Israel pipeline grows to meet rising demand

INTERNATIONAL REPORT—Despite the ever-present possibility of a flare-up in the Israeli-Palestinian conflict, the hotel industry in Israel is booming with a growing pipeline to accommodate an increasing demand.

According to HVS’ “Israel Hotel Market Overview 2019,” tourists visited Israel in record numbers in 2017, exceeding the three-million mark for the first time in the country’s history. The following year broke that record, with 4.1 million visitors, representing a year-on-year increase of more than 14%. The hotel industry reaped the rewards.

“Overall hotel performance has been very strong over the last three years, with RevPAR increasing from $136 in 2016 to $160 in 2018 (8.7% CAGR),” noted Russell Kett, chairman of HVS London. “Following years of geopolitical tension and disparate performance across the country, 2017 turned out to be one of the best years in the country’s history from a hotel performance perspective. Strong growth continued in 2018 with RevPAR increasing by 6%, driven by a healthy increase in average rate [ADR grew from $208 in 2017 to $217 in 2018].”

He continued, “From a long-term perspective, total demand growth slightly outpaced rooms supply growth between 2014 and 2018; however, the same comparison over the last three years indicates a much larger gap, with demand increasing by 6.7% year-on-year while supply grew by 2.9%, thus highlighting the strong potential of the country and need for additional accommodations.”

Eyal Carlin, tourism commissioner for North America for the Israel Ministry of Tourism (IMOT), pointed out there is new supply opening regularly, “mainly in Tel Aviv and Jerusalem, but also in the Negev Desert and Eilat, as well as in the Galilee region. Several major international brands are breaking ground and opening all over the country, including Six Senses, Kempinski and InterContinental, and this is in addition to domestic brands expanding with new, renovated and converted hotels.”

According to HVS, at the time the 2019 overview was completed, there were 419 hotels in Israel offering nearly 55,000 rooms. Carlin broke down the number of rooms by city: “There are 11,000 in Jerusalem, 9,000 in Tel Aviv, 11,000 in Eilat, 2,000 in Haifa, 4,000 in the Dead Sea area, and the rest are spread out across the country.”

He added, “Nearly all international legacy brands have properties in Israel—Marriott, Hilton, IHG, Accor, etc. —with the main Israeli brands being Fattal, Dan, Isrotel, Atlas and Brown. Many of Israel’s domestic brands are expanding outside of the country.”

According to the HVS overview, there are 34 hotels in development expected to open by 2025, including the Six Senses Shaharut, Nobu Tel Aviv, Pullman Jerusalem and Kempinski David Hotel in Tel Aviv. There are a number of others planned or rumored with no opening date set.

It may come as a surprise, but most of the visitors to Israel are not Jewish. According to IMOT, 61% in 2018 were Christian, 22% were Jews, 12.1% were not affiliated, 1.8% were Muslim, 0.6% were Buddhists, 0.5% were Hindus and 0.1% were Baha’is.

“Our visitors come from many different backgrounds and cultures, and their motivations for visiting the country are varied,” said Carlin. “Of course, there are the obvious points of interest including religious, historical and geographical sites such as the Church of the Holy Sepulchre, the Western Wall and the Temple Mount; Masada, Capernaum and Caesarea; and the Dead Sea, the Jordan River and the Ramon Crater. That said, many of our new and repeat visitors are coming to enjoy the amazing chefs, markets and culinary experiences that abound throughout the country; the LGBTQ scene; adventure and active travel; health and wellness, etc.”

But Israel is more than just a tourist destination; business travel is increasing thanks to the opening of better-quality hotels and the introduction of new air routes, according to Kett.

“Virgin’s new route from Tel Aviv to London is a welcome addition. Its timing—linking with a flight to the U.S.—will be of further benefit to business travelers,” he said. “British Airways has selected Tel Aviv to be one of the routes benefiting from its new, and long-awaited, business-class seats. For the budget-conscious traveler, budget airlines easyJet and Wizz Air have opened up new routes to Europe. Ben Gurion Airport has recently expanded its terminal facilities and is set for further growth. And the country has opened a new airport serving Eilat and the south of the country, which brings that area within easier reach of those within northern, western and central Europe.”

Carlin pointed to the “prominent presence” of tech companies, start-ups and R&D as a draw for business travelers from all over the world.

“Israel is now also emerging as a leading destination for conferences, meetings and incentive travel,” he noted. “The IMOT and local municipalities are investing more and more in this market and creating incentives and support programs. In the last three years, the IMOT has established an incentive program for airlines to open direct flights from new gateways. North America alone has added eight new cities that now have nonstop service to Tel Aviv: Boston, Miami, San Francisco, Dallas, Chicago, Montreal, Las Vegas and Washington, DC.”

At present, the Israeli-Palestinian conflict is quiet, which is best for everyone in Israel’s hotel industry, including guests. “It is quite remarkable that most people, once in the country, seem to experience no effect of the ‘security situation’ in spite of the image that is projected internationally,” said Kett.

What’s in store for the future of the industry in Israel? “Positive and continuing growth in both demand and supply should enable the Israeli hotel sector to continue its upward trajectory,” Kett predicted, adding, “The IMOT is keen to reduce red tape and offers a range of development incentives. Conferences like the forthcoming Israel Hotel Investment Summit in Tel Aviv attract more interest and investment from the international hotel community.”

Carlin agreed: “We anticipate a continued growth in hotel supply in Israel as, currently, the demand is nearly outstripping supply.” HB