Study: Hotels in Israel enjoying record demand, increased revenues

More than 4.1 million tourists visited Israel in 2018, an increase of 14% from 2017 and 42% from 2016, according to the Ministry of Tourism.

A general view of the pool at the Royal Beach Hotel in Eilat (photo credit: REUTERS)
A general view of the pool at the Royal Beach Hotel in Eilat
(photo credit: REUTERS)
Hotels in Israel enjoyed another record year in 2018, driven by unprecedented incoming tourism and increased geopolitical stability, according to a new report by hospitality consulting firm HVS.
Revenue per available room (RevPAR) for the country increased by 6% in 2018, driven by an increase in average hotel rates across all major destinations. Eilat and Dead Sea hotels, the report stated, witnessed a “slight reduction” in occupancy levels last year.
“Thanks to the continued lull in the turbulence of the geopolitical situation in the area, the Israeli tourism industry is flourishing with an ever-growing number of tourists visiting the country,” said report authors Lionel Schauder and Russell Kett. “However, it is important to remember that the ‘sword of Damocles’ remains suspended and that any incidents may halt this positive development.”
More than 4.1 million tourists visited Israel in 2018, an increase of 14% from 2017 and 42% from 2016, according to the Ministry of Tourism. Direct revenues from tourism exceeded NIS 24 billion ($6.83b.).
Total demand growth for hotel rooms has outpaced supply growth in recent years, with demand increasing over the last three years by 6.7% year-on-year and rooms supply growing by 2.9%. Additional accommodation is needed, the report stated, especially at the budget end of the spectrum.
Hotels in Jerusalem recorded an increase of 10% in demand in 2018, driven primarily by the international market, which represented 80% of total hotel stays in the city. Additional rooms in the hotel pipeline stand at approximately 16% of Jerusalem’s current room supply. Several major brands are set to open hotels in the city over the next few years, including InterContinental, Isrotel and Fattal.
In Tel Aviv, the number of bednights increased by 7.2% in 2018, also driven by the international market which grew by more than 7.5% and represented approximately three-quarters of total demand. Although a number of projects remain speculative, the pipeline stands at approximately 56% of current room supply, including the entrance of luxury brands Kempinski and Nobu into the growing market.
Market-wide occupancy decreased slightly in Eilat in 2018, although the opening of the nearby Ramon Airport earlier this year is expected to increase foreign demand in the coming years. While hotel supply has not changed over the last six years, a decision by the Government Housing Cabinet in recent weeks will enable the construction of over 1,200 hotel rooms in the area. Current room supply is expected to increase by approximately 8%.
Demand in Haifa remained broadly static in 2018 at approximately 582,000, but the report states that the city is “consolidating its international attractiveness” with the share of international bednights at 48%, well above historical levels of around 41-42%. Room supply has remained broadly static in recent years, but a number of large properties are rumored to be entering the market, potentially boosting current room supply by 30%.
The Dead Sea was the only market reviewed to record a negative compound annual growth rate in bednights between 2014 and 2018. A total of 8% of all bednights in Israel were spent in the area, however, demonstrating its ongoing popularity as a destination, primarily for domestic visitors.
International market share increased from 19% in 2015 to 26% in 2018, the report stated. The pipeline of additional rooms at the Dead Sea stands at approximately 11% of its current supply, although the Dead Sea Valley Project could add some 3,000-5,000 rooms in Ein Bokek.
“The pipeline across the country has never been so strong with a number of international operators looking to enter or strengthen their presence in Israel,” said Schauder and Kett. “In addition, the development of more affordable hotels is finally on the way – WOM Allenby (Brown Hotels is the first pod-style hotel in Tel Aviv.”
The report also highlights a series of initiatives launched in 2016 by the Ministry of Tourism to boost hotel investment and make the country a more affordable destination. Measures including recognizing hotels as part of the national infrastructure, a centralized application process for permits handled by the National Infrastructure Committee, a government grant scheme to support developers, and enabling district committees to grant additional residential rights to hotel developers – thereby improving the attractiveness of the investment.
“Although the recent Eurovision contest did not generate a significant RevPAR uplift (as it tends to do), results from the first half of 2019 indicate that once again the country could break a new arrivals record,” said the authors. “If the positive trend is set to continue, the next main challenge awaiting hoteliers will be to attract returning visitors, and to do so the overall service level is likely to require some significant improvements in order to meet guests’ expectations.”
Building on two consecutive record-breaking years of incoming tourism, 2.587 million tourists entered Israel between January and July 2019, compared to 2.356 million during the same period in 2018.
Almost half (49%) of all tourists arrived in Israel from the United States (580,000 tourists), France (207,000), Russia (174,000), Germany (165,000) and the United Kingdom (132,000).