Israeli hotel industry embraces new destinations

Eilat, Israel
Sunset view of hotels in the Israeli holiday resort of Eilat. (trabantos/Getty Images)

In 2019, more than four and a half million tourists travelled to Israel  - an annual record for the country.

“This historic achievement is a direct result of the ongoing revolution in marketing Israel around the world, led by the Israel Ministry of Tourism, in infrastructure development, incentives for international airlines to open new routes into the country and collaborations with the world’s leading tourism agents,” Yariv Levin, then Israel’s tourism minister, said at the time. 

“Incoming tourism contributes to the development of the periphery and the economy and I am proud to lead this.”

It was the third record in a row, and hopes would have been high of a similar feat in 2020. In the end that didn’t happen. The Covid-19 pandemic struck forcing Israel along with the rest of the world to close its borders to most international travel.

In the last few months Israel has very slowly started to open up, thanks in part to its successful vaccine rollout, but this has only been to small groups, individual tourist arrivals are still not allowed to enter.

All this has meant, Israel’s hotels have had to get used to catering for a local rather than regional or international market – a situation that has created winners and losers.

“Urban markets in Israel got hit very hard. Tel Aviv is down more than 70% from 2019 numbers. Jerusalem is down. Jaffa in the north is also down,” said Michael Hay, founder and managing partner at Vision Hospitality, one of Israel’s leading hotel development and management companies.

On the flip side, places like Eilat, the country’s major resort town situated on the Red Sea did much better.

“We just finished the summer period and hotels that were in resort towns, like Eilat, like the Dead Sea, up in the Galilee in the mountains, around the Kinerret Lake, all of these areas are coastal. Of course, anything that's coastal, on the beach, all of these four, five major areas, were full, were full with Israelis,” said Ronit Copeland, founder and CEO of hotel advisory firm Copeland Hospitality.

Despite the long pause in international tourism arrivals, development in Israel continues at pace. Last year HVS noted more than 30 developments scheduled to open over the next four years. One recent eye-catching launch was the new Six Senses resort in the Negev desert.

In general the market is dominated by a handful of large to medium players with Fattal and Isrotel perhaps the biggest names, followed by Dan Hotels, Brown Hotels and Astral Hotels.

Fattal recently expanded its presence in the boutique segment with the acquisition of a 72.5% stake in Israeli chain 7Minds with the aim of broadening its appeal to more markets.

Brown Hotels plans to open six more hotels in 2021, two in Jerusalem and four in Tel Aviv, and is also aggressively expanding outside of Israel as well.

According to global hospitality data and analytics company STR, there are a total of 15,848 rooms in the pipeline, representing growth of 29%.

As well as the operational and branding side of the hotel market being dominated by locals, the investment side is too.

“There are international investors, but I would say that the Israeli investor arenas are very, very, very robust, very, very rich in the resources,” Copeland said.
Big names include: Nitsba Group, Azrieli Group, Mivna Group.

“Family businesses, family wealth, real estate, pension and insurance are just a couple of the examples of where the money’s coming from,” Copeland added.

What’s interesting is that, according to Hay, even though development is extremely healthy, the market can be fairly tepid.

“In general, in Israel, you don't really have an effective or a thriving buy and sell [market], not even in great periods. You would have maybe one hotel sold a year, and that's a lot,” he said.

“And over the past 10 years, when we really saw a wave of development, and a boost in demand, and each year, we were able to hit record highs, you didn't see a lot of sales.”

So far, like in much of the rest of the world there hasn’t been much distress, with government support helping hotels tick over with international tourism effectively banned.

At the same time hoteliers have had to cut expenses and also at the same time learn to market towards domestic travellers to eke out as much revenue as they could.

With things looking slightly more positive at the moment, a labour shortage is one of the biggest challenges. Workers were put on furlough or on part-time contracts and many of them, especially the younger ones are now looking for other industries to go into.

“[O]perationally speaking we hardly have any staff,” Copeland said.

The pandemic might have other long-lasting impacts on the industry.

“I have a feeling that 80% of what we knew is going to stay, and there will be a difference,” Hay said, before adding “And because of the possibility or the fact that people are getting more used to working from all over the world, the type of travel will change, so people will maybe travel less, stay longer.

“Maybe there will be a new breed of people that are becoming temporary locals in places, in that sense. And this is what we are focusing on when we look at future development.”

One of the companies that has been tapping into this is Selina, which was founded by a couple of Israeli real estate entrepreneurs. Although the company now operates across the world, its work-from-anywhere ethos was inspired by the Kibbutz movement.

Selina has been slowly changing its model over the year to target more remote workers with increasing amounts of revenue coming via subscriptions. As The company wanted to get to 60% of guests being remote workers by 2024 but as Saurabh Chawla  CEO of Selina's PropCo division explained at IHIF's Adjacent Spaces event, the company has actually reached that target already.

Other investors are also spotting opportunities in alternative forms of accommodation. Copeland mentioned that Israel Canada, another of the country’s big real estate investment companies, had bought some land from a kibbutz in Gonen.

Even with all these new types of development going on, Hay is confident, that the likes of Tel Aviv will return to popularity sooner rather than later.

“[I]f you believe, and I guess many of us do believe that Israel in general has a positive outlook, in terms of demand growth, and becoming the destination it has become over the past years, I think that you will see strong developers developing some new product in Israel in general, in Tel Aviv in particular,” he said.

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