Hotel Giants Step Up
Building in Middle East

There is a luxury-hotel building boom under way in an unlikely place: the Middle East.

Despite State Department travel warnings and scattered violence, a number of the world's biggest hotel companies are developing high-end properties from Damascus to Dubai. In November, Jumeirah International opened the Bab Al Shams Desert Resort & Spa, a high-end property designed to look like an Arabian fort in the dunes outside Dubai. The Kempinski Hotels & Resorts' Emirates Palace opened this year in Abu Dhabi, at an estimated cost of about $3 billion, in part because of 1,002 crystal chandeliers, a ballroom that fits 2,800, and 390,000 cubic feet of marble.

The Four Seasons Hotels Inc. opens this month in Doha, Qatar, and later this year in Damascus, Syria. Next month, also in Damascus, Rotana Hotel Management Corp., a Middle-Eastern hotel company, will take guests at the first of its planned 13 new properties in the region. In the fall in Oman, Shangri-La Hotels & Resorts opens part of a cliffside complex that includes what it describes as a "six-star" hotel and a museum built around archeological remains on the site dating from 2,000 to 1,000 B.C.

The Middle East long has had a wealthy upper class willing to spend top dollar for luxury travel, as well as a handful of upscale Western hotel brands in most major cities. Still, the pace of hotel openings has quickened in the past few years, as developers try to capitalize on a tourism market that has one of the fastest growth rates in the world. The World Tourism Organization's tentative 2004 numbers have tourist arrivals in the Middle East increasing 20% from 2003. Syria is up 44%, Egypt has increased 34%, Lebanon has increased 26% and Bahrain is up 19%.

The region is becoming a gold mine for hotel companies. World-wide hotel occupancy ran at 62% in 2003, but the Middle East came in at 69%, says Four Seasons Chief Financial Officer Douglas Ludwig, citing overall industry numbers. His company's 2003 profit margins in the Middle East were 38% -- beating its global margins of 27%. Marriott International Inc. says the Middle East was one of its fastest-growing markets last year, with revenue per room and occupancies increasing at a faster clip than in other regions where it operates.

Rendering of aquarium at Atlantis, The Palm

Fueling the growth is an influx of Europeans as well as a small but increasing number of Americans. In addition, Middle Easterners themselves are staying closer to home in hopes of avoiding the security hassles that travelers from the region sometimes face abroad.

The construction surge is happening against the backdrop of continuing unrest in the region, including recent demonstrations in Lebanon, an attack against a U.S. consulate in Saudi Arabia and continued fighting in Iraq. Currently, the U.S. State Department has "travel warnings" (its most serious type of advisory) in effect for Iraq, Lebanon, Iran, Saudi Arabia, Yemen and Israel, Gaza and the West Bank. Last week, the State Department softened the language of its Israel warning, telling people to "carefully weigh" travel there, instead of "defer" it.

The government also periodically issues travel "announcements" if events warrant. For instance, it issued an announcement in response to clashes in January between Kuwaiti security officials and militants.

Still, travelers are coming. Amid rising demand, Trafalgar Tours added 12 more trips to Egypt and 10 more to Israel this year, a 40% increase from 2004. Luxury tour operator Travcoa will travel this year to Iran, Syria and Jordan for the first time since the 2001 terror attacks in the U.S., and to Oman and Dubai in 2006.

Shangri-La Hotel in Dubai

Part of the reason for high growth rates is that many countries were starting from such a relatively low base of tourism activity. Many travelers stayed away in recent years amid war in Iraq and other regional uncertainties.

An array of new resorts are on the drawing board. Among the projects slated to open in 2006: A $600 million Sofitel in Mecca, Saudi Arabia, managed by Accor; a Hyatt International Corp. Park Hyatt in Dubai; and two Le Meridien Hotels & Resorts in Kuwait. An underwater hotel in Dubai is in the works for 2007, the year that Kabul, Afghanistan, gets a Hyatt Regency. As part of a project of man-made islands off Dubai in the shape of palm trees, Kerzner International will build a sister to the Atlantis in Paradise Island, Bahamas, by 2008, with a three-story tank filled with exotic sea life and a water park with a meandering river.

Risk-management experts say that aside from clearly dangerous places -- such as Iraq, Yemen and other areas where tensions run high -- the region is safer than many travelers might at first think. Roger Swift, a regional adviser for the Middle East and North Africa at iJET, which advises companies on travel-related security risk, points out that the Gulf States are generally quiet and that relations between the Israelis and Palestinians has improved. However, he advises travelers to delay nonessential trips to Lebanon because of the anti-Syrian protests there in recent months.

Developers are hoping to replicate the success of Dubai, which in recent years has become a regional tourist destination and upscale playground. After construction of the money-is-no-object Burj Al Arab, a sail-shaped Dubai hotel built by Jumeirah International about five years ago, a spate of new Western brands is dialing up the marble and glitz.

Emirates Palace at Abu Dhabi

In 2003, a JW Marriott opened outside Cairo with what was then the biggest ballroom in Egypt and an 18-hole golf course. Last year Marriott's Ritz-Carlton Hotel Co. outfitted a Bahraini hotel with private villas that have their own pools.

Room rates rank among the highest in the world. At the Burj Al Arab, suites start at around $1,000. At the new Bab al Shams, owned by the same company, rooms and suites in the desert start at around $400. The new Emirates Palace also is no bargain: Rooms start at about $600 but go up to $11,440.

Not only are room rates high and labor costs low, but hotels also benefit from the fact that drinking alcohol in many Mideast countries is allowed only in hotels. As a result, more people come into hotels (and spend money) than they otherwise would, says Malcolm Turner, director of technical services at Hyatt International.

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