The strengthening of Turkey's economy in the past five years has freed up resources to encourage hotel development, delegates at the inaugural Central Asia and Turkey Hotel Investment Conference in Istanbul were told.
The issues of high land prices and the wider global economic slowdown have, nonetheless, placed restrictions on expansion, particularly for the international brands, which have yet to assert themselves in the country in the face of domestic competition.
Nenad Pacek, co-founder, CEEMEA Business Group and president, Global Success Advisors, said that Turkey "used to be like ice skating on a lake in spring – you never knew when you were going to fall through".
With external debt now less than 50% of GDP, growth this year of 6%, moving up to 7% next year and inflation at a 40-year low, the country was now in a strong position, despite Pacek adding that the current account deficit was "higher than it should be".
Historically high levels of government debt have meant that there has not been a tradition of financing outside the government market, with most banks involved in bonds. However, this is changing, with banks now looking more closely at the sector.
Huseyin Ozturk, CEO of The Marmara Hotels and Residences, joined other panellists throughout the event in drawing attention to private equity groups and Reits who were also providing finance.
In addition to a lack of available finance, Turkey suffers from a lack of available land. Dr Turgut Gur, chairman of the Turkish Tourism Investors Association, said that the government was in talks to release more land, however, at this point, the government owns 60% of the country's land and 60% of that land is forestry and unlikely to ever open for development.
The country has seen revenues from tourism drop over the past two years, despite an increase in visitors, as travellers stay in the cheaper coastal resorts. To counter this, the government is attempting to support developments that favour the conference market.
For international brands looking to enter the market, Istanbul has been a focus, with the top end of the market a favourite – the city has two Four Seasons. Operators are now looking to the budget and mid-market sectors outside the main cities, supported by growth in alternative forms of tourism, including medical, which has grown in popularity in recent years.
The dominant global player in the country is Hilton Worldwide, which has been in Turkey since 1955 and how has 13 hotels open and a pipeline of 17. Half of these are franchised agreements, with the other half management contracts.
Simon Vincent, the company's Europe president, said: "The entrepreneurial spirit in Turkey tells us there's a market for franchising here."
While the entrepreneurial spirit has enabled growth, with the budget brands in particular looking to franchising to help them achieve the profile they need to build the necessary brand awareness, this same spirit has limited the adoption of international brands.
Mehmet Onkal, managing partner, Turkey, BDO Hospitality Consulting, said: "The typical Turkish investor is very possessive – they don't want to give up control of the property – they say 'the building is like my daughter'.
"They find it very difficult to employ a management company, but they'd still like a brand. Even then, they want to put their own financial controller in and control purchasing."
Kirk Kinsell, president, EMEA, InterContinental Hotels & Resorts, said: "We have people here who are pioneers, who need to go it alone." While this was a favourable environment for franchising, it has limited growth in other sectors.
The domestic operators, many of which favour the owner/operator model, have not traditionally seen the value of the external brands, and have been unwilling to hand over fees, particularly in destinations which are favoured by domestic travellers.
However, John Wilson, executive board member at Dedeman Hotels & Resorts said, citing the example of Sharm El-Sheik, "operators have the ability to create international resort destinations", pointing to a role for the global brands.
The brands also look likely to find their way into the market as greater expansion in the services sector leads to greater requirement for finance. Senay Azak-Matt, general manager, Turkey, Aareal Bank, said: "In Turkey everyone thinks they can do everything, which is wrong. You need a good developer and operators like the brands are important or we can't do financing.
"Many are franchised agreements, a few are management, but not leases because we look at cashflow – if an operator is not earning money, they will not pay the rent."
Much as in the more developed European markets, Azak-Matt called for greater commitment from operators, adding: "I love to see operators who bring in some of the money. Primarily cash, but if not a guarantee would be great."
While the Turkish market is starting to resemble the more developed markets in Europe and North America, with one domestic hotelier even describing his decision to do an OpCo PropCo split, the region remains exposed to geo-political issues.
The situation in Egypt remained on delegates minds, with Pacek commenting "Until a few weeks ago, Egypt was one of the most exciting emerging markets. Now we have a government which is not going to be particularly business friendly. The economic impact is tremendous – investment will collapse and growth and business will slow down tremendously in the next few years."
Through taking a predominantly franchise route, the brands can limit their exposure to such vagaries. However, to make taking the risk worthwhile, they must, as Mike Collini, vice president of development in Northern Europe for Hilton Worldwide, said, remember that "these things are only going to be successful with critical mass – that's why we don't do exclusivity".
This must, he said, be combined with acceptance by the domestic market. "The opportunity is in the regions – it's that market which will make the mid-market and budget successful."
Peter Vermeer, vice president of development, Benelux and Eastern Europe, IHG, was hopeful that developers were warming to the flags, commenting: "Increasingly people have accepted that we're not there to build a monument to them, and are happy to talk to the Holiday Inn guy."
HA Perspective: Like most emerging markets, the dominant source of capital being invested in the hotel industry in Turkey is domestic, or at least international money partnered with a domestic capital provider.
For outside investors, the challenge is making a return that justifies the level of risk. While the country's recent track record is impressive, it is understandable that international capital will demand a premium return compared to alternative options in markets such as Western Europe or North America.
On the other hand, domestic players believe such international capital is expecting too high a return for a market that might be heading for EU membership.
For the near term, it is hard to see why overseas investors would want to take too big a risk given that potential returns in the West are stronger than they have been for some time. And so the stand-off will continue.
Should operators, who are resistant to using their balance sheets, adopt a similarly cautious approach? No.
Pipeline is the driver of growth for the big operators going forward and there is much greater development potential in the emerging markets. The art is investing for growth with the right partners and being highly selective with your balance sheet.
The investment might be more in establishing operating platforms and development teams but it still needs to be made. Once markets such as Turkey have as low a risk profile as the West it will be too late.