Time to talk economy again in the GCC
Time to talk economy again in the GCC
17 MAY 2012 6:16 AM

Travelers are calling for more affordable budget brands in the Gulf region, and experts said developers would be wise to get in the game before supply begins to trickle in.


GLOBAL REPORT—The economy segment might have missed out during the Gulf’s decade-long hotel building boom, but as the economy slowly recovers, sources said the time is right to play catch up. 

“It is naturally becoming more urgent because of the increasing appeal of such an investment given the growing demand for mid-market and budget products throughout the economic cycle,” said Elie Younes, The Rezidor Hotel Group’s area VP of business development for the Middle East/North Africa region.

A rising middle class is hungry for more affordable roomnights, sources said, adding that many travelers in the Gulf Cooperation Council are not willing to pay more than $100 to $200 per night. But budget offerings are few and far between. 

Rezidor’s Park Inn by Radisson would fall into the mid-market segment, yet it is considered an economic option at just less than $200 a night, competing with Courtyard by Marriott, Aloft, Novotel and Four Points by Sheraton. Brands such as Holiday Inn Express, Premier Inn and ibis offer rates around $100, which is good for a cost-conscious traveler’s budget, but those hotels, themselves, are not budget hotels.


Elie Younes, VP of business development for the Middle East/North Africa region for The Rezidor Hotel Group

Although he wouldn’t use the word “urgent,” Peter Goddard, managing director of TRI Hospitality Consulting Middle East, said travelers’ demands for more economy/mid-market hotels are growing.


“GCC markets are becoming more complex, and travelers have greater expectations of hotel product types,” he said.

Developing on a budget
The dearth of budget hotel development in the GCC up until this point is not surprising, sources said. When rapid economic expansion was happening, upscale and luxury assets were more viable and could generate stronger returns—especially given the high cost of demand in major markets. 

But the global economic downturn put a stranglehold on development.

“Roughly 60(%) to 70% of hotel projects were put on hold in late 2008/2009, albeit many of these projects are being put back on the table,” Goddard said.

More than two years ago, hospitality experts at the Arabian Hotel Investment Conference in Dubai, United Arab Emirates, declared the time for luxury development was over as funding had dried up and the hotel market was maturing.

Those conclusions largely have remained true to this day.

“Developing a 5-star would be too expensive now for many,” said Hala Matar Choufany, managing director of HVS Dubai. “The mid-brands offer a lower risk investment, which banks are happy to lend against and many developers are able to self-finance.”

“Global downturns simply make such hotel investments even more justifiable; they pose less of a developmental and operational risk,” said Rezidor’s Younes.

The shift from luxury to lower-end development represents a cultural change as much as a financial one, Goddard said.

“GCC owners/developers have a strong appetite for upscale hotels. It’s part of their culture and tradition,” Goddard said.

But Choufany said developers are beginning to change track.


Hala Matar Choufany, managing director of HVS Dubai

“It is much easier to talk them through the feasibility of building midscale properties rather than them insisting on 5-star only, as was typical here,” she said. “Equally operators realize there is a shortage, so it’s a good time for the mid-market now.”


Not the end of high-end hotels
An increased emphasis on budget demand does not mean development in other segments has come to a standstill. On the contrary, the upper-tier still holds the upper hand.

The upscale, upper-upscale and luxury segments made up 67.8% of the pipeline in the Middle East/Africa region as of March 2012, according to STR Global, sister company of HotelNewsNow.com.

As of February 2012, Bahrain was expected to open 2,180 rooms, Oman 4,762, Qatar 6,723 and the United Arab Emirates 44,829. Of those only 200 rooms in Qatar and 1,031 rooms in the United Arab Emirates were in the economy segment.

The global downturn thwarted many chains’ plans to develop new budget offerings in the region. Jumeirah’s Venu Hotels, Hospitality Management Holding’s Ecos hotels and Starwood Hotels & Resorts’ Element—to name a few—are still missing in action. Stelios’ budget easyHotel was to spread like wildfire in the region yet only one exists in Dubai today.

These concepts were a sign of growth that simply slowed during the last three years. Now that things are looking up, are developers likely rush to the starting line? Yes, but not everywhere, Goddard said.

“There is a shortage of economy/mid-market brands in Jeddah and Riyadh and some opportunities in Dubai and Muscat (Oman)” he said.

He advised owners and developers to focus on solid strategic locations, bearing in mind that many hotels in those segments have opened recently. Rotana’s Centro, InterContinental Hotel Group’s Holiday Inn Express and Holiday Inn, Premier Inn, Accor’s ibis, Starwood Hotels & Resorts’ Four Points by Sheraton and Pullman Hotels increased their presence in the GCC during the last couple of years. Rezidor will open four Park Inn by Radisson hotels in the near future.

“I would advise against building more in those segments in Abu Dhabi, Bahrain and Kuwait as an oversupply situation is apparent,” Goddard said.

HVS’s Choufany said a viable alternative to ground-up development lies in converting one of the Gulf’s low-tier, independent properties.

“There certainly is a shortage in the branded mid-market segment here in the region, with the exception of Dubai maybe. There ought to be more in Qatar with the upcoming FIFA World Cup. Saudi Arabia also has a growing trend in economy, 3 and 4 stars. Expect more to come on-line over the next three to four years,” she said.

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