Tourism Boom Leaving Israel Short of Hotel Rooms for All Its Visitors

Construction hasnt come close to keeping up with the growth in tourists over the last decade. Airbnb helps, but it cant make up the room shortage

An empty area next to the Sheraton Plaza Hotel in Jerusalem on March 26, 2008
Maya Levin

The year 2017 was a good one for Israels hotels. A record 3.6 million foreign tourists visited and revenues for the hotel industry climbed 16% in the first nine months of the year to 3.2 billion shekels ($920 million). Even as Israelis themselves were often opting for cheaper holidays abroad, occupancy rates at Israeli hotels reached 67% in January-September, up from 63% on average in the previous three years.

In fact, there are so many tourists coming to Israel these days that it is becoming harder and harder for tourists to find a hotel room. Not all hotels are experiencing overbooking, but in the key tourism centers of Jerusalem and Tel Aviv occupancy rates are pushing the maximum in peak season.

Operators trying to bring in large groups of tourists say that hotels in the two cites arent able to offer them enough rooms for certain dates during spring 2018 and they are being forced to alter itineraries or book rooms in other parts of Israel.

The most recent data for hotels in Tel Aviv, Eilat, Jerusalem and the Dead Sea show that occupancy rates averaged 78% in November and 80% in October. Last May they were an even higher 83% and in June 86.4%.

That means the hotels are fully booked because at any given time a certain number of rooms – even whole floors – are unavailable for renovations and upgrades. Then you add in to the average the almost complete absence of Israeli guests on Saturday nights, which marks the end of the Israeli weekend.

'Tis the season
Monthly tourism arrivals, % of annual total

The shortage of hotel rooms goes back to the tiny number of rooms added to the countrys inventory over the last decade – just 4,000, or 10%, to 48.500. In the meantime, the number of overnight stays grew 18% to 22.4 million in the first 11 months of last year.

A lot of the difference has been made up by the rise of Airbnb as a hotel alternative as well as by apartment hotels, even if the Tourism Ministry would be loath to acknowledge the contribution of Airbnb. According to the AirDNA website, some 10,000 homes and apartments are available for short-term rental just in Tel Aviv, but a lot of those offerings are not available all year.

More recently, the number of hotel rooms has shown some growth. In Tel Aviv, some 1,700 rooms have been added over the last three months and in Jerusalem the number has grown by 1,200. But the increase is not nearly enough to absorb the demand in peak season.

Hotels here cant host five million tourists if they come at the same times of the year they do now, in specific months, said Yossi Fattal, CEO of the Israel Incoming Tourism Association. Half of the tourism traffic to Israel, which isnt family visits or business trips, are tour groups and they come in just six of the years 12 months. Even building another 2,000 rooms wont make a difference.

In the short term, he said, the only solution the industry can hope for is that high hotel rates will encourage more visitors to travel off season. Market forces will shift demand at the hotels to off periods – either that, or fewer tourists will come and we wont reach five million arrivals a year, he warned.

Room to grow
Number of hotel rooms in Israel, '000s

Not everyone is so pessimistic. Its true that there are times there can be a shortage, but right now in Jerusalem there are plenty of rooms, said Lior Raviv, CEO of the Isrotel chain. Theres no problem hosting five million tourists a year in Israel. If they come, well find them a room. The occupancy rates in Israel arent high – you shouldnt be looking just at peak level.

Ilanit Melchior, who is responsible for tourism at the Jerusalem Development Authority, said the hotel-room shortage only affects certain kinds of travelers. For instance, someone traveling independently is unlikely to encounter a problem even if arrivals reach five million, because he or she has a wide range of choices from hotels to budget hotels. However, groups – Jewish groups in particular – that stay in luxury hotels are more likely to feel the shortage.

In the next two years, some 4,000 extra hotel rooms are expected to come on line, a number almost equal to what was added over the last decade. Tel Aviv will get 1,500 of those, Jerusalem 950 and Haifa 500. The catch is that the Israeli tourism industry is subject to big ups and down in arrivals: A new war or a major terror attack can easily cause arrivals to plummet.

The geo-political situation in Israel raises the risk factor of developing a hotel, and thats the main thing affecting faster development, said Michael Hay, who is responsible for development at the Atlas chain and runs a consulting firm, Vision Hospitality.

The solution is for the government to reduce the risk by setting up a safety net for the industry that, for instance, would make it easier for hoteliers to get bank loans during down periods.

Besides volatility, the other big factor deterring hotel construction is red tape. It can take a decade from start to finish to develop a new property. Even turning an existing building into a hotel can take years of approvals.

Last week the Knesset passed an amendment to the building and planning law making it easier to turn existing structures into hotels. But to many in the industry, that wont make much of a difference.

Fifth in an occasional series on the Israeli tourism industry.