Ahead of the inaugural Iran Hotel and Tourism Investment Conference (IHTIC) from February 7-8, Jonathan Worsley, Chairman of Bench Events, captured some top tips from Christopher Hewett, Associate Director at TRI Hospitality Consulting, about doing business in Iran.
- How did you get into Iran? TRI has been active in Iran since 1995 focusing on green field sites and hotel/real estate redevelopments. Since joining TRI in 2010, I have been involved in over 25 studies across 12 cities. Most of these studies were market and financial feasibility studies and highest and best use studies commissioned by Iranian developers, hotel management companies and professional firms.
- Three reasons for investing in Iran Iran has a lack of quality hotels across the entire country. Iran is experiencing increasing coverage of by travel publications which has resulted in a growth of international visitors in Iran. A large and growing domestic market. Iranians travel extensively throughout the year not only for work purposes but also due to the significant number of public holidays and special occasions. Furthermore, Iranians, particularly Tehran residents, regularly travel during weekends in order to escape the traffic and pollution in the big cities.
- Knowledge vacuum and knowledge transfer There has been a knowledge vacuum of the industry due to Iran being closed off for such a long period of time. At TRI, we spend a great deal of time explaining the mechanics of the industry from an international perspective to Iranians and the importance of impartial and independent consultancy advice. It’s all about educating and increasing the knowledge transfer.
- Conversion or Standalone? We have not seen any conversions at this stage as land prices, particularly in Tehran, are very high. However, many of our clients have land banks which they want to leverage through mixed-use developments which include hotels. The sales price for the office and retail markets is are strong, allowing a developer to support the development of the hotel. However, the cost of permits and approvals remain a challenge, and in some case be up to 20% of development cost.
- Where to invest? Opportunities lie within the major cities of Iran, including Tehran, Esfahan, Shiraz, Tabriz and Mashhad with these cities having limited hotels that would reflect international standards. Looking at Iran as a whole, I believe the greatest opportunity lies in international standard three and four star hotels, throughout the country.
- Where is the investment coming from? The increasing focus on the hospitality sector is being driven by developers that are traditionally in other forms of real estate, including residential, retail or office projects. Development funds and some local banks are investing in the hospitality sector as they look to diversify away from their traditional investment strategies. Individual and Iranian families that are based in Iran plus Iranian diaspora based outside of the country that are looking to invest in the country as sanctions have been lifted
- Which international operators? We are seeing a lot of operators from Europe and Asia focusing heavily on Iran, however American brands are still impacted by US based sanctions. The operators are not only looking within the upper upscale and luxury segments, but also within the midscale and economy segments. Accor opened the first international branded hotels in Iran with the Novotel and Ibis at Imam Khomeini International Airport in Tehran. Rotana, Melia, Moevenpick, Kempinski and Steigenberger are also active in the market.
- Greater market transparency? When we first went into Iran it was a challenge to understand the performance dynamics of the market, not just from individual hotels but also from the various tourism organisations. Initially, a number of tourism departments were quite cautious with providing macro tourism information, however we are seeing that there is greater flexibility when providing information.
- The government’s involvement in tourism President Rouhani has made it very clear that he wants tourism to be the key sector when it comes to the growth of the country’s GDP and the growth of the employment opportunities within the country. The government and local municipalities have been proactive in increasing the appeal of investment in the sector through a number of attractive tax incentives for hotel and tourism projects.
- What would like to see achieved at IHTIC? Increase the knowledge base of participants and to understand the unique characteristics and dynamics of the hospitality industry. And have a greater understanding of the complexities of hospitality development. Expectations of return that are normally seen on other markets around the region and the world. And to convey the importance for potential investors and developers to seek advice from international consultants with sound knowledge and experience not only in the region, but within Iran.
Join TRI Hospitality Consulting at IHTIC at www.iranian-conference.com.