Middle East Strategy Advisors (MESA) predict challenges for GCC hotel owners searching for operators and brands (page 2 of 2)

Mr. Osmond explains: "In fact, many of those hotels are owned by hotel co-operations or hotel investment companies which in turn are fully or partly owned by governments following a privatization initiative. This marks a public sector reaction to growth trends and the perceived need for asset management to avoid underperformance. The public sector is in fact setting a trend for private owners and has prepared for turned tables already."

Level of Branding

Of the sample in MESA's research, the branded/non-branded ratio of hotels in GCC countries is 50:50. This puts the GCC squarely between the ratios of the USA (70:30) and Europe (35:65).

In the past the GCC region was not quite as attractive for hotel operators as Europe, where branding is considered a strong factor to improve property performance. At the same time, management agreements are not as standardized as in the USA where owners compete for operators and contract negotiations are less common. Over the last two decades, the GCC has been a phenomenon with high demand for brands, but favourable negotiation climate for owners. It appears that the GCC countries are moving towards USA market conditions where high levels of branding and growing supply will result in owners competing for operators.

Impacts

Until recently, the negotiations environment favoured hotel owners who are currently excited by the projected growth levels in GCC hotel supply. These owners, especially the high portion of private sector entities, should appreciate the impact of supply growth connected to the existing branding ratio: some of the more desirable brands will no longer be readily available. A single hotel brand can only be represented in any one destination with a limited number of properties. In other words, a destination such as Dubai can only sustain so many Fairmonts or Sheratons.

Owners in high supply locations who have contracted a hotel management company should be prepared to find their operator tempted to exit the property when contracts come up for renewal. Better locations or newer hotel properties may seek to attract operators with more favourable terms and conditions.

The next years will bring major change to the way branded and non-branded hotel projects are being managed. Sven Gade predicts: "there may well be a paradigm shift in the way hotel owners and investors interact with hotel operators. MESA has identified a number of likely impacts and developments". According to MESA, the industry in general and owners of hotel assets in particular need to prepare themselves for:

• Fundamental changes in the terms of management agreements
• More partnerships involving Joint Ventures and exclusivity agreements
• Arrival of brands hitherto without or with little presence in the Middle East
• Rise of existing brands from the Middle East which will expand into other regions
• Expansion into three star, two star and budget hotel market segments
• Increase in franchising and owner operated models
• More emphasis on professional assistance in operator selection and the development of operating models
• Professional asset managers representing ME hotel owners and investors

Faced with these major trend changes in the industry, owners and investors are increasingly securing professional advice to develop innovative operating models or identify the most suitable approach for their requirements. Hotel owners engage professional hotel asset managers who will ensure operating efficiency and optimization of capital performance in order to protect and enhance long-term asset value.

MESA tourism and hotel experts are convinced that the industry in the GCC will go through tremendous changes in the next five to ten years and are prepared to address these issues today. MESA assists hotel owners in all areas of hotel asset management and development, and hotel operators in developing appropriate strategies to anticipate and maximize upcoming opportunities.

A series of forthcoming articles will draw further on this feedback. A more detailed report will summarize the findings and expand on the main message of this release.