Holy lands: pilgrims and property markets in the world’s most hallowed places

Of the 300-330 million religious tourists who travel each year to hallowed sites around the globe, some 140-200 million are pilgrims.

A pilgrimage is a journey to a sacred or important place as an act of devotion to a religion or belief system. Given their purpose, pilgrimages – and religious tourism in general – are often more resilient to recessions than regular tourism.

For those enterprising investors who are always on the prowl for new opportunities, we have explored five of the world’s major pilgrimage centres and the impacts religious tourism have had on their local property markets.

Jerusalem, Israel

Jerusalem attracts 3 to 3.5 million visitors each year, and the overall trend in tourist arrivals has been on the rise since the mid-2000s.

According to official statistics, in 2014, 56% of tourists who visited Israel were Christian and 24% were Jewish. Upwards of 80% of all tourists who visited Israel spent time in Jerusalem, and all the country’s most visited sites were in Jerusalem. Most tourists (64%) stayed in hotels.

In recent years, about 25-30% of tourists visiting Israel came on pilgrimages.

International tourism revenues in Israel typically total about 4-5 billion USD. By 2025, total tourism is expected to contribute over 30 billion USD annually to Israel’s GDP, and tourism investment is expected to increase by 57%, reaching upwards of 4 billion USD.

While the hotel industry has recently struggled to expand supply, new hotels are continuing to open. Officials have been pushing to boost tourism in Jerusalem, offering several grants and tenders for the creation of new hotels or the expansion of existing ones. Large local brands are actively seeking new investment opportunities in the area.

Despite a relatively low level of hotel property transactions, high employee wages and Airbnb eating into the market, Jerusalem’s hotel market remains promising. Given that about a third of visitors in 2014 opted for budget-friendly lodging arrangements, and that current investments tend to favor high-end hotels, expanding the supply of standard and economy hotels is advisable.

Jerusalem’s residential property market also appears to be on the up and up. Despite recent rent drops, most residential property indicators have long trended upward in Jerusalem, with YOY house price growth averaging around 3.9%: the average price of a living space is over 472,000 USD, and Old City property prices often exceed 1 million USD. While tourism has also been growing, it is unclear whether the two trends are related.

Old City restaurants are relatively few and tend to attract less critical acclaim than some of the city’s finer dining establishments, such as Gabriel and La Guta, which are clustered in such nearby areas as the downtown triangle and Sha’arei Hased. Investors may do well to consider funding restaurants closer to the Old City.

Mecca, Saudi Arabia

Every year since 2007, an average of 2.4 million Muslims have taken the Hajj – a pilgrimage to Mecca that every able-bodied believer is required to complete at least once. Muslims may also undertake an Umrah, a minor pilgrimage to Mecca.

In 2014, a total of 14 million Muslims visited Mecca. The total number of annual tourists to this area is expected to rise to 17 million by 2025 and to exceed 20 million by 2030.

With tourism contributing an average of about 3% to the Saudi GDP each year, the government has striven to improve the country’s tourism infrastructure. The industry, of which religious tourism comprises 27%, is worth over 10 billion USD and will continue to grow.

In 2010, a metro line was opened that was specially designed to help visitors move among the main pilgrimage sites. The upcoming Haramain high-speed railway will run between Medina, Jeddah, King Abdulaziz International Airport (KAIA, which is undergoing expansion) and Mecca.

Three to five-star hotels constitute 43% of the hotel market. Though supply has grown, occupancy rates have frequently hit 100%. Recently, the hotel industry has grown at a rate of about 8-9% annually, and the heart of the city has about 150,000 hotel rooms. Investment in the tourism sector has averaged around 25 million USD since 2011 and is projected to hit nearly 40 million USD by 2025.

The hospitality property market is ripe for further investment, specifically in economy hotels. While there is already strong demand for luxury hotels from visitors from wealthier countries, investors are advised to attend to growing demand from pilgrims of limited means, the numbers of which are expected to grow considerably through 2030 due to the rapid demographic growth of poorer Islamic countries.

The residential market segment has likewise been heating up in recent years; today, the price per square metre stands at 1,917 USD in the city centre, near the Grand Mosque, and at 840 USD further afield. Observers have noted that market growth in this segment is tied to increasing public investment in the Grand Mosque and other public structures.

Mecca is not known for fine dining, and there are no Michelin-star restaurants in the city. Nevertheless, Mecca does have a wealth of establishments of varying quality and tastes: many of them, mostly high-end, are clustered around the Grand Mosque. Given current investments in infrastructure and hotels, now is an opportune time for investment in mid-range and high-end restaurants in the city centre.

Vatican City and Rome, Italy

Over the past decade, the Holy See has drawn in 4-5 million visitors each year. In 2015, nearly 6.2 million people visited the Vatican City Museums.

St. Peter’s Square can welcome up to 400,000 visitors during special occasions like Easter, Christmas, and papal conclaves. Jubilees sometimes draw in tens of millions of religious tourists over the course of a year.

Rome attracts around 7-10 million tourists annually. Replete with hallowed sites, such as the Pantheon and the Lateran Basilica, Rome too draws pilgrims and other religious tourists.

Demand for hotel rooms in the area is expected to increase in the coming years. Since 2014, renewed foreign investment has been a key factor in luxury hotel purchases.

