Israel Is Facing Another Surprising Surge: New Hotels

As if no global pandemic threatens the tourism industry, Israeli entrepreneurs are promoting projects that will create hundreds of new hotel rooms. Will this also reduce vacation prices?

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A private pool at the Isrotel Kedma hotel in the Negev desert, southern Israel.
A private pool at the Beresheet Hotel, Mitzpe Ramon, southern Israel. $4,909 per night for the presidential suite. Credit: Assaf Pinchuk

"A year and a half of a worldwide pandemic has done its job, and has made us feel that we’ve had it with being at home, with dealing with sublets and apartment swaps from every possible direction – and that the time has come for a real vacation,” says Inbal, 33, a mother of three who lives in Givatayim. “In order to escape the uncertainty and the fear of contracting COVID-19 abroad, we examined the option of taking a vacation in Israel with the children.”

Inbal found that the options for a vacation from Sunday to Thursday in August in the southern resort town of Eilat, with an “all-inclusive” arrangement, ranged from 11,500 shekels to 22,500 shekels (about $3,500 to $6,900) for the five of them. In Tiberias and Lake Kinneret, in the north, prices were somewhat more affordable and ranged from 4,600 shekels, with breakfast only, to 18,000 shekels in more pampering accommodations for the same weekday period. The large selection of options in Tel Aviv, which also included many Airbnb apartments, ranged from 3,000 shekels to over 20,000.

“In order to get something reasonable with activities for children and a comfortable room, we have to pay the equivalent of two months’ rent,” says Inbal angrily. “We’re used to getting more for our money on vacations in Cyprus or Greece. Only in Israel is everything so expensive.”

Like Inbal, many Israelis who have been grappling with vacation plans for their families in July and August have discovered that COVID-19 hasn't changed the rules of the game in the local hotel market when it comes to popular tourism destinations such as Eilat, Tel Aviv and Jerusalem. The rules are tough: The moment demand exceeds supply, the prices soar. Thus hoteliers and entrepreneurs in the industry, who suffered to some extent in the past year, are compensating themselves for their losses.

But an examination by TheMarker shows that the virus has not succeeded to paralyze or topple the Israeli hotel entrepreneurship sector so far. Despite dashed hopes of major opportunities that would open up because of the crisis, even the players considered to be more vulnerable – owners and operators of very small boutique hotels, who pay millions of shekels in rent every year – were in no rush to give up their holdings. Even if many similar businesses abroad virtually stopped functioning, the field of hotel entrepreneurship in Israel – which is supported by government grants – did not come to a halt. Indeed quite a number of projects that were already in the pipeline continued to move forward.

Does that mean that soon supply will grow dramatically and, for example, hotel prices in Eilat will drop? Don’t count on it. The rate of building starts of hotel rooms is still not sufficiently high to satisfy local demand during the summer months or to spur price reductions.

The low-cost cache

TheMarker discovered that the number of hotels currently in the planning or construction process totals hundreds of new rooms for every familiar chain in the country. The momentum is led by Tel Aviv-Jaffa, the city for which demand was high on the eve of the outbreak of the pandemic; hoteliers believe that tourism growth there will soon resume.

For example, the international Hilton chain recently announced the construction of a new hotel in the city, which is scheduled to open in 2026 near Independence Park and Metzitzim Beach along the Mediterranean. For its part, the Prima chain says it is advancing plans to build a hotel on Allenby Street, which is slated to open in about four years, in addition to another one near Dizengoff Square, on the site of a residential building whose zoning has been changed.

The list of the new hotels in planning stages includes additional chains, some of which are planning to launch low-cost urban branches, mainly in Tel Aviv. For example, the international easyHotel budget chain is planning to launch a 200-room hotel in the Ramat Hahayal neighborhood, which will offer affordable services, based on sleeping only, with separate payment for any additional services.

“There’s a high demand for rooms at low-cost prices, about 500-600 shekels per night,” says Ronit Copeland, CEO and founder of Copeland Hospitality, a strategic consultation company for the hotel industry. “The business model is one of high occupancy instead of high price. Thanks to the lower rates, the moment the hotel reaches 90 percent occupancy (instead of the city’s average of 75 percent) – it will earn a profit.”

