Since 2014, business interest from around world in various sectors of Iran has been growing exponentially, and driven by visitations of business executives preparing to do business in Iran.
Above and beyond the expected tourism growth in a full of range of segmentations – such as cultural, religious, medical, eco-tourism and adventure – business tourism alone carries a heavy deal of consideration in the aftermath of sanction removals. Iran and specifically Tehran the capital, is home to not more than a few locally branded hotels that would to some extent meet the global hospitality standards. This is while Turkey as an immediate neighbouring country houses more than 20 internationally and 5 star branded hotels. The lack of internationally branded accommodation and quality business hotels is indeed an immediate market gap and a critical shortcoming in the next coming years and beyond.
The construction sector with an annual turnover of US$38.4 billion is an important and booming sector in Iran accounting for 12% of existing jobs. The industry being divided into “government infrastructure projects” and “the housing industry” is driven both by the public and private sectors. The housing sector has a pivotal role in the national economy, witnessing an annual growth of 24% over the past 23 years and accounting for about 30% of Iran’s GDP. In recent years and under the toughest sanctions, real estate remained as a lucrative business in Iran, while being driven largely by the private sector contributing to almost 60% of investments. In 2015, the New York Times wrote:
“Iran may be wrestling with economic sanctions, but one indicator is going through the roof: Developers have broken ground on a record 400 shopping malls across the country, 65 in Tehran alone.” tweet
This is while, as a result of prioritisation of the Travel and Tourism sector under Iran’s 2025 vision, the current government of Iran has also planned for structural improvements (through incentives) for privatisation of the hotel and hospitality industry. This means that with a sudden tourism boom, hotel Average Daily Rates (ADR) – as one of the most important indicators for hotel valuation and feasibility assessments – will witness an organic growth to reach a regional standard. As a result, hotel development projects will begin to attract a significant share of investments from the domestic private sector.
In terms of Foreign Direct Investment, the government has also provided a series of incentives through the law on foreign investment in Iran under the name of Foreign Investment Promotion and Protection Act (FIPPA). These incentives include a 50% full term tax reduction on income, loan structure and eligibility of government funding, property ownership rights including 100% ownership in free zones, unlimited transfer of profit capital and dividends.
In line with the expected growth of hotel development projects, there is one other element that requires critical attention while opening space for a lucrative investment opportunity; “Quality hotel management, internationally branded and operational standards.”
Iran, once home to the Hyatt, Hilton, Intercontinental and Sheraton’s most luxurious hotel properties before the 1979 revolution, is now home to zero internationally branded hotels. It is indeed a matter of strategic competitiveness for international hotel groups to secure and operate the right properties in the right locations after the lifting of sanctions. It is important to note, that in terms of human resources, Iran can be considered a goldmine, possessing an educated, talent rich and technology savvy population of 80 million, 65% of which are under the age of 35.
Iran will soon witness an explosive business boom driven by executives hoping to either return or to start their business in the aftermath of the nation’s return to the global trade map. Hence, investments in both management and development of upscale business hotels in Iran will remain an un-tapped market gap subjected to an exponentially growing demand in the years to come.