As the hospitality industry continues to adapt and grow, investors are beginning to expand their strategies and priorities, aligning with broader changes evident across the sector. Hala Matar Choufany, president of HVS Middle East and Africa, shines a spotlight on six key emerging trends that look set to characterize the hospitality investment and financing landscape over the next two decades.

The hospitality industry is undergoing a significant transformation, driven by technological advancements, shifting consumer preferences and evolving global economic trends. These changes are reshaping how investments and financing in the sector are approached. Over the next two decades, the industry is expected to witness substantial evolution in investment strategies and priorities.

A complex landscape

At present, there are approximately 300,000 rooms under development across the GCC. However, in the current economic environment, challenges such as rising borrowing costs, development expenses and operational expenditures are increasingly impacting hotel values and project returns. This situation is creating a complex landscape for investors and developers.
To navigate these challenges and optimize project returns, industry professionals should employ various strategies, which include: carefully analyzing market dynamics; implementing robust financial planning; and embracing innovative solutions.
With strategic planning, comprehensive evaluation and a deep understanding of investment costs, hotel investment and development in the region can offer attractive returns.

The global pandemic forced many developers and investors to make significant changes to their development, financing and operating models. Six specific emerging trends currently gathering momentum look set to make their presence felt on the future of investments, development and financing across the hospitality industry.

1-Alternative and flexible accommodation models, notably:

Extended stay and co-living spaces – the rise of remote work and digital nomadism will lead to increased investments in spaces meeting these specifications. Such properties will offer flexible living arrangements, combining the comforts of home with the amenities of a hotel. Coworking areas, communal spaces and flexible accommodation plans will cater to long-term guests and remote workers.

Mixed-use developments – investments in mixed-use developments will continue to grow. These projects integrate hotels with residential, retail and office spaces, creating vibrant, multifunctional environments. Mixed-use developments offer diverse revenue streams and appeal to a broader range of guests, from tourists to business travelers and local residents.

Boutique and lifestyle hotels – investment in boutique and lifestyle hotels will increase as travelers seek unique, personalized experiences. These properties will focus on niche markets, offering distinctive designs, personalized services and culturally authentic experiences. Boutique hotels will cater to travelers looking for a more intimate and customized stay.

Wellness tourism – with a growing emphasis on health and wellness, investments in wellness tourism infrastructure will increase. Hotels will offer specialized health programs, including spas, fitness centers and wellness retreats. These facilities will cater to rising demand for health-oriented travel experiences, providing guests with opportunities to focus on their physical and mental well-being.

Luxury hotels with residential components – luxury hotels dominated by residential components will see growth for both greenfield and repositioned developments.

Design and build, and modular construction – these methods will dominate the mid-market and upscale segments.

2-Financing and risk assessment, with traditional bank loans and equity financing being complemented by alternative financing models, including the following:

Crowdfunding platforms – these enable small investors to participate in funding new hotels and resorts, democratizing investment opportunities. Real estate investment trusts (REITs) and private equity are also gaining traction as viable sources of capital for hospitality projects, attracting a broad range of investors, from institutional investors to individuals seeking stable returns from the hospitality market.

Asset-light model – this model, where companies focus on branding and management rather than ownership, will gain traction. Investors will favor franchising and management agreements, allowing hotel brands to expand without the capital-intensive requirements of property ownership. This model offers flexibility and reduces financial risk.

Crisis preparedness and business continuity planning – following the lessons of the Covid-19 pandemic, investments in crisis preparedness and business continuity planning will increase. Hotels will develop flexible operational models and diversified revenue streams to mitigate risks and ensure resilience in the face of future crises.

3-Emerging markets and global expansion:

Emerging markets – investment in emerging markets, particularly in Asia, Africa and Latin America, will increase. These regions offer high growth potential, due to rising middle-class populations and increased tourism. Investors will seek opportunities in underserved and high-growth areas, capitalizing on the expanding travel markets in these regions.

Global brand expansion – major hospitality brands will continue to expand globally, investing in new properties and franchises. This expansion will focus on both developed and emerging markets, with a strategic emphasis on growing brand presence and market share.

4-Cultural and experiential focus:

Local and authentic experiences – investments will increasingly focus on providing authentic local experiences. Hotels will partner with local businesses, offer cultural immersion programs and use locally sourced amenities. This approach will appeal to travelers seeking genuine and immersive experiences that reflect local culture and heritage.

Themed and experiential hotels – themed hotels and experiential properties will attract investment. These hotels will offer unique, immersive stays, catering to niche markets and providing distinctive guest experiences. Themes could range from historical settings and fantasy environments to adventure-based and wellness-focused stays.

5-Resilience and adaptability:

Agility and innovation – investors will prioritize properties and companies that demonstrate agility and innovation. The ability to quickly adapt to changing market conditions and consumer preferences
will be crucial for long-term success. Continuous investment in new technologies and business models will help hotels to stay competitive and relevant.

Technology-driven investments – there will be substantial investments in artificial intelligence and automation, IoT and smart infrastructure, and cybersecurity and health and safety technologies. Post-pandemic, investments in health and safety technologies will remain high.

6-Sustainability and green technology:

Investors have an opportunity to develop and operate properties with cutting-edge designs. Significant investments are expected in energy efficiency and renewable energy, green building certifications and circular economy practices.

The future of investments in the hospitality industry is set to be shaped by technological innovation, sustainability and evolving consumer preferences. The competitive landscape for hotel financing will remain complex and influenced by a myriad of factors, including economic conditions, market trends, regulatory environments and emerging technologies. Hotel developers and operators must navigate these factors effectively, presenting compelling business cases that align with current market demands and trends. Significant capital will be directed toward smart technologies, sustainable practices and flexible accommodation models. As the industry continues to adapt and grow, investors will seek opportunities that combine profitability with social and environmental responsibility, ensuring that the hospitality sector remains dynamic and forward-thinking.