Mid-market hotels fill void in Middle East
14 OCTOBER 2015 5:54 AM
After years of building luxury and upper-upscale hotels, developers in the GCC have started to fill a void in the middle of the market.
DUBAI, United Arab Emirates—Supply is shifting in the Gulf Cooperation Council, where developers are working to fill a void in the mid-range of the market.
Taking Dubai as an example, JLL reported 69% of Dubai’s 3,600 rooms still scheduled to open in 2015 will be 4-star, while 44% of rooms will be 3-star or below.
“Dubai is entering into a new cycle of development. We’ll see its luxury-focused inverted pyramid almost flip into a normal position where the majority of supply will be mid-market and budget,” said Christopher Hewett, associate director at TRI Hospitality Consulting.
He was one of several speakers to discuss mid-market development and recipes for operational success during the “Development and growth of the mid-range market” panel at the recent Vision Conference in Dubai.
With Dubai being the fourth most expensive city globally in terms of average rates, Hewett said more mid-market rooms will attract more visitors.
“Some visitors are currently put off by prohibitive rates and choose other markets, including Doha, Abu Dhabi, Beirut and Cairo,” he said.
Developers and operators blame prohibitive land costs in prime locations for a lack of enthusiasm to build more midscale properties, but they increasingly are looking at ways to circumnavigate the hurdle.
“A lot of 4-stars are still luxurious with higher rates. There is the land cost, but there are a variety of ways you can build a hotel to save costs,” said Raki Phillips, senior partner and VP of development at the International Hospitality Consulting Group.
He cited developer Emaar’s Rove Hotels as taking this route: “Budget hotels attract more adventurous, travel-savvy travelers (who) are looking for an experience. They are an interesting proposition which could grow.”
Dubai’s Department of Tourism and Commerce Marketing in 2013 scrapped the 10% municipality fee for 3- and 4-star hotels built through 2017—a plan designed to foster more midscale development. That scheme seems to be paying off, as the authority reports that 3- and 4-star hotels accounted for 41% of the emirate’s total inventory in July.
Government-backed Wasl Asset Management Group also has entered the affordable hotels arena with the Hilton Garden Inn and Hampton by Hilton brands, of which it will develop three and one, respectively. The brands follow in the footsteps of Ibis, Holiday Inn Express and Premier Inn, which are prevalent in the UAE.
“We’re now developing the first Garden Inns in the UAE, offering great service levels at an affordable rate. Our focus is on the younger, savvy generations of travelers. Attracting this new global segment will close the gap between the luxury and full-service brands,” said Mark Allaf, Cluster GM for Hilton Garden Inn in Dubai.
Daniel During, principal and managing director at the hospitality consulting and design firm Thomas Klein International, welcomes the branded influx.
“A lot of mid-market and lifestyle boutique hotels are emerging. Before they were dodgy hotels; now they are very nice properties. However, Dubai also needs to develop them in prime locations, creating a good mix with luxury hotels in the same neighborhood like in the U.S.,” he said.
Successful mid-market recipes
In terms of cooking up a successful mid-market hotel, During cited tactile design, interactive spaces, self-service, technology made simple and healthy food as essential ingredients.
“Controls in the room shouldn’t be confusing. … No need to try and figure out for half an hour how to close the curtains,” he said.
Phillips agreed that investment into efficient connectivity rather than providing expensive gadgets is the way to go.
“Millennium travelers use their own gadgets to check in and connect. Great Wi-Fi and sockets above the table rather than below is the trend, which saves owners from buying unnecessary technology,” he said.
In terms of F&B, today’s consumers, not the chef, dictate the menu. They demand organic and socially conscious choices, During said.
“We need to train staff to know the answers to questions on whether eggs are free-range and cows were humanely killed, etc.,” he said.
Phillips said à la carte breakfast instead of wasteful buffets also make more sense.
Allaf said Hilton Garden Inn meets those needs with smart menus and 24-hour pantry mini-markets.
“We’re changing the way we offer our services. You can have great healthy food any time of the day, or a traditional Arabic breakfast. Choose what you want and we’ll make it happen,” he said.
More room to grow
A wealth of untapped opportunities for mid-market hotel development exists beyond just Dubai. Panelists pointed to the coasts and in the mountains of Ras Al Khaimah and Fujairah within the UAE as examples.
“We’re still lacking the same level of room rates for resorts we can find in Asia. Beach resorts are expensive. Incentives are needed. Abandoned villages up in the mountain could be refurbished to operate as cultural and adventure destinations,” During said.
Looking further afield, During sees a huge opportunity to brand properties of non-experienced hotel owners in the heavily populated Kingdom of Saudi Arabia, as well as dotting the country’s long highways with U.S.-motel-style hotels.
Doha is another market lacking budget and midscale hotels. “Their understanding of mid- market is one that trades at (600 to 800 Qatari Riyals, or $164 to $220), which is still significantly too high,” During said.
“We are starting to see many eco-friendly and boutique hotel concepts coming up in Oman, although they might not exactly target the midscale market,” he added.