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Hotel valuation index Middle East & Africa
Wednesday, 17th November 2021
Source : HVS Middle East, Africa, and South Asia

While the hospitality industry is incredibly robust and regularly adapts to changing market conditions, the 2020 global pandemic had a significant impact on travel and tourism globally and resultant hotel values.

Arguably, hotel ownership and hotel investments are considered as a long-term investment as the value is based on the future income that the asset is likely to generate with valuers  adopting the discounted cashflow method of valuation.

As such, one year of minimal income does not mean the value of the asset as disappeared completely. This index uses a base year to compare the change in hotel values based on future income generating potential assuming the hotel is operated by a reasonably efficient operator and transacts in an orderly arm’s length transaction where the parties are not acting under any compulsion.

Hence, the key consideration for the valuation will be the length of time it will take for the hotels/markets to recover and whether the recovery will surpass the previous levels of operation.

Although there was a limited number of hotel transactions that took place in the Middle East and Africa (MEA) region during the last 18 months, the trading performance of hotels that remained opened or re-opened suggests that leisure and resort hotels have performed better than the corporate and commercial hotels.

Specifically, cities that have better managed the pandemic and gradually re-opened its borders have registered lower decline in hotel values when compared to the others. In value terms, there has been a significant immediate impact resulting in 18% decline in regional values between 2019 and 2021.

Most markets in the MEA region are forecasted to recover in the next three to four years and hotel values are forecasted to grow by a CAGR of 1.1% between 2019 and 2025 and a CAGR of 6.7% between 2021 and 2025. 

Details about the methodology applied in this publication is available in the last section “What is the HVI?”.

What the COVID-19 pandemic has shown is the importance of sensible development costs, the need to appoint an experienced operator and brand that delivers as well as the importance of decreasing operational costs and increasing efficiencies. With the continued uncertainty, it is more important than ever that owners take the opportunity to regularly review the performance of their hotels as the cashflows will impact the financial risk associated with their investment perhaps now more than ever.

Figure 1 illustrates the index for each market relative to the 2019 base year and the respective changes in 2021 and 2025.

Value index is presented by % value change.

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