Israeli Hotel Prices Higher Due to Taxes, Labor, and Construction Costs

Hotel room prices in Israel are often significantly higher than in comparable destinations like Greece, Cyprus, or Eastern Europe, according to Shachar Oake, Chairman of Fattal Europe and CFO of the Fattal Group. Oake attributes this disparity to a combination of factors that begin long before a guest checks in. He points to higher land costs, lengthy construction periods for new hotels, and increased expenses for food and labor. Additionally, property taxes (arnona) in Israel represent a substantial burden, with Fattal paying approximately 25 million shekels annually for nine hotels in Eilat alone. Other operational costs such as security, kashrut certification, lifeguards, and other requirements further inflate the per-room expense, leading to higher prices and lower profitability compared to European counterparts.

Contrary to the common assumption that higher prices directly translate to increased profits for hotel chains, Oake presented a different perspective. He cited a comparison Fattal conducted years ago between six Israeli hotels and the group's European properties, encompassing spa, conference, and resort hotels. Oake also noted a decline in Israel's image abroad, though this has had a minimal impact on Fattal's European operations, where guests are often unaware of the Israeli ownership. However, the situation in Israel is different, with fewer tourists visiting due to security concerns and limited flight accessibility. This is particularly evident in cities like Tel Aviv and Jerusalem, where hotel occupancy rates have dropped to around 40-50% during certain periods, largely due to the absence of business travelers, organized groups, and pilgrims.

Data from the first quarter of 2026 shows approximately 3.5 million overnight stays in Israeli hotels, with 2.8 million by Israelis and about 700,000 by tourists. National occupancy rates stood at 39%, a decrease from 49% in the same period the previous year. While Eilat relies heavily on domestic tourism, with organized groups playing a role during certain seasons, peak times see rooms sold primarily to families and private customers willing to pay higher prices. Oake highlighted that Israeli resorts often offer extensive amenities like pools, abundant food, and entertainment, which guests expect and contribute to the overall cost. Fattal, which operates around 334 hotels globally, with about 60 in Israel, has expanded significantly in Europe. Oake explained that the lengthy process of acquiring land and building hotels in Israel, often taking ten years, adds considerable interest and costs, whereas similar processes can be faster and cheaper in Europe. Despite government support and initiatives to expand hotel capacity, the fundamental cost structure in Israel remains a significant factor in its higher hotel prices.