Reuters

(Reuters)

Next Big Travel Destination: Iran?

Industries Dow Jones Newswires

Global hotel companies are establishing new beachheads in Iran, betting that lifted sanctions against the Middle East nation will spark a jump in tourism and business travel after decades of economic isolation. 

Spanish operator Melia Hotels International is planning to open a 319-room hotel next year on the Caspian Sea. French group Accor Hotels, which opened two hotels near the Tehran airport last autumn, is establishing a joint-stock company in Iran through which it will partner with local groups to manage hotels. Abu Dhabi-based Rotana Hotel Management Corp. PJSC has started developing properties in the country as well. 

Iran has largely been cut off from global commerce since 1979, when a revolution sparked an exodus of Western firms, including hotel groups like Hyatt Hotels Corp. and Hilton Hotels & Resorts. The U.S., and later the United Nations, imposed rounds of punishing economic sanctions over Tehran's nuclear program, making it difficult for foreign companies to do business there. 

A deal struck in January between Iran and global governments cleared the path for cross-border commerce to restart. The parties have until June 30 to agree on details, but all U.N. Security Council resolutions against Iran would be lifted once Iran begins implementing limits to its nuclear program. 

"This is essentially the start of a new era," said Faisal Durrani, head of research at real-estate broker Cluttons LLP. "What you have is effectively the largest country in the Middle East open for business." 

Iran's case in many ways looks like Cuba, where thawing relations with the U.S. have also sparked interest from Western hotel operators. Both Starwood Hotels and Resorts and Marriott are looking to take advantage of the growing commercial opportunities there. 

Major hurdles in Iran remain, from limited bank financing to lingering sanctions, hotel chiefs and lawyers said. 

The European Union has, for the most part, lifted sanctions against dealing with Iranian companies and individuals. But most U.S. sanctions remain in place, said Caroline Hobson, head of competition at law firm CMS Cameron McKenna LLP. 

"We just have to wait. That's the frustrating bit," said Peter Norman, senior vice president for acquisitions and development at Hyatt in Europe, the Mideast and Africa. "We're really keen to go in there," he said. Hyatt and Germany-based Kempinski Hotels have been exploring opportunities but said for the moment barriers remain too high. 

Still, with the Iranian government projecting foreign visitor numbers to jump to 20 million by 2025 from five million currently, "we believe there is huge potential," said Gabriel Escarrer, chief executive of Melia Hotels, which operates more than 350 hotels in 35 countries. 

Iran's economy is still reeling from years of sanctions. But the International Monetary Fund expects economic growth in Iran to pick up to about 4% this year once some sanctions are lifted and foreign investment kicks in. 

Hospitality could be one of the first sectors to benefit from the influx of business and leisure travel. At the moment "there is a lack of hotels, both in terms of quality and quantity, whatever the segment," said Christophe Landais, chief operating officer at Accor Hotels Iran, at a conference in Dubai last month. 

Paris-based Accor Hotels has been operating two of its branded hotels, a Novotel and an Ibis, near the Imam Khomeini airport since last fall. 

"Accor is on a mission to develop an extensive network of property covering all market segments, from economy to business," Mr. Landais said. 

Melia Hotels is aiming for the "premium segment," Mr. Escarrer said. "That's where we think we can attract the international traveler." 

The Gran Melia Ghoo Hotel is scheduled to open in late 2017 on the Caspian Sea, a popular vacation destination for Iranians, Russians and Turks. It will include seven restaurants and bars, two swimming pools and a spa. 

Melia will operate the hotel, but it isn't investing its own capital. Ahad Azimzadeh, an Iranian businessmen who owns Persian carpet firm Azimzadeh Carpet, is funding the development, which also includes apartments and shopping. 

For companies already looking to develop hotels, the biggest issue right now is funding, said Nicholas Gilani, chief investment officer at CommoditEdge LLC. 

The Dubai-based firm, an affiliate of a privately held Iranian conglomerate, recently struck a deal with the Iran Touring and Tourism Investment company, which owns 65 hotels across Iran in tourism hot spots such as Shiraz, Mashhad, ski resorts near Tehran and on the Caspian Sea coast. Under the deal, the two partners will identify which properties to develop or renovate with the help of foreign investors. 

Mr. Escarrer of Melia said the potential is too great to pass up. 

"We're trying to be a pioneer in this market," he said. "We started in Cuba 25 years ago. We're trying to do the same in Iran." 

Write to Art Patnaude at art.patnaude@wsj.com and Nicolas Parasie at nicolas.parasie@wsj.com

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