation Council (GCC) states, has historically been a place for upper-class, luxury hotels and this remains the case in many ways.

Towards the end of last year, the Four Seasons opened in Dubai, where the Mandarin Oriental and St Regis are also set to commence business in 2017 and 2018 respectively.

"Times are changing. A range of accommodation is needed for a growing domestic market, while destinations need to widen their appeal to international visitors to create more a more diverse tourist experience."

Things are beginning to change. At the end of 2013, Dubai’s Department of Tourism and Commerce Marketing announced a number of incentives designed to encourage growth in the mid-market segment with plans to introduce 35,000 new rooms by 2020. Dubai isn’t the only place hoping to develop new submarkets and sources of demand, either.

Broadening appeal

"While the luxury and upscale hotel segment will continue to dominate the landscape, times are changing," Jones Lang LaSalle’s ben Mahmoud says. "The sector needs to provide a range of accommodation for a growing domestic market, while destinations need to widen their appeal to international visitors to create more variety and diverse tourist experience.

"Dubai has, for example, announced plans to accelerate the development of more affordable three and four-star hotel development as it plans to widen its appeal to new tourists and families. The UK’s budget Premier Inn chain has also just announced it will open 14 hotels across the GCC countries (including Sharjah, Riyadh, Manama, Muscat, Doha, Jeddah and Dubai) over the next three years."

As is usually the case, most of the investment in new hotel development will be primarily domestic. In Doha, for example, the vast majority of hotel real estate is owned by the royal family and that’s unlikely to change in the near future. Some see the lack of international investment as a function of freehold restrictions and laws governing foreign ownership.

Not all areas are like this, though, and other factors are at play, says ben Mahmoud: "Few players in the European hotel investment industry are structured to develop or own hotels in the Middle East. There are no tangible barriers that cannot be addressed and in many jurisdictions, freehold is not an issue. It is a matter of investment profile, modus operandi and local expertise."

Wherever the money is coming from, the commitment to investment and development across the Middle East hotel sector is impressive. With the rise of the Islamic State in Syria and Iraq, and strife in Yemen and Libya, 2014 was hardly an easy year for the region. Thankfully, the hotel market stands strong, and with many countries trying to capitalise on their stability and major events in the near future, it’s hard not to be optimistic.