In the same part of Tel Aviv another hotel, converted from offices, is expected to open in about two years in the "condo living" style, offering units for a period of between 14 days to three months, without receptionists or other hotel services and amenities, except for a swimming pool.

Hotels along the Tel Aviv shoreline. “After the coronavirus we’ll see more long-term players in the hotel market,” Michael Hay predicts. “There won’t be any more very small entrepreneurs.”Credit: Hadas Parush

“The model here is low prices for a longer stay. That’s the way to achieve a good return and not be left with vacancies,” Copeland explains.

Michael Hay – founder and managing partner of Vision Hospitality, which specializes in development and management of hotels – who has worked with the Atlas hotel chain, among others, says that the building momentum in the industry continued even at the height of the pandemic.

“There was no thought of stopping any project, and work at the chain continued,” Hay says. “Due to the coronavirus, the expectation was that prices would fall and hoteliers would go bankrupt. But that didn’t happen, nor am I sure that it will. Many big players believed and hoped that there would be 'bargain prices' during the crisis – and that didn’t really happen. At present there are no major opportunities in the hotel market, and even people who have decided to sell properties aren’t planning to do so at low prices."

“At the start of the pandemic," says Assaf Patel, director of business development at the Patel chain, "there was initial panic and some people thought that the end of the world had come, but we didn’t stop the development of the new hotels.”

Big players

Itzik Ben Shoham, chairman of White City Buildings, says that between one lockdown and the next he signed new deals with the Isrotel chain, in the context of a strategic partnership to build hotel accommodations in Tel Aviv. In June 2020, for instance, a deal was signed to build a hotel on Pinsker Street, on property purchased by the company in late 2018. Another deal was signed for three adjacent lots on Montefiore Street, along with additional accommodations that will be built on Dizengoff Street and in the Basel neighborhood. All together there should be a total of 600 rooms, but a considerable number will be in boutique or luxury hotels.

“When the coronavirus began I looked for opportunities, and I wasn’t the only one,” says Ben Shoham. “But in Tel Aviv there were more people seeking opportunities than there were opportunities. What helped many keep their heads above water were the [pandemic] grants from the government, along with recovering domestic tourism and the option of renting out hotel rooms for intermediate periods of several months. That’s how many in the industry were able to survive in the past year and a half.

Ben Shoham also notes that “the support and flexibility demonstrated by property owners toward the management companies of the small boutique hotels, out of strategic awareness of their activity and the shared return, preserved the market and didn’t upset it. Property owners who invested in an asset in order to convert it into a hotel are in no rush to change their plans. In most cases, their return from ownership will be greater in the long run, especially after the blow suffered by businesses with office space during the coronavirus crisis.

The Isrotel Princess hotel in Eilat, under construction. Credit: Shoshi Horesh

"If the working assumption had been that the virus would stay with us for another five years, maybe everything would have collapsed – but on the assumption that COVID-19 is a passing event, people are expecting a big boom in tourism that will repeat the impressive figures for 2019, and far beyond. If the assumption now is that in another year the virus will be over – you could say that Tel Aviv survived the crisis.”

A prominent phenomenon in the local hotel industry is the strengthening of the chains and other major players – which could explain the absence of significant competition and the still high levels of prices. “After the coronavirus we’ll see more long-term players in the hotel market and less targeted opportunism,” Hay predicts. “There won’t be any more very small entrepreneurs with one boutique hotel. It will be the large chains and powerful players who will become stronger.”

Still, Rina Degani, who has a doctorate in city planning and specializes in the urban economy, warns that the confidence of entrepreneurs with respect to investment in hotels, along with hopes for the swift return to the volume of tourism in 2018 and 2019, is liable to be misplaced.

“Construction and investment in hotels has become a trend," says Dr. Degani. "Just as up until a few years ago everyone built offices, until there were too many – the same is likely to happen in the hotel industry.”

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