Political tensions and economic turmoil have weighted heavily on the Iranian hotel sector. Despite this turbulence, hospitality in Iran is attracting investors, and hoteliers in the country are peering into the future with guarded optimism.
Geopolitical situations, including conflicts with Israel and sweeping U.S. sanctions, have had a severe impact on Iranian hotels during the past several years, said Hamid Vahabzadeh, CEO of Dastyar Hotel and a hospitality management consultant in Iran.
“Quite a few hotels are in a pretty bad situation,” he said.
Some hotels in Iran have shut down in recent years, while others that are still open are struggling, said Mehdi Gharib, CEO and marketing manager of PersiaTravelingCenter.
“Inbound tourism numbers are low, and rabid inflation deprives local citizens of the money they could spend on traveling,” he said.
The crisis pushed the average hotel occupancy in Iran below 40%, the level considered to be critical for business profitability, Gharib said.
Average occupancy of Iran's branded hotels has dipped even below that level, Vahabzadeh said.
Added to the difficulties stemming from Western sanctions and geopolitical tensions is the occasional domestic social unrest seen in Iran, said Mario Candeias, CEO of Espinas Hotel Group. His company has three hotels in Iran and one in development, which is scheduled to open in 2027 in Velenjak at the base of the Alborz Mountains north of Tehran.
“Exposure to international markets has noticeably decreased, and the hotel industry is significantly dependent on the domestic market,” he said.
Candeias also pointed to domestic economic problems.
“There is a great need for currency stability as the Iranian rial has been devaluing significantly in recent years. High inflation, estimated at 35% in the current year, is also a major point of concern,” he said, adding that government-imposed price caps placed on a variety of goods have not helped.
One consequence of this is that Iranians are trading down when they travel, in other words booking hotels in lower-priced segments, Gharib said. Historically, Iranians opted to stay only in upscale hotels, but the financial hardships have resulted in them breaking this habit.
“Now Iranians are fine staying in a 3-star hotel,” he said.
Signs of improvement
But Iran's hotel industry is not as grim as it might seem, Candeias said. He added some branded hotels boast a relatively high occupancy, ranging between 60% to 70% and even higher for hotels with lower average daily rates.
And it depends on each hotel's demand drivers. Hotels that have contracts with state-owned companies and government agencies are doing well, Gharib said.
Investors have still been drawn to Iran's hotel industry, Candeias said.
“Overall, the hotel industry operates based on low expenses, like payroll and energy. Therefore, it is still attractive [for investments],” Candeias said.
Travelers to Iran often flock to the ancient cities and civilizations of Yazd, Shiraz and, notably, Isfahan. It has 28 UNESCO World Heritage sites and a range of landscapes including Caspian Sea and Persian Gulf beaches, deserts and mountains for ski resorts.
Despite rising tensions in the Middle East, Iran’s tourism industry has settled and shows signs of recovery. In the 12 months starting in March 2024, a total of 4.16 million international tourists visited Iran, which is a 24% increase over the previous year, according to the Statistical Center of Iran. While this is an improvement, Iran is unlikely to reach the all-time high of 8.8 million visitors it set before the pandemic.
Tourism flow is rising even though traveling to Iran is an uphill battle. Another problem, which is often a shock for international arrivals, is that Western bank-card services do not operate in the country.
“One of the challenges [in attracting foreign visitors] is the difficulty in collecting international payments in U.S. dollar and euro. Online sales are also impacted by sanctions,” Candeias said. “When these issues are solved, the [hospitality] industry will accelerate its development pace significantly.”
Appetite for construction and change
Despite the headwinds, the hospitality industry in Iran is attracting new investments. Under the Seventh National Development Plan inaugurated in 2023, the Iranian government has set the target to facilitate the construction of 500 new hotels in the country through 2027. Although hoteliers anticipate only half of this number of new hotels, Iran is growing its hotel room supply.
“Espinas Hotel Group is now starting to build its new luxury hotel property in Tehran, the Espinas Royal Hotel with 503 rooms,” Candeias said.
Gharib said this hotel development plan is a material signal of financial capability and belief in the resilience of the Iranian economy and its acceleration. He added such an investment would have never been allocated if all Iranian hotels operated at only 40% occupancy.
Iranian hoteliers also look into the future with cautious optimism due to U.S. President Donald Trump's return to the White House.
“Trump has not been friendly to Iranian citizens at all, but many people now share the opinion he can make the Iranian regime change for the better,” Gharib said.
During his first presidential term, Trump scrapped the Iranian nuclear deal and imposed most of the sanctions that still weigh heavily on the national economy. Now, Iranians hope that Trump is willing to conclude a comprehensive political deal with Iran that could give a new breath to its hospitality industry.
“We expect some kind of international agreement to take place sometime soon, easing the negative effect of sanctions on the economy and raising the living standards of the Iranian population and residents,” Candeias said. “But our business is resilient and diversified enough to continue moving forward, even in the absence of these factors.”
Across Iran, hoteliers are poised for big changes this year.
“In 2025, I think we are braced for a big shift in the Middle East,” Vahabzadeh said. “If the Iran regime changes, the hotel industry will experience substantial growth.”