PwC Middle East’s Martin Berlin discusses how the performance of the real estate sector impacts the travel industry
The rapid growth in the real estate and travel industry has provided opportunities for each other, as the real estate market facilitates easier access to new destinations, whilst the travel industry increases demand in the residential sector.
Navigating this landscape is Dr Martin Berlin, partner for global deals and real estate leader for PwC Middle East. Based in Dubai, Berlin leads the company’s real estate and construction practise in the Middle East.
With over 12 years of experience working in senior strategy and operational positions at real estate development companies in the Middle East, Berlin is also actively involved in the Global Deal Origination (GDO) initiative. The GDO aims to present customised deal opportunities to a targeted list of global investors.
As a judge for the upcoming Travel Trade Excellence Awards 2024, Berlin discussed the growth of the real estate and travel industries in the Middle East and how their connections benefit each other’s success.
How would you assess the performance of the Middle East real estate industry in the past year? In turn, how does this affect the performance of the travel industry in the region?
The performance of the Middle East Real Estate markets continues to be robust with significant growth across various sectors. According to the Dubai Land Department, we have seen a 30% increase in transactions in the Dubai residential real estate market from 2022 to 2023, reaching a value of AED 19.7b with off-plan transactions dominating the market indicating strong investor confidence in future developments.
Despite challenges such as high interest rates, inflation, geopolitical tensions, and signs of recession in leading global economies, the Middle East real estate market is experiencing a positive trend. Other Middle East markets like Saudi Arabia also show strong growth in the area of development and are preparing legislation to further open their markets for broader foreign direct investment.
The hospitality sector also shows strong growth, with significant development activity in Saudi Arabia with projects like the Red Sea Global, the Diriyah Gate development, NEOM, and others. All sectors, from hotels and resorts to serviced apartments and branded residential properties, are experiencing robust development activity, with a variety of new products entering the market.
The activity in real estate development will certainly lead to further growth in the travel industry in the Middle East, which is further supported by additional and easier visa regulations. Moreover, the growth of Middle Eastern airlines and their global networks is facilitating easier access to these new destinations. With the expansion of their routes and improving their services, they are making the region more accessible to global travellers.
How can the Middle East real estate and travel industries ensure a more mutually beneficial relationship? What can they contribute to each other’s success?
To reiterate, the strong development activity in the real estate market is in turn leading to the growth of the travel industry, which shows the linkage between both sectors; vice versa, the residential sector will also benefit from the growth in the travel industry because the increase in employment in the travel and hospitality sectors will lead to increased demand in the residential sector, with additional beneficial effects on other real estate sectors like office and retail as well.
Another important contribution to the growth of the Middle East travel industry is the development of the leisure & entertainment industry, providing more and more attractions and destinations for travellers. Dubai Park & Resorts, Yas Island Abu Dhabi, and AlUla as destinations and the increase of international sports and entertainment events are evidence of this growth.
Having worked on feasibility studies for hospitality development projects in the Middle East, what are some of the most common areas for improvement do you find amongst these initiatives, and how can companies work around those?
With the rapid growth of the real estate and hospitality sectors in the Middle East over the past two decades, development activity and investor interest have increased exponentially. This has put the spotlight on efficiency and governance. Certain aspects of efficient development and good governance that hospitality developers and operators can focus on are as follows:
Technology: Technological advancements in construction have eliminated several development-related risks. Developers need to incorporate the use of technology in their planning and implementation to avoid risks related to quality, timeline for delivery and governmental approvals.
Project financing: Get project financing in place before commencing construction. Over-leveraging is another issue that needs to be avoided. Stalling projects due to mismanaged project financing is harmful for developers, investors, and the hospitality sector at large.
Engage stakeholders early in the game: Project stakeholders such as operators, contractors, financiers, advisors, etc. should be engaged during the early stages of development. Their professional input could become the deciding factor between the success and failure of a project.
Environmental, Social, and Financial Sustainability: There is a focus on making real estate/hospitality developments environment-friendly. Whilst this theme is expected to grow and become mainstream in the future, developers and operators must engage with local communities and participate in social initiatives to garner community support for the project. Financial sustainability can be attained through efficient operations, cash flow management, and capital structure management.
One size does not fit all: Identify your target customers and incorporate their needs and sensitivities into your development and operations. Happy customers are repeat customers; repeat customers cost less to procure than new customers.
Personalised services: The concept of personalisation of services in the hospitality industry is as old as the industry itself. However, some developers and operators have not fully leveraged technology and prioritised cost-cutting over customer experience. The use of technology to cut back on wasteful expenditures and enhance back office efficiency is fruitful; however, when such practices infringe upon customer experiences and comfort, the overall impact on the project’s sustainability is negative. Be judicious in the use of technology.
Asset Management: A dedicated focus on asset and property management can increase the asset’s life and investor returns. This critical aspect of value optimisation is often neglected. Engage professional asset managers to achieve your development and financial goals.
With your extensive experience in consulting and strategy, what opportunities do you see for the Middle East travel industry in the near future, and how should companies maximise these areas?
The companies in the real estate, hospitality and travel sectors in the Middle East are already well established and on top of their development projects. However, there’s room for growth in the residential market, particularly regarding international investments. To attract more global investments, these markets need to refine their regulations. This applies to both institutional and retail investments, which are already showing strong growth. Institutional investors, in particular, are seeking a larger selection of high-quality assets that meet their standards. Expanding this portfolio of investor-grade properties is crucial for enhancing market liquidity.
As a judge at the TDM Travel Excellence Awards 2024, what specific qualities are you going to look for in the entries in terms of potential and impact on the travel industry?
In this year’s travel excellence awards, I am particularly looking for three specific qualities:
Innovation – The travel industry needs more innovation to ensure a seamless customer experience and journey adjusted to all different target groups, from individual travellers to families and large groups.
Offering – The offering needs to be a complementary addition to the currently available offering, providing the travel audience with an improvement in their travel experience.
Sustainability – The aspect of sustainability will become more important in the travel industry; therefore, new concepts as well as existing offerings need to integrate the quality of sustainability into their offerings to ensure long-term impact across all dimensions.