Israel’s government has extended its programme offering grants to convert office buildings or residential properties to hotels to Tel Aviv.
The news came as a number of new hotels were announced in the city, which has built a reputation as a technology hub.
The city was not previously seen as a priority for development grants, but a lack of room stock drove the decision to change the policy.
Minister of Tourism Yariv Levin said: “The tremendous momentum in incoming tourism to Israel and the growing demand for vacations in Israel require creative solutions on short timetables for increasing the supply of overnight infrastructure. Encouraging the conversion of buildings in Tel Aviv to hotels, which I am urging, comes on top of a series of other measures taken by the Ministry of Tourism over the past two years aimed at making it easier for developers to increase the number of overnight rooms in Israel in order to lower prices.”
The Israeli cabinet has approved grants for developers converting offices to hotels in Tel Aviv amounting to 10% of their investment. The Ministry of Tourism’s budget for grants in the current year was NIS250m (USD71m). In 2017, the ministry’s grants totalled NIS181m for construction of 2,570 hotel rooms across Israel in 35 projects.
Russell Kett, chairman, HVS London, told us: “There’s a real feeling that the Israeli government needs to encourage more hotel rooms to be built. There have been previous attempts to relax planning provisions, but there has been a great increase in the number of visitors, which adds to the problem. They need to do something quickly.
“I doubt that residential will be converted, I do think that offices could be, as a way of dealing with old stock and you might see conversions to hostels and hotels as part of a trend that we have seen in evidence in other parts of Europe. Residential will be better kept in the same use.”
The comments came as Isrotel unveiled plans to add five new hotels by 2022 to its 24 existing properties. The company said it planned to build three new hotels on the Tel Aviv beachfront and another on the intersection of the city’s Nahalat Binyamin and Ahad Ha’am streets.
The new Tel Aviv hotels will add 950 rooms to its total in the city, where it now has just one property.
Kett added: “The locals understand how to do it, the likes of Fattal, Leonardo and Isotel – they can move quite quickly. There’s quite a lot of interest from international hotel companies, but the local groups are more amenable to taking leases and the local developers like leases.
“People have realised that Tel Aviv is one of the global destinations and is getting a lot of attention. It is getting a lot of boutique-style hotels, which are easier to develop as they are smaller. They also don’t tend to be kosher, which adds operating expense.”
According to the Israel Hotel Association foreign tourists accounted for 824,000, approximately half, of the 1.6 million overnights in Israeli hotels in February this year. The figure was 18% more than the number of foreign tourist overnights in February 2017 and 46% more than the number in February 2016.
Tel Aviv saw a 21% increase in overnight visitors and reported 69% occupancy, a four-year high.
The city is home to a number of technology companies and, in October, Booking announced a new innovation lab in the city. Gillian Tans, the company’s CEO, said: “We are opening a new innovation centre in one of the most tech-forward markets in the world. More than 980,000 Internet users rated Tel Aviv as the ‘world’s second-most innovative city,’ according to a Wall Street Journal poll. As Tel Aviv enters its second golden age of startups, the world has taken note of the city’s opportunity. It is becoming increasingly recognised in the tech industry that Tel Aviv has become home to some of the best talent and innovation when it comes to artificial intelligence applications.”
HA Perspective [by Katherine Doggrell]: More peaceable times – Donald Trump’s embassy-siting stirring aside – have meant that Israel’s popularity is growing at a rapid clip and the country, Tel Aviv in particular, is becoming a must-have for all hotel operators.
As Kett points out, leases are favoured, but, as the profile of investors changes and the institutions view hotels as a mainstream asset class, anyone who has been watching Germany become a safe haven for cash will know that an aversion to leases is easily overcome for those who absolutely have to be in a location. Witness the likes of Radisson Hotel Group, which used IHIF to highlight to this publication an increased taste for lease risk.
Something which may motivate operators late to the party is the enthusiastic showing from Airbnb, which, in 2016, had more than 10,000 listings in Tel Aviv, according to HVS, more than the number of hotel rooms at the time, which was at over 7,500. The government in Israel is currently on the side of the hotels; time to swoop.