‘19,000 new hotel rooms needed to meet tourism growth’

Misezhnikov says his ministry needs a higher budget.

By RON FRIEDMAN
“Israel urgently needs 19,000 new hotel rooms if it wants to meet the government’s goal of bringing in five million tourists by 2015,” said Tourism Minister Stas Misezhnikov at a tourism investors conference, in Tel Aviv, on Wednesday.
“In order to avoid the loss of tourists, which means the loss of income and the loss of jobs, the Tourism Ministry’s investment budget for the next two years has to grow to NIS 1.1 billion.”
The Tourism Ministry hosted leading investors and tourism professionals, at the David Intercontinental Hotel in order to present them with the ministry’s achievements and goals for the future, and to hear from them what they require in order to spark new hotel construction. The 100 guests in attendance heard addresses by Misezhnikov and the ministry’s infrastructure development and investment deputy director as well as from leading hoteliers. The guests were also presented with the findings of a new external report analyzing the demand for new hotels and the ways in which the government could help make it happen.
“We are witness to a worrying phenomenon: while the demand for tourism and business visits in Israel is climbing and reaching previously unseen figures, during some seasons of the year, we are incapable of meeting the demand and are in effect forced to reject the same tourists we encouraged to visit Israel,” said Misezhnikov. “At the same time, our neighbors, who compete with us for the hearts of tourists visiting the region, are attracting the largest and most lucrative hotel chains and every year are increasing the supply of hotel rooms.”
According to Tourism Ministry figures, there are currently 44,000 active hotel rooms spread across the country. Those rooms, which currently enjoy a 65% occupancy rate, will simply not be enough to support continued growth in tourism numbers, especially in peak seasons.
According to the research conducted by Rotem Strategy, a private consultancy firm, what is needed to make up for the gap is a construction spurt of new hotels, with the priority being for hotels in Jerusalem and Tel Aviv. “In order for the 19,000 needed rooms to be built, investments worth NIS 10.2b.  are required,” said Zeev Rotem the firm’s CEO. That money, explained Rotem, has to come from three sources: private investors, government grants and complimentary financing, roughly split up into thirds. Rotem’s analysis, which was conducted based on interviews with hoteliers, investors and tourism professionals, concluded that the state would have to contribute NIS 2.3-2.9b. in grants, in order for the construction to be worthwhile for entrepreneurs.
For potential investors, however, that may not be enough. David Fattal, owner and CEO of the Fattal hotel chain, gave a fiery speech on the difficulty entrepreneurs faced when embarking on a hotel venture in Israel.
“The major obstacle entrepreneurs face in Israel, is that it is simply unprofitable to build a hotel here. There are a lot of people and companies who would gladly build here if they thought they could profit, but with high land prices, diminishing government grants, incomparably high expenses on energy water and labor… it’s just not worth it,” said Fattal.
“In the last 20 years, apart from small boutique hotels in Tel Aviv and one or two projects in Jerusalem, there have been zero new developments,” said Fattal. “Israelis prefer to invest in hotels in Europe.” For close to half an hour, Fattal shared with the audience horror stories from his experience in the Israeli hotel industry. From plans stuck for decades in planning committees to energy bills that make up nine percent of operating costs, Fattal painted a grim picture of over-regulation and lack of government support. “The minister’s goal of 20,000 new rooms by 2015, I’ll just say... Enjoy the ride! I doubt if he could even have that many rooms built by 2020, even if he gave the land away for free because of the bureaucracy,” he added.
Israel Hotel Association President El Gonen, repeated many of Fattal’sclaims, but preferred to conclude on a positive note. He congratulatedthe ministry for holding the conference and for its forward thinking.“I only hope that this way of thinking is adopted by the government asa whole and that it decides to put tourism on the top of itspriorities,” said Gonen. “We see the state’s investment in the hi-techsector. Investing in tourism is even better, because it creates morejobs.”
Tourism Ministry director general Noaz Bar Nir, said that the ministrywas first and foremost concerned with marketing Israel so that moretourists will arrive, but said that he and his staff would doeverything they could to deal with the supply side at the same time byeasing red tape and helping investors out with grants.