What’s in the Future for Israeli Hospitality Real Estate?

The tourism industry in Israel has faced significant challenges over the past couple of years, largely due to the COVID-19 pandemic. However, despite the setbacks, the industry has shown remarkable resilience and has made significant strides towards recovery.

Before the pandemic, the Israeli tourism industry was on a strong growth trajectory, with a compound annual growth rate (CAGR) of 16.2% between 2016 and 2019. This growth was due in large part to the efforts of the government and the municipality to encourage investment in the sector, improve infrastructure and services, and increase marketing and branding efforts.

The pandemic caused a major setback for the industry, with tourist numbers plummeting and hotels experiencing significant losses. However, the industry is no stranger to crises, with past geopolitical events causing booking cancellations and low occupancy rates. Despite the unprecedented depth and length of the pandemic, the industry is now seeing signs of recovery, with tourist numbers, room occupancy rates, and revenues per room nearing 2019 levels.

Looking ahead, forecasts predict exponential growth in the tourism industry in Israel over the coming years. The government has introduced a series of amendments to existing grants programs to increase the immediate profitability of new hotel projects, streamline the permitting process for the establishment of new hotels, and encourage the conversion of existing preserved buildings into hotels.

However, there is one major challenge facing the industry: a shortage of available rooms to meet the increasing demand. The deficit in forward supply ranges in the thousands of rooms needed to address the shortage, creating an opportunity for foreign hotel investors and operators to enter the market. Tenders for new projects are published each year in leading tourism destinations such as Tel Aviv, Jerusalem, Eilat, and the Dead Sea.

To address this issue, the Ministry of Tourism has implemented procedures to facilitate the construction of new hotels or the expansion of existing ones, giving priority to areas in high demand among tourists. This is in line with the Encouragement of Capital Investments Law, 5719-1959 and subject to the current priority map in the tourism industry.

Despite the challenges faced by the industry, the Israeli economy has recovered fairly quickly in comparison to other OECD countries, with inflation numbers significantly lower than most advanced economies. This has allowed many luxury and leisure industries, particularly international travel, to recoup their activities. The growth and recovery of the Israeli travel and tourism industry are made possible by a robust national economy and increasing volumes of international and domestic tourists. Moreover, the Israeli government has invested in the development of the tourism sector in recent years with larger allocated budgets and innovative programs to encourage improvement in the sector.

In conclusion, while the COVID-19 pandemic posed significant challenges to the tourism industry in Israel, the industry has shown remarkable resilience and has made significant strides towards recovery. With the government’s continued efforts to encourage investment in the sector, improve infrastructure and services, and increase marketing and branding efforts, the industry is poised for continued growth and success in the years to come.