While the weakened Euro has attracted foreign investment, supply expansion remains sluggish, standing at around 50,000 rooms. There are six pipeline hotels with a combined capacity of over 1,400 rooms, but the city’s hotels still lack capital for expansion, mainly because of long capital expenditure deferrals. The city’s hotel market is marked by a comparatively low number of international luxury hotel brands, as well as by lackluster luxury hotel locations: the locus of tourism has shifted westward to Via dei Condotti.

The luxury hotel segment (8% supply share), and the standard and economy hotel segments (27% and 9% supply shares, respectively), struggle to meet demand. With religious tourism on the rise, investing in luxury hotels is advisable.

The residential segment has been performing relatively well recently: the average price per square metre now is about 3,940 EUR (5.8% growth on 2015), and the average price in the city centre reaches nearly 8,900 EUR. It is difficult to determine whether this is linked to growth in religious tourism.

There are some 65 Michelin-star restaurants in the area, though most of them are concentrated in the city centre; only four are situated near Vatican City. There are many fine establishments neighbouring the Holy See to the north and east, but investing in restaurants west of the Tiber near the Vatican may still prove profitable.

Lourdes, France

Lourdes is a small town of 17,000 just north of the Pyrenees and the largest pilgrimage site in France; it welcomes at least 5 million pilgrims and other religious tourists each year.

Its main religious site is the Grotto of Massabielle, part of the larger Sanctuary of Our Lady of Lourdes, which covers over 50 hectares and includes 22 places of worship.

Pilgrims generally come to drink from and bathe in the local water, which is believed to possess healing properties. Some 80,000 of the town’s annual visitors include travelers with illnesses or special needs.

The Lourdes hospitality industry boasts well over 200 hotels, apartment complexes, campsites and hostels, which offer a combined total of nearly 34,000 beds. The Sanctuary is not the only attraction in Lourdes: there are many other sites – historical and natural – and many religious tourists also come to enjoy the serenity of the town’s environs.

The hospitality industry in Lourdes shies away from luxury hotels; in fact, 3- and 2-star hotels command the largest shares (41% and 25%, respectively) of the current hotel supply, and average nightly rates are low relative to those of larger French cities, due in part to a high supply level of mid-range hotels.

Given stable demand, especially from clients who are seeking healing or general wellness, and given that 4-star hotels comprise just 13% of the current market supply, investors keen on this market would do well to consider building first-class hotels with an abundance of accommodations for visitors with special needs, as well as amenities for health-conscious clientele. A similar strategy would be to purchase an existing hotel and renovate or equip it with the same goals in mind.

The conditions of residential real estate investments likewise appear favourable, though prices have remained virtually unchanged at 1,720 EUR per square metre since 2009. Local home values outpace regional values by 9.5%. Given that tourist flows and property values seem stable, it is difficult to say whether religious tourism has effected the residential property segment.

There is just one Michelin-star restaurant in Lourdes – Alexandra on Rue du Fort. However, there are numerous restaurants of all qualities and cuisines within a kilometre of the Sanctuary, encircling the Château Fort Musée Pyrénéen. Based on the data available, it is unclear whether investments in restaurants here would be profitable.

Varanasi/Sarnath, India

Varanasi is among the foremost Hindu pilgrimage sites, welcoming around 5.2 million annual visitors, 95% of whom are Indian. Around 50% of local economic activity is linked to tourism. People come to Varanasi to pray, fast and spiritually cleanse themselves in the Ganges, the focal point of such pilgrimages.

Just northeast lies Sarnath, a major Buddhist pilgrimage destination where the Buddha is first believed to have taught the dharma after attaining enlightenment. Sarnath is the most visited Buddhist pilgrimage site in India, welcoming about 1.2 million visitors every year.

In 2016, the Indian government approved major Heritage City infrastructure development plans for Varanasi and other cities, allocating a total budget of 64.27 million USD.

In 2016, the Uttar Pradesh Ministry of Tourism likewise earmarked 3.06 million USD for development under a public scheme aimed at spurring pilgrimages.

Pilgrims in the area may stay in dharamshalas (rest-houses), ashrams (monasteries), guest houses or 1- to 5-star hotels. The hotel supply composition is roughly 61% economy, 29% standard and 10% first class and luxury hotels. Market performance has been strong in recent years, with demand consistently outpacing supply increases.

Varanasi-Sarnath has several major hotel brands. Most are in the Nadesar district near the Varuna River. Quality hotel stock is limited, and limited accessibility and seasonality remain obstacles to investment.

Investors interested in this market are advised to follow transportation infrastructure developments: increased accessibility would likely spur international tourism. In this scenario, investing in new first class or luxury hotels could be an excellent move.

Local housing demand has been growing at a rate of about 16% per year. New developments occur mostly in the suburbs. The average price per square metre for flats is 595 USD, while that for stand-alone houses is 700 USD. The suburban expansion is attributable to growing demand for Tier-III market housing, the Varanasi Development Authority’s efforts to boost residential land use, the urban-rural land price differential and the strong spiritual draw of the city.

There are no Michelin-star restaurants in Varanasi or Sarnath. Most of the high-end restaurants cross the city centre from the south to the Nadesar district near the Varuna River. There are far fewer restaurants in Sarnath. As developers push outwards, restaurant demand is expected to grow in the suburbs, though it will not likely be from wealthy tourists. As such, investors should consider mid-range restaurants in the suburbs and high-end establishments between central Varanasi and Sarnath.

Thomas H. Espy, Tranio.com