Hotels pay the bill for unrest in Mena region

Sales of hotel properties around the world are expected to increase by as much as 40 per cent to US$30 billion (Dh110.19bn) this year, but reduced investment into the region because of unrest will hurt the hospitality industry overall, according to a report.

Hotel property transactions worldwide surged by 140 per cent last year to $24.3bn following a difficult year in 2009 as financing conditions deteriorated and the tourism sector was hit hard by the global downturn, Jones Lang LaSalle Hotels said yesterday.

The Middle East and North Africa region makes up just a small percentage of these hotel property transactions, with most investment in the region going into new development rather than sales of existing hotels.

With the Middle East market dominated by regional funds, global investors were just starting to look at investing in hotels in the region, the consultancy said. But they have now put their plans on hold.

"If you're an Asian investor looking at this region, at the moment they tend to say 'I was thinking about investing in that region', but now they see it more as big- picture," said Arthur de Haast, the global chief executive of Jones Lang LaSalle Hotels, speaking on the sidelines of the Arabian Hotel Investment Conference. "Although the unrest is far away from here, they tend to lump it together and say they're going to hold as they wait to see what happens."

He said it would now be at least next year or 2013 before "any meaningful amounts of investment" came into the region's hotel sector. A number of investors from India and South East Asia in particular had been considering investments, he said. "This is still a relatively illiquid market at a global level," said Mr de Haast. "This market is still very much a development-led market. People who developed hotels in this region are still holding these assets and as the hotels ramp up again, many hotels are still adapting to the supply-demand imbalances."

Signs were positive in Dubai, which has become a haven during the upheaval in some other parts of the region.

"In markets like this here in Dubai, we are seeing the imbalance come back in favour of the demand side of the equation, which means that conditions for investment into existing assets is going to improve now," said Mr de Haast

Meanwhile, the Moroccan Agency for Tourism Development said it had set up a multibillion-euro investment fund for tourism projects in the country, which was attracting investment from the region's sovereign's wealth funds.

STR Global, a research company in London, said there was evidence the new supply of hotels in the region was being absorbed.

"We are seeing demand increasing and supply start to level off, which indicates that the new supply has been absorbed," said Elizabeth Randall, the managing director of STR Global. She said room rates were "approaching the positive territory", adding it was the first time in a year this trend had been seen.

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Formula Middle East Calendar (Formula Regional and Formula 4)

Round 1: January 17-19, Yas Marina Circuit – Abu Dhabi

Round 2: January 22-23, Yas Marina Circuit – Abu Dhabi

Round 3: February 7-9, Dubai Autodrome – Dubai

Round 4: February 14-16, Yas Marina Circuit – Abu Dhabi

Round 5: February 25-27, Jeddah Corniche Circuit – Saudi Arabia

In numbers: PKK’s money network in Europe

Germany: PKK collectors typically bring in $18 million in cash a year – amount has trebled since 2010

Revolutionary tax: Investigators say about $2 million a year raised from ‘tax collection’ around Marseille

Extortion: Gunman convicted in 2023 of demanding $10,000 from Kurdish businessman in Stockholm

Drug trade: PKK income claimed by Turkish anti-drugs force in 2024 to be as high as $500 million a year

Denmark: PKK one of two terrorist groups along with Iranian separatists ASMLA to raise “two-digit million amounts”

Contributions: Hundreds of euros expected from typical Kurdish families and thousands from business owners

TV channel: Kurdish Roj TV accounts frozen and went bankrupt after Denmark fined it more than $1 million over PKK links in 2013

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”