The occupancy rates at hotels in Hurghada and Sharm El-Sheikh continued to decline during the third quarter (Q3) of 2016, driven by the suspension of flights from Russia and the UK following last year’s Russian aeroplane crash in Sinai.
Despite the decline, a report recently issued by Colliers International noted that the Egyptian government’s decision to float the Egyptian pound and the decision by some European countries to lift travel bans on Egypt will attract price-sensitive tourists.
The report mentioned that these changes require hotel operators to review their prices in order to meet the needs of price-sensitive tourists.
Operators and investors are watching gradual moves in the market and effects following the lift on travel bans to Sharm El-Sheikh.
Colliers International noted that hotels in Sharm El-Sheikh witnessed no changes in the supply of real estate over the past few quarters.
Investors and operators were reluctant to engage in any new activities to overcome the tourism crisis that is facing Egypt’s coastal resort cities.
The number of hotel rooms in the second quarter (Q2) of last year reached 19,900 rooms, and settled at the same number in Q2 of 2016. That number is expected to increase to 20,400 rooms by the end of 2016, 21,212 in 2017, and 21,710 in 2018.
Colliers International expects this trend to continue in the coming period in light of postponing the opening of projects that were planned for 2016.
Occupancy levels have continued to decline and are expected to drop down to 30% by the end of 2016, according to the report.
The report noted that the occupancy indicators in Sharm El-Sheikh will witness a decline of 49%, which will drop down in Q3 of 2016 to 40%, compared to 5% in 2015.
The daily return rate dropped down from 25% to 2% during Q3 of 2016.
Nevertheless, there is still some room for optimism, as German and Belgian authorities lifted their travel bans on Egypt in November. Russia is expected to emulate these decisions before the end of 2016.
In Hurghada, several hotel openings were suspended as a result of the travel bans imposed by some European countries and its dependence on foreign tourists.
However, given some countries’ recent decisions to lift travel bans, the tourism influx is expected to increase in resorts during the coming period.
New real estate is expected to enter the market, mainly belonging to Hilton Group, which plans to open two branches in Makadi Bay in Hurghada.
Colliers International expected that the capacity at hotels in Hurghada will reach 19,800 rooms and increase to 20,500 in 2017.
Despite the decrease in occupancy rates at hotels, price averages have increased, according to the report. This is due to a significant number of domestic tourists that have visited the resort city, particularly following the Eid Al-Adha holiday. The prices for domestic tourists are typically higher than those paid by tourists from abroad, given that they typically reserve hotels through tourism companies.
Hotels are hoping that flights coming from European countries will resume shortly to Sharm El-Sheikh and Hurghada. As a result, occupancy rates are expected to increase by 2017.
Hotel operators are hoping that demand from Europe will increase with the resumption of commercial flights, in addition to hoping that domestic tourism will remain consistent to increase hotel occupancy rates.
The situation in Cairo and Alexandria is relatively better, with the opening of Steigenberger hotel in the heart of the capital and Westin Golf Resort in Katameya Hills a few months ago, as well as an increase of 400 rooms added to famous 5-star hotels in Cairo.
However, the St. Regis hotel in Cairo and the Radisson Blu in Nasr City have postponed their openings until Q2 or Q3 of next year.
Colliers International noted that tourism in Cairo continues to suffer due to the lack of supply of middle class hotels, which focus primarily on the corporate sector.
According to the report, the hotel capacity in Cairo was 14,500 rooms in Q2 2015, which rose to 15,100 rooms in 2016. That number is expected to reach 15,700 by the end of 2016 and increase to 16,300 in 2017 and 17,100 in 2018.
The average daily price and the occupancy rate witnessed significant growth due to the escalating demand from the corporate sector and tourists seeking short-term accommodation in Cairo before heading to coastal cities.
Colliers International is expecting that the occupancy rates for the full year of 2016 to exceed the rates in 2015.
The report said that the current market sectors in Cairo have offered diverse options by establishing golf resorts that serve local visitors, which increased occupancy rates during the weekends.
Cairo witnessed a slight increase in demand for the entertainment sector by tourists who pass through the city on their way to Sharm El-Sheikh. With the resumption of flights by some European airlines to resort cities in the Red Sea area, a shift in demand for entertainment will likely occur.
The occupancy rate in Q3 2016 reached 13%, down from 45% in Q3 2015.
On the contrary, the daily return rate of hotel rooms increased to 13% in Q3 2016, compared to 12% during the same period last year.
The report expected an increase in occupancy rates in Cairo hotels by 15% to reach 61% during the current year, with a daily return of $154 per room.
According to Colliers International, Alexandria will witness no change in hotel occupancy rates in the short term.
It is expected that two new hotels will be opened in 2019, including Marassi hotel on the North Coast and Citymax in Alexandria, which is expected to operate as a 3-star hotel to meet the needs of that market.
Alexandria is one of the few markets that has always achieved growth across all performance indicators.
The report attributed the continued demand to the corporate sector as well as conferences and exhibitions tourism, which recently joined the market.
The market continues to benefit from local business visitors as well as Arab visitors coming from the Gulf states. The decline in the Egyptian pound’s value and world oil prices has limited the price hikes for these tourists.
There are currently a limited number of accommodation options starting from the lower class to the middle class, which meet the needs of the market under the current circumstances.
At the global level, such real estate has proved its ability to resist economic fluctuations.
Colliers International said that Alexandria’s location overlooking the Mediterranean Sea has attracted more demand for the city’s entertainment sector.
The report added that the coastal city is the shortest distance away from Cairo compared to other tourist cities in the country.
The report expected that the occupancy rate in hotels in Alexandria this year will reach 71%, with a growth of daily return on rooms at 13%, equivalent to $85 per night.
The total hotel capacity in Alexandria reached 2,100 rooms, and it is expected to increase to 2,300 rooms in 2018.