REPORT FROM DUBAI—Recent announcements for major theme park developments in Dubai and the insinuation that an additional 100 hotels will be needed to satisfy demand has stirred up activity in hotel companies’ development departments.
The $3-billion project in Jebel Ali includes five separate theme parks, which will include themed indoor and outdoor attractions such as thrill rides, Hollywood- and Bollywood-related entertainment geared toward families, as well as wildlife safaris, marine life and aquatic adventures.
Master developer Meraas Holding announced the first component, Dubai Adventure Studios, will be ready by the end of 2014.
While critics might scoff at the unbridled ambition of the project, Amine Moukarzel, president of Golden Tulip for Middle East and North Africa, said Dubai’s track record suggests the ambition is warranted.
“Sure, a critical visitor mass is definitely important to achieve good return of investment on economy hotels, for example, but if you ask me whether 100 hotels for (this project) is too much, I will tell you in Dubai the sky is the limit,” he said.
However, Christophe Landais, managing director of Accor Middle East, estimates it could take 15 years at least for all the plans to materialize.
“There will be room for all hotel segments, and we certainly will be part of bidding for hotels. The (United Arab Emirates) is the best country in the Middle East for investors. I am sure the parks will succeed over time,” he said, citing the success of Disney World in the U.S. and Europe, where hotels were built purposely within the parks and on the periphery.
Accor Middle East
“We haven’t been approached yet but our development team is certainly ready to express interest, and creating the right synergy between our different brands from luxury to budget and suites to offer to the developers. We’re very much interested in being part of these promising and motivating projects,” Moukarzel said.
Reasons for optimism
Hoteliers have good reason to be optimistic. The theme park announcements come on the heels of strong visitor numbers and hotel occupancies in Dubai, which have reached near 2008 peak levels, according to Landais.
Hoteliers in the emirate averaged 76.6% occupancy during the first 11 months of 2012, according to the most recent year-to-date data available from STR Global, sister company of HotelNewsNow.com. Average daily rates, meanwhile, were up 8.3% in local currency to 852.70 dirhams ($232.10) while revenue per available room was up 12.8% to 652.85 dirhams ($177.70).
Officials expect the Dubai International Airport to handle 90 million passengers by 2018, up from the 56 million at present.
PKF The Consulting House estimates the emirate will attract approximately 12.5 million hotel guests by 2018, with the average length of stay increasing thanks to new attractions.
“Dubai currently lacks a prominent theme park to extend visitor stays by adding to the destination program. The announced leisure and entertainment complex in Jebel Ali will therefore certainly fill a market gap that has been identified for a while already,” said Harmen de Jong, consultant at PKF. He said he believes recent announcements in terms of new hotels under development, including offerings from Al Habtoor Group and Marriott International, seem to indicate risk appetite has improved in Dubai’s hotel real estate market.
“This implies that local developers are upbeat (about) Dubai’s tourism prospects and that the current hotel pipeline is not likely to entirely address future demand,” he said.
Dubai has 7,868 rooms in its active hotel pipeline, according to December 2012 pipeline data from STR Global.
Rohit Talwar, CEO of consultancy Fast Future, sees no reason for pessimism either but points to lessons learned from the massive Dubailand entertainment complex, which was put on ice as the global financial crisis hit.
“The payback period will be significant, and the projects need to endure. They have investment partners who are committed to a long-term view. It will probably take around 10 years or more for all the parks to be fully functioning,” he said.
New attractions, new supply
The new theme parks will have no shortage of demand. Landais pointed to the 350 million potential visitors in the immediate region, which includes the Gulf Cooperation Council countries, as well as the Levant region and Egypt. There are 2 billion if the net is extended beyond the Middle East to the subcontinent and as far as China; the U.S. and Europe represent an additional 200 million visitors each.
“With the Asian group and volume markets to be tapped into, it would make sense to increase the number of budget hotels. … Outer city locations are good for budget hotels, but one should not discount luxury and/or standard 5-star hotel projects in any of the new project locations,” said de Jong, adding that of the hotels in the pipeline, one-third is taken up by Accor’s budget Ibis brand.
Hala Matar Choufany, managing director of HVS Dubai, is slightly skeptical in regard to the projected 100 hotels being a realistic number, although she said the new attractions are key to boost demand.
“The announcement could be a marketing pitch to test investor interest. Having said that, Dubai has been doing the ‘we will build and they will come’ well over the years, and the emirate is definitely on the right track to turning Dubai into a leisure destination. Theme parks will only strengthen Dubai’s already strong positioning in the (meetings, incentive, conference and exhibitions) market,” she said.
Hala Matar Choufany
Moukarzel firmly believes in Dubai, and indeed the United Arab Emirates, as a confirmed family leisure hub of the wider region. “One can witness this fact every summer and during festive seasons, this phenomenon will be supported by the new projects,” he said.
The development period alone will bring plenty of corporate business to existing and upcoming hotels via visiting firms participating in the project creations. “As such the current level of growth in the hotel sector could be pulled forward and new supply will meet the demand,” Choufany said.
She calculates 5% to 10% of the 2 billion target guests in the Middle East and subcontinent would probably result in a potential customer base of 100 million to 200 million.
These numbers should satisfy estimates from Fast Future’s Talwar, who projected that each park would require at least 750,000 visitors a year to make them viable.
He is convinced there is plenty of investor interest counting on the Asian market in these kinds of projects at present. However, to make sure the parks become sustainable they would have to target and market to key audiences and encourage local residents to visit on a regular basis.
“A key market for many theme parks is the meetings sector. It would be essential to encourage businesses and event organizers to hold their conferences at the parks when there are lower numbers of regular park visitors,” Talwar said.
Considering the United Arab Emirates’ success in terms of attracting events, this seems like a realistic goal, he added.