So far, Israel has been largely neglected by foreign investors and the international chains, who have concentrated on neighbouring countries like Greece, Turkey, UAE or Egypt. 

Israel is certainly the least penetrated hotel market by international brands of any major European country.

However, the country has a unique set of demand drivers for hotels, which include not only year-round warm water beaching and one-of-a-kind heritage sites, such as Jerusalem, but also the modern urban atmosphere of Tel Aviv with its world-class night life, an active LGBTQ scene, a vibrant start-up eco-system, as well as R&D centres for many of the tech majors, such as Intel, Microsoft, Cisco, IBM and Apple. 

The Abraham Accords, signed two years ago have opened the door to a new era of cooperation between Israel and its Arab neighbours, and provide an impetus to incoming tourism and investment – particularly from wealthy Arabian Gulf countries, such as UAE and Saudi Arabia.

The first accord was signed between Israel, the UAE and Bahrain in September 2020 and was followed by various agreements with Sudan, Jordan and Morocco. Jerusalem, in particular, which is also a holy city for Muslims and has a substantial Arab population, many of whom work in the hotel sector, should attract the interest of Arab tourists and hotel investors.

Israel’s domestic tourism market is already highly developed and is approaching the saturation level. Thus, in order to grow the market, the Israeli Ministry of Tourism has set the ambitious goal of boosting incoming tourist arrivals to10mn over the coming five years, which is more than two times the record figure of 4.5mn recorded in 2019.

In order to achieve this objective, the ministry is offering subsidies and incentives to encourage the construction of new hotels and the expansion of existing ones, as well as the transformation of other types of structures, and has streamlined the approval process for new projects. International brands certainly have a role to play here with their strong loyalty programs, which can be leveraged to attract guests from abroad.

The Israeli tourism market offers opportunities for all sorts of lodging products, going from economy hotels to limited service, extended stay, flashpacker hostels, boutique properties, lifestyle hotels and ultra-luxury establishments. The most exciting opportunities exist at the high-level luxury end of the spectrum, as exemplified by Four Seasons or Mandarin Oriental, and at the more reasonably priced end of the market, including hostels and budget hotels.

Israel’s hotel stock is rather top-heavy in conventional upscale and upper-upscale, but lacks hotels with true high-end international level luxury service delivery, as well as modern up-to-date accommodation at the lower end of the market.

There are clearly opportunities to invest in hotels outside of the two major destinations of Jerusalem and Tel Av. The Dead Sea region, the Negev Desert and the Sea of Galilee are all attractive for hotel development and can expect growing numbers of tourists in the coming years.

As a year-round warm water beach resort Eilat, in particular, could use some large modern 4-star level leisure hotels, as the existing hotel stock has become dated.

In conclusion, Israel is a haven of security and modernity located at the crossroads of three continents, Europe, Asia and Africa, offering untapped potential for growth as a prime tourist destination.

Macy Marvel, Editor-at-Large

Read the full report here