FDI opportunities as sun shines again on global tourism
After the cataclysmic crash during Covid-19, the global tourism industry is rebounding, and providing many investment opportunities, reports Courtney Fingar.
Travel demand has continued to show remarkable resilience and sustained recovery amid an array of economic and geopolitical challenges, according to the UN World Tourism Organization (UNWTO). International tourist arrivals hit 85% of pre-pandemic levels in Q2 2023 and 90% in July 2023, backed by continued pent-up demand, UNWTO statistics reveal.
An estimated 700 million tourists travelled internationally between January and July 2023, about 43% more than in the same months of 2022, though 16% fewer than in 2019.
By region, the Middle East saw the best results in January-July 2023, with arrivals exceeding pre-pandemic levels by 20%. The strong rebound in the region was led by a number of popular destinations, including 2022 Fifa World Cup host Qatar, where arrivals almost doubled. A significant jump in arrivals was also seen in Saudi Arabia (58%) and Jordan (23%).
Europe, the world’s largest destination region, reached 91% of pre-pandemic levels, supported by robust intra-regional demand. Africa recovered to 92% of pre-crisis visitors in the seven-month period and the Americas 87%. In Asia-Pacific, arrivals rose to 61% of pre-pandemic levels.
These results show international tourism remains on track to reach 80-95% of pre-pandemic levels in 2023, as projected by UNWTO in its January 2023 World Tourism Barometer.
Demand for travel remains strong
“UNWTO anticipates a strong year for the sector even in the face of diverse challenges including the economic situation and continued geopolitical uncertainty,” says secretary general Zurab Pololikashvili. “Economic factors may influence how people travel in 2023 and UNWTO expects demand for domestic and regional travel to remain strong and help drive the sector’s wider recovery.”
The global recovery in tourist arrivals is also reflected in other industry indicators. In the first six months of 2023, international air capacity and passenger demand both recovered to about 84% of pre-pandemic levels, according to the International Air Transport Association.
Hotel bookings doubled between January and August 2023, compared with the same months of 2022, according to travel marketing platform Sojern. Almost 90% of global hotel markets had experienced growth in revenue per available room so far in 2023, compared with 2019, according to hotel data provider STR.
Investment in the tourism sector is showing a commensurate rebound after the lows of the pandemic. Greenfield foreign direct investment (FDI) project numbers in tourism grew by 23%, from 286 investments in 2021 to 352 in 2022, according to a joint report by the UNWTO and fDi Intelligence. Job creation in tourism FDI also increased by 23% over the same period, to an estimated 36,400 in 2022.
The leading destination region for tourism FDI projects in 2022 was Western Europe, with 143 announced investments at a combined estimated value of $2.2bn.
The number of announced projects in the Asia-Pacific region increased marginally on 2021 by 2.4% to 42 projects in 2022. The hotel sector accounted for the largest chunk of FDI projects in the tourism industry between 2018 and 2022.
Hotel investment increases
Hotels are attracting investment in a broader sense, not just in greenfield FDI. Despite the macroeconomic volatility that plagued the back half of the year, hotel investment volume in 2022 increased in two of the three global regions – the Americas and Asia-Pacific – according to JLL’s 2023 Global Hotel Investment Outlook report.
“Luxury assets resorts and hotels situated in safe-haven markets remained the most liquid as investors look to stabilise cashflow and mitigate risk in the aftermath of the pandemic,” the report said.
“The lift in global travel demand accelerated the recovery of hotel fundamentals despite the war in Ukraine and rise in geopolitical tensions that exacerbated economic volatility with record-high inflation, labour shortages and supply chain disruption.”
At year-end 2022, global hotel occupancy had recovered by 89% relative to 2019 levels. While uncertainty looms over the impact of economic headwinds on the global hotel industry outlook in 2023, JLL expects pent-up travel demand to remain resilient and has stressed that hotels’ ability to outperform inflation, combined with a slowdown in new supply, should continue to present opportunities to owners and investors.
There are a number of areas in which investors can play a role in the recovery and evolution of the tourism industry, from supporting sustainable initiatives and fostering technological innovations, to tapping into opportunities in emerging markets. They include:
Revamp of hospitality
As highlighted by the statistics cited above, the hospitality sector – including hotels, resorts, and vacation rentals – is poised for a resurgence as travellers seek new experiences and destinations. This renewed interest has sparked investments in renovation and expansion of existing properties and the development of new, innovative accommodation options.
Emerging markets
While established tourism destinations are regaining their footing, emerging markets are becoming increasingly popular. Tourists are exploring off-the-beaten-path locations in search of authentic and alternative experiences. This presents opportunities for investors to support the development of infrastructure, such as transportation, accommodation, and local businesses, in these untapped areas.
Travel technology
Digital transformation in the travel industry is accelerating. From booking platforms and travel apps to contactless check-ins and digital payment solutions, technology is enhancing the experience for travellers. Investors can take advantage of this trend by investing in innovative travel technology startups, as the demand for convenient and safe travel options continues to grow.
Sustainable tourism
As the world becomes more environmentally conscious, there is a growing emphasis on sustainable and responsible tourism. Investments in eco-friendly accommodations, renewable energy solutions, and conservation efforts are on the rise. The potential for financial returns coupled with positive environmental impacts makes sustainable tourism investments attractive.
Experiential tourism
Travellers are seeking more than just a destination: they want unique and immersive experiences. This trend has led to opportunities in adventure tourism, cultural exchanges, and niche travel segments. Investors can explore partnerships and investments in companies that offer one-of-a-kind experiences to meet this demand.
Digital marketing and promotion
The post-pandemic tourism industry heavily relies on digital marketing, content creation, and online promotion to reach potential tourists. Investors can consider backing marketing agencies, content creators, and influencers that specialise in the travel and tourism sector.
Travel insurance and health services
Travellers are increasingly concerned about health and safety when venturing abroad. This has created a need for innovative travel insurance and health service providers. Investors can look at companies that offer tailored solutions to address these concerns.
These and other tourism segments and trends will continue to offer opportunities for investors of various stripes as travellers get back in the air and hit the road.
This is article is contained in the latest edition of RealFDI. For more information click here
