Compared to the developed nations’ hospitality sector, it looks like the Middle East North Africa (MENA) region’s hotel industry is riding out the recession and can look forward to resumed growth within two years.

Reflecting cautious optimism, Arabian Hotel Investment Conference (AHIC) co-organizer Jonathan Worsley said while not ignoring the challenges of the current situation of falling revenues and occupancies, executives looked forward to a renewed momentum as consumer and investor confidence recover over the next 18 months.

“The Middle East would remain a prime region for hotel development that expansion would continue in cities such as Dubai and be mirrored in neighboring destinations such as Abu Dhabi and Doha. The concluding message is that while the short-term outlook looks challenging, overall expectations from the region remained high,” Worsley said.

“We believe that 2009 will be a year of correction, 2010 will be the year of stabilization and that 2011 will be the year of recovery. The key benefit is that weaker players are going to disappear,” said Ian Ohan, regional director and head of investment transactions at Jones Lang LaSalle.

Amid global tourism numbers declining, MENA is faring relatively well, being one of the few regions to experience continued increase in arrivals in Q1 2009.

Dr. Henry Azzam, CEO, Middle East and North Africa, Deutsche Bank said that the Middle East was not at the epicenter of the crisis and was influenced by what was happening elsewhere. He added that strong and expansionary government fiscal policies in the region have compensated for factors such as falling oil revenues and a lack of confidence in the private sector: “This has resulted in positive growth for economies such as the UAE, Bahrain and Oman while Qatar is still expecting double-digit growth rates,” he said.

Concerted government efforts and polices to promote local tourist industries have been key in preserving the inbound traffic. For instance, Dubai has launched major new promotional campaigns, reduced fares on the national carrier Emirates Airline and government pressure to reduce hotel rates to improve the international competitiveness of the market. The authorities have also recognized the need to improve the level of corporate governance and real estate market transparency, according to Naseba’s report Series Investment.

Concurrent with infrastructure and economic growth, hotel markets in key cities around the Middle East are still seen as offering positive returns, according to the Jones Lang LaSalle’s April Investor Sentiment Survey, said Global CEO, Arthur de Haast: “The view of those surveyed was that cities such as Doha, Abu Dhabi and Riyadh would recover from the current downturn within a year, with Dubai coming back within two years – although the UAE was still the most attractive market for investors,” he said, adding that the decline in property values everywhere was expected to recover by 2011.

Looking at the best performing country at present, Worsely said Saudi Arabia is a prime location for all types of hotel development – from resorts and heritage hotels to agro-projects and low-cost properties.

Another byproduct of the global economic crisis was that postponement of many hotel projects would streamline the introduction of new rooms in to the regional market and help modify fluctuations between supply and demand: “We now have a reduced risk of oversupply, as well as a shift to demand for mid market and limited service properties,” added de Haast.

Ohan said, “Around 50 percent of residential and commercial projects scheduled for completion in 2009 to 2012 have been cancelled or put on hold.”

The cancellation of these projects goes hand in hand with the mass exodus of expatriate workers from Dubai. Ohan said, “It’s going to get worse before it gets better,” adding that developers were likely to face further difficulties, as investors in off-plan projects because of defaulting on their loans, or worried by the impact of defaults on the completion. He added, “People who bought off-plan in the last 18 months bought at prices that were likely to be over-inflated. Faced with depreciation in asset value before even completion, many will consider cutting their losses and defaulting – which in turn enhances the fear factor of the impact of defaults on projects underway for the remaining investors.”

While potential for the future was seen as undiminished, if delayed, current hotel performances gave cause for optimism, according to Marvin Rust, global managing partner Hospitality for Deloitte. “The Middle East is still expected to be the top performing market worldwide during 2009, although double digit growth seen in previous years will slow to around two percent,” he said adding, “Dubai still leads the worldwide table for revPAR (revenue per available room) at more than US$200, even though this figure was down 12.9 per cent in the first quarter of 2009.”

Regionally, he pointed out that, while rates were down in Dubai and Egypt, other cities such as Jeddah, Beirut and Abu Dhabi continued to perform well.

Signs of recovery are slowly being manifested in the MENA. A Jones Lang LaSalle report said that at the end of last year, none of the necessary conditions for recovery had been met. During Q1 2009, some progress has been made with ‘green shoots of recovery’ being recognized in respect of over half of the 17 requirements for recovery written down by the company.

Not all investors or markets across MENA have been equally impacted by the crisis, the lack of liquidity and the unprecedented opportunities now exist for potential investor to acquire good quality assets at fair market price. To this effect, brand hotel operators such as Tag concentrate on the Gulf countries for prime developments. Raymond Bickson, managing director/CEO Taj Hotels said the group was committed to its pipeline development in the region. “We will open on Palm Jumeirah next year as I think it is as important to be in Dubai as to be in cities such as New York – and other developments include two resorts in Abu Dhabi, one in Ras Al Khaimah, two properties in Doha including a golf resort and projects in Al Ain and Oman.”

Other groups committing to the region included IHG (Intercontinental Hotels Group) who has 37 properties under development, a rise of 50 per cent over its current portfolio of 72; and Rotana, with 12 hotels opening this year and an additional 30 under development.

Starwood has 20 hotels in the pipeline with Four Points hotels in Dubai and Dhahran, a Luxury Collection resort in Ajman and the debut of its new aloft brand in Abu Dhabi (November opening) followed by Riyadh already hinting at a market turning the corner when nobody else has.