Press Release

23 Feb 2012

Turkey takes on the BRICs (Hotel Analyst Emerging Markets)

Turkey has transformed its economic position over the last 10 years, according to Cevdat Akcay, chief economist of Yapi Kredi Bank, but it had failed to communicate this to the wider world as successfully as rivals such as Brazil. He told delegates at the Central Asia & Turkey Hotel Investment Conference held this month in Istanbul that Turkey was now a completely different country to what it was even four years ago.

The hotel operating companies attending the event were in agreement. Hilton, which along with

InterContinental has the biggest worldwide pipeline, announced that 5% of its openings globally were in Turkey. Simon Vincent, area president Europe for Hilton, said that it was local money and local banks that was funding the developing. The equity proportion was high, particularly in the midmarket and economy segments.

To date Hilton had signed management agreements in Turkey but it was now getting to critical mass to enable it to start franchising, said Vincent. Hilton is projecting to have 33 hotels operating by the end of next year.

Roeland Vos, president EAME for Starwood Hotels, said: “Development is still ongoing despite all you hear. In Turkey it is less dependent on banks and therefore it has been less affected. ”Equity was coming from institutions and high net worth individuals. “I would love to see more institutional money. We need it for the Aloft roll out but we are seeing ones and twos instead,” said Vos.

Angela Brav, CEO Europe for InterContinental, said Turkey was “definitely” a place for franchising. It was hard to make management contracts work for economy and midscale brand, she said. “We are looking for growing cities with infrastructure,” she added.

Jean Paul Herzog, board member of Dedeman Hotels, agreed that it was “very much local money for local projects”. And these had a “substantial” equity proportion. Dedeman was not about to franchise, however, as it was not big enough. “We use franchisor disciplines on ourselves,” said Herzog.

Turkey already has local real estate investment funds as a source of institutional money. Akfen REIT is a hospitality focused fund that partners with Accor in Turkey and Russia. It has nine hotels in Turkey and four hotel projects in Russia and a further five in Turkey.

Christian Karaoglanian, chief development officer at Accor, said the relationship with Akfen had been set up seven years ago. But he warned: “In Turkey you cannot expect to have 200 hotels quickly.” The demand for new hotels, including economy hotels, did not come from building hotels but rather from economic development, said Karaoglanian. In particular, budget airlines and roads were critical for economy hotels along with the growth of a new middle class.

Darroch Crawford, managing director for Whitbread’s Premier Inn in the Middle East and Africa, said he was seeking a major partner to open a chain of 25 hotels in Turkey. “We’ve been looking for a year or two and it will take us another year,” added Crawford. It wouldn’t be economic to do one or two hotels, he pointed out, although it was possible it could be five lots of one or two.

Among the institutional money focused on hotels is Bilgili Holding. Serdar Bilgili, chairman of the company, said he was raising his own fund as the international funds did not match his interests. “We are longer term, But Bilgili needed leases rather than management contracts as otherwise an exit was more complicated.

Emre Narin, vp and board member of Marti Hotels, said that Marti REIT was the first tourism focused reit in Turkey. It invests in hotels and residential developments and had received debt finance from Aareal Bank. Driving the development was the 400% growth of Turkish tourism in the last 15 years and the 70% growth in the economy over the last decade, said Narin. “We are a local player and want to become a regional player in the mid-term,” he said.

HA Perspective: Although Turkey is an attractive market, it remains small relative to the BRIC countries. BBVA research shows that it is less than 10% of the size of China by GDP, for example. But it is the potential for Turkey to be a launch pad into other emerging markets such as Russia, central Asia, the Middle East and Africa which makes it appealing.

Trevor Ward, managing director of the W Hospitality Group, pointed to the growing penetration of Turkish Airlines into Africa as a clear example of this trend. Indeed, Turkish Airlines itself has stated it wants Africa to be its most valuable destination. Emerging markets are not just built on BRICs.