Hotel accommodation in Iraqi Kurdistan has grown enormously in the past few years, even though the region still has to establish itself as a tourist destination. As most of the demand for hotel rooms comes from the business community and oil companies, many hotels suffer from the unstructured growth, and some have a hard time surviving.
That is one of the conclusions of the quarterly Market Overview of IKG Property in Erbil, which focused its 2014 first quarter report on the hotel situation in the capital. Earlier reports examined the situation in the housing and office sectors of Erbil.
The total number of hotels in Erbil has tripled over the past three years. That has happened without planning, says Edward Carnegy, the managing director of IKG Property. “In this country there is a lack of feasibility studies. People just built hotels without an analysis of the market, and sometimes just because a friend was doing well.”
Normally, the increase in these kinds of markets is tied to the Gross Domestic Product (GPD), which in the Kurdistan Region amounts to around eight percent. But in contrast, the hotel market grew in the past few years by about 20 percent, and for the coming years a further growth by about double the GDP rate is expected.
Yet, of the nearly 53,000 hotel rooms Iraqi Kurdistan boasts now, less than five percent could be registered as good quality hotel accommodation, the report says. Carnegy notes that the grading used in the region seems to have no connection with international standards. “This is no help to the visitors, who do not get what they expect.”
Of the seven five-star hotels in Erbil now, only two — the Rotana and Divan Hotels — might be considered up to the international Grade 5 Star status.
Both report a healthy occupancy, and for a third year the Rotana was recently named Iraq’s Leading Hotel.
But since a bomb attack in Erbil last September less visitors are coming, and for some hotels the occupancy rate went down to 30 percent. One hotel owner cited a 20 percent occupancy.
In a healthy business environment, the hotel occupancy should be between 60-70 percent, experts say.
Two- and three-star hotels make up the bulk of the hotels in the Kurdistan capital. This market, which is typically dominated by local operators, is saturated due to the sudden growth.
Of the four- and five-star categories, there are at the moment 36 hotels in Erbil, according to IKG’s figures, although Carnegy states that for lack of accurate figures he cannot cover the whole hotel market.
Kurdistan is “mainly a back-packers destination, which is not on the tourist map yet,” according to the IKG Property’s director. At the same time, he mentions the growing air traffic, which increased to 1.2 million passengers coming into Erbil yearly. “But when I am on those flights, I see mainly returning locals and businessmen, and not so much tourists.”
One of the problems of the present tourism market is that it is very seasonal, with a spike at the Newroz festival in March, and most Iraqi visitors coming in at summer time. “For the next few years it will be mainly the Iraqis who will visit Kurdistan. We need more diversity there, too.”
Even though the sudden growth created major problems, it is set to continue. IKG Property anticipates a further 2,500 four- and five-star hotel rooms to be available by 2018, with some major brands arriving like Marriot and Sheraton. It will be at least 2022 before these additional rooms are absorbed into the market, the report predicts. For that reason, Carnegy thinks that “this increased competition should get the prices down.”
Another development will further depress prices. Many businessmen or workers with international oil companies, who now live in hotel rooms, would prefer a serviced apartment. Those are being built, with some 800 in the pipeline at the moment, and Carnegy estimates the total market for these serviced units at around 1,500 in Erbil at the moment.
“Once these apartments are available, the businessmen will move out of the hotels. But will there be other visitors to take their place?”
Even though the growth of the number of hotel rooms is not followed by a growth in visitors, some plans might still be feasible, Carnegy says, citing schemes for hotels near malls and shopping centers.
“There is a lot of traffic from the south of Iraq and from Iran for shopping in Erbil. In Dubai we see that hotels that are attached to malls have a high occupancy, due to foreigners that come on a shopping spree.”