The IHM team examines how the US–Israel conflict with Iran is disrupting the Middle East, impacting the hospitality industry, and redirecting global capital flows.
The United States and Israel began their war with Iran over a month ago, an escalation from shorter conflicts involving the three nations in 2024 and 2025. Initial hopes for a limited military operation seem gone as Iran tightens its grip on the vital Strait of Hormuz, reports surface of US preparation for a ground campaign and Israel continues its invasion of Lebanon.
Already, the conflict has had drastic effects on the global hospitality industry. Tourism and business travel to the Middle East has cratered. Recovery depends entirely on when the region stabilises.
Global stocks of resources like oil, fertiliser and aluminium are dwindling because of the war. This is creating inflationary effects which will have long-term impacts on the amount visitors can spend on a trip.
Many Gulf states have been made targets as Iran looks to punish American military installations and other critical infrastructure in the region. The US have returned the favour, threatening to destroy Iranian desalination plants and energy facilities.
A New York Times report found US troops have moved from military bases to hotels and other civilian infrastructure, a likely violation of the Geneva Convention as well as the US defense ministry’s rules of engagement. This move puts hotel staff, its guests and the building at risk and establishes a human shield for American military personnel.
The hospitality sector is not one that performs at its best during a war, especially in one not limited to the belligerent states. Holiday and business travel are simply not important when there are drones flying overhead.
But instead of a structural change, many industry professionals view the conflict as a limited shock.
Industry professionals maintain faith in the Gulf states’ hospitality infrastructure, as strong fundamentals and historical resistance make for a short rebound window once the conflict ends. But the longer the fighting persists, the more outsized the impact will be on hospitality.
The big picture
In the first 48 hours of the conflict, more than 5,000 flights were cancelled. 80,000 hotel reservations in Dubai were cancelled in the first week. Tourism spending was down $12 billion in the first 20 days.
“Within 72 hours we saw a 90 per cent cancellation rate across our high-rise apartment portfolio,” said Chris Veinbaums, founder of Dubai short-term rental management company Royale Stays. “I’ve been managing properties in Dubai for a few years now and nothing has moved that quickly before. Previous tensions in the region caused maybe a 10-15 per cent dip over a couple of weeks. This was essentially overnight.”
Veinbaums continued: “Guest profiles changed noticeably too. European and Western tourists cancelled fastest, often within hours of the news breaking. GCC guests mostly held their bookings. Booking windows collapsed from the usual two-to-three weeks advance down to two-to-three days. People were waiting to see what happened before putting money down.”
To stave off operational problems caused by low occupancy, Dubai announced a $272 million package to the tourism and hospitality industry. A tax on guests staying in Dubai hotels and hotel sales tax have been deferred for three months alongside other actions meant to free up cash flow for operators.
Visitors who still want to visit have a hard time doing so as airspace remains significantly restricted. Airlines are avoiding Iran entirely, as well as the nations between it and Israel — Iraq, Kuwait and Syria.
Flights in and out of Israel and the Gulf states remain limited, but have recovered somewhat since the beginning of the war. While Emirates approaches two-thirds of its pre-conflict schedule, most Gulf airlines sit around 50 per cent.
Major hubs have been largely restricted to cargo and repatriation flights. European airlines have suspended routes to and through the Middle East as far in advance as this autumn.
It’s also a problem for travellers outside the Middle East. Dubai is a hotspot for international travel, sitting within eight hours of 80 per cent of the world’s population. Many flights use the Gulf corridor on their way to Asian and European destinations.
An early March Oxford Economics study gave two possible end situations. The first showed Middle East arrivals could drop by 11 per cent year-over-year, making for 23 million less guests and $34 billion less in economic contributions than predicted. That was if the war wrapped up in a couple weeks.
The second situation, for a two-month conflict, is much sharper. Arrivals could drop by 27 per cent year-over-year with losses of 38 million visitors and $56 billion. Losses are most pronounced in Israel and Iran, while the Gulf states show greater strength.
What’s happening to capital flow in the Middle East?
The war seems to have accelerated existing trends as opposed to creating a true capital shock. IHM spoke to professionals who cited geopolitics as an increasing factor in capital flow even before the war broke out. The world seems more uncertain to many, and investors are pricing that in as best as they can.
Paul Christodoulou is a principal at ANV Partners, a lease acquisition advisory firm for hotels and serviced living. He said: “Investors are increasingly distinguishing between volatility they can price and volatility they cannot. Political noise on its own rarely stops investment, but where it creates uncertainty around regulation, travel demand, currency stability or capital flows, underwriting becomes significantly more difficult.”
He continued: “As a result, markets with transparent legal frameworks, strong rule of law and diversified demand drivers tend to attract the most attention. Many investors today are prioritising reliability of income and capital preservation over simply chasing the highest headline returns.”
While the Iran war has intensified the trend, politically stable regions have been rising on investors’ priority lists. Markets that are historically and materially safe from violence and economic crises are increasingly attractive.
