The ambitions of international brands in Turkey have begun and ended in the capital for many years. However, buoyed by the country’s growing economy, attention has now shifted to developing regional cities, coastal locations, heritage sites and smaller business hubs.
More than 41 million tourists entered the country last year – an increase of nearly two million on 2013 and more than twice the number recorded a decade earlier. Feeding into the government’s 2023 vision, everything from winter to health tourism is earmarked for development, with the aims of attracting 63 million visitors, which would make Turkey the fifth-largest global tourist destination, and generating $50 billion in revenue.
Annual GDP growth for 2015 may not reach 2010’s high of 9.2%, but a strong economic performance has fuelled a construction boom of which hospitality is a major beneficiary. With expansion expected to continue, hospitality brands are buying into the government’s vision. But while international operators are flocking to the country en masse, investors have tended to come with much more of a local accent.
"There’s next to no foreign investment in the tourism industry," says BDO Hospitality Consulting managing partner Mehmet Onkal. "There’s a lot of enthusiasm, but much of the world still sees investing in Turkey as risky. Investment is all domestic and mostly from construction companies because of all the development happening in Turkey.
"Construction started investing in tourism and was followed by textile manufacturers; this is the leading country in the world for textiles, and we have seen a lot of money from this area. Even more recently, the automotive industry has started getting involved."
Local partners
Hotel brands have been quick to build relationships with local firms. This has traditionally been driven by management contracts but, as the market beyond Istanbul matures, so do the development models. The burgeoning mid-market bracket, plus a budding entrepreneurial spirit, have seen the franchise model grow in importance.
"Generally, hotel brands prefer franchising because Turkish investors want to interfere," says Onkal. "They want a say in management, to ask questions and be the management companies. The most common way is to give investors a franchise to run themselves while keeping a good eye on it to see that standards don’t fall. There are so many ways of tracking hotel performance now, so that is much easier to do."
As international brands seek to expand into unfamiliar cities, many have taken to adopting a ‘manchising’ model where new properties are operated under management contracts for the first few years. Owners are guided and staff trained before the hotel is passed on to the owners as a franchise.
Many rural cities are earmarked for strategic growth, making this an increasingly popular compromise.
With Turkey’s economy continuing to outperform many of its rivals, secondary cities like Adana, where the robust textile and leather industry attracts a significant amount of international business travel, have presented excellent opportunities for operators to capture corporate custom. In regional cities such as Malatya, the rise of Turkey’s middle class has meant a growing requirement for mid-market accommodation.
"We expect the mid-market to develop a lot more than the top end because there’s only so much room for growth in the uppermost bracket," says Starwood vice-president and regional director for southern Europe Robert Koren. "You have to be in the right location and in the right city, which really limits it to Istanbul with views of the Bosphorus. There are huge opportunities for mid-scale growth in secondary and tertiary cities, however."
Comfort and convenience
In 2015, Starwood opened a Sheraton hotel in Samsun – a medical and manufacturing business hub and a major Black Sea port – and added two Four Points, a Sheraton and a St Regis to its Istanbul portfolio. The group now operates seven of its ten brands in Turkey. For Koren, developing these offerings is a crucial part of the firm’s expansion strategy as it seeks to attract corporate customers looking for comfort and convenience rather than unrivalled opulence.
"The number of international travellers doing business in Turkey through industry and commerce has gone up significantly," says Koren.
"The demand for the country as a corporate and meeting destination has increased with its international profile. It’s a lot less expensive to manufacture or produce there and that’s opened up a lot of corporate account potential."
As well as a surge in international corporate travellers, regional industries are paving the way for domestic hotel customers. A by-product of the expanding economy is improved infrastructure, which is increasing the propensity for domestic travellers. This, alongside a growing middle class, and the accompanying need to provide for parties and weddings, is an opportunity for hotel brands.
"There is a lack of quality, affordable accommodation in these cities," says Hilton Worldwide vice-president of development for Turkey, Russia and Eastern Europe Mike Collini. "Across these regional cities, there’s significant migration in terms of workers to Istanbul and Ankara, and people are generally travelling more.
"An established airline infrastructure is in place, the rail networks are improving and there’s considerable investment going into high-speed connections, the national road system and bus network. All this is helping people, particularly in the regional cities, and as a result, there’s a strong emerging domestic market. People migrate for work, and these cities are the centre of significant production plants and manufacturing units."
Expansion target
The Hilton brand has always had a special relationship with Turkey: the Istanbul Bosphorus was Hilton’s first property outside the US, and the company is celebrating its 60th year in the country. It recently announced the opening of five focused-service hotels under the Hampton by Hilton and Hilton Garden Inn brands located in Istanbul, Erica, Trabzon, Kocaeli and Bayrakli. These properties join 38 operating Turkish hotels, five of which have opened in the past 12 months. There are a further 32 in the pipeline.
"Turkey has been a fantastic example of where our development strategy has really worked out with all our brands, from luxury down to economy," says Collini. "If you look at the breakdown, we now have 23 Hilton Garden Inns – 11 open and 12 under construction – and that’s where we’re seeing the volume of our growth. That brand and type of hotel is essential to the regional cities."
Operators are already seeking to develop some of Turkey’s other less-exploited assets. With the nation’s popularity as a tourist and business destination set to rise, and its economy expected to keep growing, international brands will play an increasingly dominant role well beyond the capital.
