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Shortage of Affordable Hotels Could Hamper Israeli Tourism Boom

Foreign investors rush to enter market heating up in Tel Aviv, Jerusalem and Dead Sea

Israel’s hotel industry is prospering, with packed attractions and bustling beaches, as developers and investors rush to enter a market set to see significant gains in the coming years.

Some 4.5 million people are projected to visit Israel this year, according to the Tourism Ministry, representing a boost to the economy of over $6 billion. However, a serious obstacle could hold this growth back, namely the lack of affordable accommodations.

“You can get [to Israel] very cheaply through a low-cost carrier. There are huge amounts of things to do. It’s a wonderful destination – but hotels are quite expensive,” Thomas Emanuel, director of the international STR market research firm, told The Media Line.

“Looking at it and comparing it to other destinations, there are far fewer mid-scale and economy rooms than in competing markets, and I think that’s where we do see that there could be some opportunity,” he said.

Because of the high average cost of hotel accommodations, Emanuel emphasizes that many are turning to alternative options like Airbnb, which has tens of thousands of listings available across the country.

In a broad report on the hotel landscape worldwide, STR notes that 39 percent of travelers used Airbnb to find accommodations in 2018, with younger travellers being most likely to rely on the online service. In Tel Aviv, the popularity of Airbnb is more pronounced: Of the coastal city’s over 14,000 short-term rentals, 96% are found on Airbnb.

Most travel to the Holy Land over the summer, during Passover or the Jewish High Holy Days in the fall, with Tel Aviv leading the way in terms of occupancy, the report states.

“The Israeli market is doing incredibly well,” Emanuel stressed. “Demand is up 9% year-to-date, and supply has been relatively flat, so it’s a recipe for success. Airbnb is big here in Israel… [and] it’s here to stay. Ultimately, the hotel industry has to adapt and be aware of it.”

At the Israel Hotel Investment Summit [1] held in Tel Aviv in late November, officials and tourism leaders discussed how to address the shortage of budget and low-cost options. With plenty of sunny beaches, it remains one of Israel’s top tourist destinations; however, it is also consistently ranked among the 10 most expensive cities to visit in the world.

Investors and hospitality specialists take a time-out at the Israel Hotel Investment Summit in Tel Aviv on November 21, 2019. (Courtesy IHIS)

The Israeli government is seeking to address this imbalance by providing developers with construction subsidies and encouraging international chains to set up shop in the Holy Land.

“We are in a situation where not only in Tel Aviv, [but] even at the Dead Sea and the Sea of Galilee, there are no options to find rooms over the weekend and [during] the week,” Tourism Ministry Director-General Amir Halevi told The Media Line. “When we almost doubled the number of tourists coming to Israel in a couple of years, it takes time to create new options for new hotels.”

Halevi adds that while the Israeli market is currently flush with a wealth of high-class and deluxe hotels, the government is promoting more affordable options like hostels in order to attract the next generation of travelers, who tend to be more budget-conscious.

Last month, the low-cost European hotel chain Meininger announced that it would be opening its first property in Israel (and the Middle East) in 2024. Conveniently located in south Tel Aviv near the central bus station, the new 28-storey hotel will be geared towards younger tourists. The average nightly cost of a bed at a Meininger hotel is 30 euros (roughly $33).

“[Israel] has been very keen for us to come here, and there’s a reason for that. We cater to young people, [mainly] millennials,” Navneet Bali, chairman of Meininger Hotels, related to The Media Line. “The average age of our customers is 20-26. Millennials spend on average about 40% more on travel than my generation and they want to spend less on the room and more on experiences.”

A view of Old Jaffa and the beach in Tel Aviv, one of the top tourist destinations in Israel. (Dana Friedlander/Israel Tourism Ministry)

Despite such positive growth, some say the Israeli government needs to make things easier for developers by removing red tape.

“If I could do anything to support reducing regulation on the hotels, that would be the number one thing that I would ask the government to do,” Ronen Nissenbaum, president and CEO of the Dan Hotel chain, told The Media Line. “Reduce the pain for the developers, who are creating jobs and bringing in dollars to Israel to support the economy.”

Among the regulations Nissenbaum points to are those related to Jewish dietary laws, stringent police requirements, disability guidelines and what he refers to as constantly changing rules imposed by the Health Ministry.

Despite these obstacles, hotel operators and foreign investors are taking note of Israel’s exploding tourism figures.

An American investor who has hotel projects in Jerusalem but requests to remain anonymous told The Media Line that there is currently “tremendous opportunity” in Israel.

“There’s a focus on infrastructure, so there’s probably no better time than now to get into this,” the investor said.

The investor noted the large-scale building plan for the western entrance to the city. The 75-acre site, already in development, will house 24 high-rise towers used for commercial, business, residential and cultural purposes.

The massive $435-million initiative is scheduled to be completed in the next five years and is expected to significantly boost the city’s business ecosystem. In addition, the long-awaited completion of a high-speed rail line between Tel Aviv and Jerusalem is set to lead to even greater returns.

“The Jerusalem brand is what drives everything, and it just has universal appeal. It appeals to the three religions, and there’s so much history there,” the investor explained. “Relatively speaking, [tourism numbers] are record-breaking, but generally speaking, it’s just the tip of the iceberg. It’s not even the beginning. That is what I sense, and that is what I see.”

Tourists and locals walk along a street in Jerusalem’s city center. The city is experiencing a tourism boom. (Noam Chen/Israel Tourism Ministry)

A survey released earlier this month by the UK business intelligence company Euromonitor International declared Jerusalem one of the world’s fastest-growing tourist destinations, with 13.7% growth in the number of visitors in 2019 over 2018. Tourism-magnet Tel Aviv’s growth over the same period was 7.2%.

Israel’s thriving hotel industry, however, is not limited to the two cities. Earlier this week, the Tourism Ministry and the Israel Lands Authority announced [3] that four new hotels would be constructed in the Dead Sea area, in addition to a new shopping center and conference hall. The plan will see roughly 1,000 new rooms added to the popular tourist landmark.

In fact, the ministry is actively shifting its focus to the Negev region in hopes of transforming it into an attractive vacation spot for hikers, cyclists and nature lovers.

“We feel that with the traffic that we have of Europeans to Israel and the Negev over the winter, it’s going to be an alternative vacation for the Europeans,” Halevi explained. “They can go ski in the Alps and they can go to the Negev for hiking and biking.”

As tourism numbers are expected to continue to rise in the double-digits, Israel’s hospitality industry appears poised to compete more and more with alternative accommodations like Airbnb and adapt by providing low-cost options to the next generation of travelers.