But this doesn’t mean this conflict is the nail in the coffin for Middle East investment. Far from it, in fact.
The consensus is still that the region — GCC countries in particular — has strong fundamentals. Those fundamentals do not disappear during conflict, and capital will continue to enter the region, if at a slower clip.
“Over the next few months, I expect capital flows into EMEA hospitality to become more selective and cautious, but still active,” said hotel investment advisor Rekha Toora.
She continued: “The overall direction for hotel investment is still positive albeit there is an expectation of a pause whilst the real impact of the war on different hotel markets is assessed. Hotel transaction activity across Europe generally picked up 2025, supported by improving liquidity and more competitive and active debt markets. At the same time, we have seen increased investor interest and capital allocations into the sector, driven by relatively strong operating fundamentals compared to other real estate asset classes.”
Where capital and tourists might be going now
Travellers are looking away from the Middle East, at least temporarily. Popular substitute locations are places close by with similar climates, meaning Mediterranean locations are seeing a sizable increase in bookings.
Cyprus and Malta are seeing occupancy growth of 16 and 19 per cent year-over-year to date. The island nations are absorbing some of that diverted holiday traffic, and profiting. Cyprus in particular is seen as in the sweet spot, in proximity to Middle Eastern sites but far enough away from the conflict.
Other mainland European nations are also seeing increased interest. Greece, Portugal, Croatia, Spain, Montenegro and Italy are all reporting sudden increases in arrivals. Turkey and Egypt are also primed to benefit.
Daniela Derin, founder of Skol Apartments in Marbella, Spain, said two-way markets with the Middle East were established after the 2008 financial crisis. Many of Marbella’s investors saw nations like the UAE as safer investments and switched their focus. Derin said the reverse is happening now.
“Dubai properties [are] being sold at ‘low’ prices and bringing the capital to Marbella, but give it a year or two and the market will come back, it’s a wave of the economy.
“However, the bottom line is that Marbella is seen as a much safer and mature market, where there won’t be any bubbles, crazy fluctuations, and a steady five to 10 per cent increase year-over-year, therefore a sure investment both for pure real estate and for short-term rentals.”
Outside of warmer Mediterranean destinations, investors are pushing greater demand in large, international cities like London, New York and Tokyo.
“What we tend to see in periods like this is investors favour markets that offer transparency and institutional stability,” Christodoulou said. “As a result, capital often tilts toward established gateway cities such as London while investors reassess risk in higher-growth markets.”
But even with alternative destinations available, occupancy rates are likely to be impacted by inflation. Oil accounts for 30 per cent of airlines’ operating costs, meaning ticket prices could jump by 25 per cent as firms pass expenses on to consumers.
Travellers might also have to be lured back to the Middle East after the conflict due to negative perceptions about geopolitical safety.
Changes in asset classes
Capital isn’t just shifting locations. Owners and investors are looking at different asset classes to diversify their investments.
“When an owner sees their nightly rate drop by half and occupancy crater, that feeds straight into their next purchase decision,” Veinbaums said. “We’ve had owners ask us whether they should pivot from apartments to villas based purely on the last two months of data. I push back on making long-term moves based on short-term disruption, but the conversation is happening more often.”
Veinbaums said his villas maintained near 100 per cent occupancy in the first days of the war, as families with children felt safer closer to the ground. That doesn’t necessarily mean that interest in assets with fewer stories will be impacted long-term, but it emphasises the value of perceived safety in geopolitically risky areas.
Toora said that while interest in hotels is still strong, trends are indicating different attitudes when looking for an assets’ upside.
“Hotels will continue to be attractive to investors, but with a stronger bias toward assets where investors can actively create value through repositioning, refurbishment and operational improvement,” Toora said. “Investors are continuing to look for angles to add value, prioritising opportunities with a positive growth story, operational flexibility and a credible asset-management story rather than just buying generic hotel exposure.”
Capital moving away from areas affected by the conflict is going into different assets. Short-term rentals, aparthotels and other extended-stay properties are favoured for providing flexibility. Structural stability comes from longer length of stay and a higher share of business travel.
Wrapping up
As long as the US, Israel and Iran are in conflict, travellers will be deterred from the region. Inflationary shocks as a result of constricted resource flow could make for less holidays as people look to save. The biggest influence on these trends is how long the war will continue for.
If peace is established within the next few weeks, hospitality losses in the Middle East would be constrained. But if instability persists, the region looks like less and less of a safe investment as headline returns offer less reward to weigh against risk.
Mediterranean regions and gateway cities where rule of law is under less threat are seeing spikes in occupancy and investor interest as vacationers look for a similar climate and safer locations.
Yet the Middle East and Gulf countries in particular still offer attractive fundamentals for investors. Growing tourism infrastructure, favorable visa requirements and low taxes will still be there after the war. The Middle East’s hospitality industry has weathered shocks before — but the war’s end impact is still uncertain.
