Central Asia & Turkey Hotel Investment Conference

The Greeks knew it as Transoxiana. Its countries comprise much of the ‘Silk Road’ network of trade routes transversing the Asian continent. More recently they have been pejoratively labelled as ‘the Stans’. But for the purposes of this inaugural CATHIC conference, emerging markets such as Kazakhstan, Kyrgyzstan, Tajikistan, and Uzbekistan were brought together under the umbrella of Central Asia, alongside host country Turkey.

There is a certain logic to a conference for the Central Asia region being located in Istanbul and including Turkey within its remit. The closest hotel investment conferences for the region previously were the Arabian Hotel Investment Conference Dubai, and the Russia Hotel Investment Conference held in Moscow. The former has its focus on the Middle East region. There is an argument that ex-Soviet states, having only just escaped central control from Moscow, prefer not to do business in the Russian capital. In this context, Istanbul, with its historic status as a gateway between Europe and the East, is the natural business hub for the emerging markets of Central Asia.

An added attraction is the city’s status as one of the most dynamic in the world at present – the financial, if not political, capital of a country experiencing growth on a par with many Asian economies as keynote speaker Nenad Pacek, President of Global Success Advisors, explained in opening the conference.

With foreign exchange reserves of US$80 billion and predicted growth of  seven per cent  for 2012, Turkey is “one of the most exciting markets on earth,” Pacek said, comparing its economy to that of Brazil in having both made great economic progress in recent years, and overcome its debt problems. “I am bullish about Turkey – with half the debt levels of most Western European economies and promising growth forecasts, I believe most corporate attention in the near future will focus here,” he said.

The picture in the greater Central Asia region is more mixed according to Pacek, with most countries in the region heavily dependent on commodities, and as a result at the mercy of price fluctuations fuelled by global commodity speculation. He identified Kazakhstan as a key market. With a $130bn  economy, bigger than those of all the other CIS countries put together, it offers good investment opportunities, and is out-performing many countries. States such as Armenia, in the hands of the IMF, or Kyrgyzstan, where the political turmoil of 2010 has only just calmed down, do not offer as much potential. Azerbaijan, the third largest economy in the region after Turkey and Kazakhstan, has slowed in line with oil and gas prices but the outlook is reasonable as more oil fields and pipelines are opened. Predicted growth for 2011 is stronger in Tajikistan and Uzbekistan, where commodity exports such as cotton, aluminium and gold are driving growth.

These regional variations were reflected in the market overview provided by Mehmet Onkal of BDO Hospitality Consulting, in which he outlined the penetration of international hotel brands within the CIS countries. Azerbaijan and Kazakhstan have six and nine internationally branded hotels respectively, whereas countries such as Kyrgyzstan, Tajikistan, and Turkmenistan have only one apiece. The strategy of the international groups in these countries is to find a foothold in the capital cities with core brands, and then expand outwards. “There’s no sense in having dots on the map but not making money,” said Peter Vermeer, VP Development for Benelux and Eastern Europe at IHG, “We have to look at whether [new developments] make sense geographically – whether can we supply and support them.”

Amongst representatives from Accor, Starwood, Wyndham and Capital Partners, speaking on a panel on the hottest markets in Central Asia, Turkey emerged as the clear favourite for hotel investment and development in the region but there was also plenty of opportunity in the neighbouring countries. Kazakhstan and Georgia were singled out specifically as targets for growth for mid-scale brands such as Ibis, Four Points, Aloft, Ramada and Ramada Encore.

Similarly the regional leaders speaking on a panel moderated by Ömer Isvan of Servotel Corporation were focused on Turkey, but not exclusively. For John Wilson of Dedeman Hotels & Resorts International, Azerbaijan and Kazakhstan also offered potential. Hüseyin Öztürk, CEO of Marmara Hotels & Residences, said his company was looking at Ukraine and Moscow.

A recurrent theme throughout the conference was the question of branding, and whether hotels should partner with local or international brands.

The general consensus was that home-grown brands, such as Rixos, Dedeman and Marmara have excellent local knowledge and know what suits the market.  On the flip side, the international brands have high global visibility and well-tuned operations.

 “The conclusion is to avoid making choices based on ‘ego’ and choose the brand that will deliver the best return on investment for each project,” said conference delegate, Turkey-based Banu Ogawal.
Elif Egeli Nisanci of Jones Lang LeSalle Hotels summed up the issue by advising that development should not be for the sake of development:  “Make sure that the supply matches the demands of market to ensure the project will maintain good rates.”

Hüseyin Öztürk of Marmara referred to a perception that international brands did not add value in resort destinations and should stick to cities, but there were signs that this was beginning to change at the luxury end of the market.

Another common perception was that international operators were not as good as locals at cost management, whilst Kirk Kinsell of IHG argued that, conversely, international brands had the ability to “acquire the customer cost effectively”.

Representatives of the international brands saw potential in Turkey for quality, branded mid-market and economy hotels in secondary cities. “Turkey is crying out for branded, consistent,  quality mid-market hospitality products,” said Michael Collini of Hilton Worldwide. Poğda Demircan, Hilton’s Development Manager for Turkey agreed. He also pointed out that the room rate gap between upscale and mid-market hotels could be quite small in regional cities.

“At the end of the day, there is a maximum price customers will pay for a room in  provincial city locations. This means that the greater operating profit will be for the mid-market operator who has lower development and operational costs, and not for the five-star properties.”
Peter Vermeer added that mid-market brands such as Express by Holiday Inn had the advantage of being easy for investors to understand, easy to finance and easy to build. “It’s not ego-driven, you can control construction costs as everything is fixed. The joy is in the return on investment.”

Vermeer’s colleague, IHG’s President for Europe, Middle East and Africa, Kirk Kinsell,  also gave credit to the region’s entrepreneurial spirit: “We have confidence in Turkey and its phenomenal growth. We have nine hotels open across Turkey and a further six in the pipeline. Our main focus is on growing our brands in Istanbul, Antalya, Ankara and Izmir,”
Simon Vincent of Hilton Worldwide said his group has 17 hotels in the pipeline, half of them through franchise agreements.

Nevertheless, according to Elif Egeli Nisanci from Jones Lang LaSalle, 63% of hotels in Turkey remain unbranded, and for hotels with 100+ rooms in cities of over 500,000 population, that percentage rises to 78%.

Speaking on a panel that looked at resort developments, Paul Pisani, Senior VP of Development for Corinthia Hotels pointed out that “Turkey has had tourism for 3,000 years – hospitality comes naturally to the people, and there is so much culture, natural beauty and great food.”
The evening cocktail reception allowed delegates to reflect on the conference’s successful launch against the backdrop of the sunset  views of the Bosphorous Bridge and Ortaköy Mosque. The innovative design of the Marmara Esma Sultan venue – a modern steel and glass structure inserted within a centuries old historic palace, encapsulated Istanbul’s beguiling blend of old and new.

As Ayla Hayfegil, Managing Partner, Servotel said, “We have attended the International Hotel Investment Forum in Berlin for several years, but having an event here in Turkey, which is in the middle of the hotel development action in the region is very welcome.” Koray Yetik, Secretary General of the Turkish Tourism Investors Association added: “this is a great start, I always believed that this region needed an event like this to bring together people with a common interest in hospitality development. This is a wake up for the hotel and hospitality industry in our region, and I hope that in future years even more players, particularly those from other Central Asia countries will join us.”

The 2nd CATHIC conference will take place in Istanbul in February 2012. Dates and venue will be announced shortly.