Dubai Expo 2020 to spur more development
03 DECEMBER 2013 6:49 AM
Dubai’s successful bid for the World Expo 2020 will spark even more hotel development in the booming emirate.
DUBAI, United Arab Emirates—As Dubai and indeed all seven emirates break into double celebrations winning the World Expo bid just days before the United Arab Emirates’ National Day, the hospitality world eyes its pipeline.
“Winning World Expo 2020 will be the single biggest driver of activity in the U.A.E. tourist market over the next five years. … We now expect an additional surge in proposed supply in all sectors of the market,” said Chiheb Ben-Mahmoud, executive VP at Jones Lang LaSalle and head of the firm’s hotel advisory practice in the Middle East/Africa.
Dubai World Central, an economic district under development around Al Maktoum International Airport that will host the Expo for six months beginning 20 October 2020, will emerge as the third major cluster of hotels in Dubai, complementing the existing ones along the beach and in the central business district, he said.
The Rezidor Hotel Group is already pursuing opportunities for its Radisson Blu and Park Inn by Radisson brands in the area, according to Elie Milky, director of business development, Middle East/Africa.*
“We are working closely with owners on a number of opportunities and expect to see more activity arising from the area,” he said.
John Podaras, partner at Hotel Development Resources, said Dubai’s hotel offering will become increasingly more specialized and separated from leisure and corporate to boutique and lifestyle brands.
“The increasing numbers of visitors will definitely see a proliferation of new mid-market and budget arrivals, something that the market has been talking about for a long time now. What should be interesting to see is whether the European and U.S. trend towards the trendy lifestyle element of the new batch of midmarket and budget brands such as Motel One, Moxy Hotels, Citizen M etc., manage to make the transition to the Middle East,” he said.
Nearly 40% of the emirate’s existing room supply can be found in either luxury or upper-upscale hotels, according to STR Global, sister company of Hotel News Now. By contrast, only 10% of the room supply is in the upper-midscale and midscale segments.
Dubai’s Department of Tourism & Commerce Marketing recently pledged to scrap the 10% municipality fee for 3- and 4-star hotels built between now and 2017—a move welcomed by hotel management companies.
“The need for budget and mid-market hotels is needed more than ever as Dubai works towards attracting growing numbers,” Milky said. “Such a product also offers investment opportunities to investors aiming to capitalize on the large gap in the market in various locations around Dubai and the U.A.E.”
“This is a very good initiative from the DTCM which will encourage the development of midscale hotel properties,” said Christophe Landais, managing director of Accor Middle East, adding the group is working towards strengthening its brand portfolio spanning all segments in the U.A.E.
“We are most evidently talking to and working with various investors to further develop our network in this strategic location to meet the expected demand of 20 million visitors by 2020. At this stage we do not have any specific project under discussion related to Dubai Expo 2020; however, if we have they will be developed at strategic location with business sustainability over time,” he said
A complementary vision
While the Expo alone is expected to attract 25 million visitors, 70% of them external arrivals, according to an Oxford Economics report, the bid has always been complementary to Dubai’s long-term sustainable tourism strategy.
“Although the (Tourism Vision for 2020) is separate to the Expo bid, we can now leverage the hosting of Expo 2020 and the focus it will place on Dubai as a means to attract visitors to Dubai. DTCM will now work with its tourism partners in both government and the private sector to put in place the infrastructure and processes needed to meet the visitor demand,” said DTCM’s Director General, Helal Saeed Almarri.
The emirate counts 82,000 hotel and hotel apartments, which would need to roughly double by 2020 to meet the demand of 20 million visitors yearly, according to DTCM. “This will be more than enough rooms to cope with the demands of Expo,” Almarri said.
STR Global pegs the current supply at closer to 65,000 with an active pipeline of 17,261 rooms. .
Research conducted by PKF - The Consulting House concluded an additional 5,000 to 10,000 rooms will now need to be added to accommodate the Expo. The group had previously projected 50,000 rooms to be developed between 2013 and 2020 to meet the Vision 2020 goals.
“The Expo brings a major additional attraction to destination Dubai and the UAE, whose tourism industries are already growing significantly faster than the world average,” said Sven Gade, PKF – The Consulting House’s CEO.
Podaras said an additional 50 to 60 hotels with approximately 12,000 rooms will need to be developed to accommodate the Expo.
“Comparing the 11 million visitors for 2013 and projecting to the estimated 20 million in 2020, Dubai would in theory require an additional 45,000 rooms to accommodate the increased demand. In truth, however, that figure will probably be less than half as there will be demand for other types of accommodation such as self-catering, much of which is currently operating under the radar or displacement to adjoining cities such as Sharjah and Abu Dhabi,” Podaras explained.
Hala Matar Choufany, regional managing director of HVS Dubai, said the Expo is rather about hosting an event than building capacity for it.
“We’re going to be busy regardless of the Dubai Expo 2020 as there is already an aggressive pipeline in place. Dubai is a hub and already has 60 million people flying through to justify the pipeline. I would estimate that maybe only 15% to 20% of the 25 million expected to visit would be coming only to specifically visit the Expo,” she said.
“Having said that, we may see some additional rooms created because of the Expo in the immediate vicinity of the event around (Dubai World Central), but it won’t inflate room numbers in other areas,” she adds.
The Expo will, however, enhance the sustainability of hotels bubbling in the pipeline. “Having won the bid, it will accelerate the phasing in of those hotels, speeding up the completion schedule,” Choufany said.
Developer Nakheel, which has created its own hospitality division Nakheel Hotels & Leisure, looks to be one of many benefactors as it begins development of the Palm Jumeirah Nakheel Mall and Hotel, as well as dozens of hotels, resorts and serviced apartments on Deira Islands.
InterContinental Hotels Group, too, plans to open a new InterContinental and a Crowne Plaza in 2014 and 2016, respectively.
“Our plans, much like the infrastructure of the Dubai Expo plans, are geared not just for 2020 but for 2021 and beyond,” said Pascal Gauvin, IHG’s COO, Middle East, India & Africa.
Starwood Hotels & Resorts Worldwide’s Middle East team is equally optimistic, according to Senior VP & Regional Director Guido de Wilde.
“The World Expo 2020 will help continue to highlight Dubai as one of the most highly sought-after travel destinations for business and leisure anywhere in the world, reinforcing to a global audience the huge opportunities that are available in the Emirate now and in the future,” he said.
Expectations raised. So, too, rates?
The Expo demand is likely to spill over from Dubai to other centers in the U.A.E. and even to surrounding countries such as Oman, according to Jones Lang LaSalle.
However, Choufany believes hotel owners should take a pragmatic view when projecting performance expectations of new hotels.
“It is a bit early to judge, but some developers have been pushing for us to be more aggressive with our projections for their new hotels. But as financial advisers we don’t take unusual events such as the Expo into account for the prospects of a long-term development such as a hotel. However, in terms of 3-stars (hotels), returns can be realized in a shorter period of time, so the Expo does place more of an emphasis on their development in this regard,” she said.
Although she expects rates to increase during the next six months or so following the bid announcement, they will eventually return to normal levels, she said.
October year to date, average daily rate in Dubai was up 6.4% to 878.54 Dirhams ($239.13).
“Even though there may be a lot of consultants etc. coming here to create the Expo, most would be mid-management and prefer cheaper accommodations. We need to keep in mind that there is quite a lot of supply coming online between all of the emirates. Hotels don’t enjoy a monopoly. Guests can choose between staying in Dubai, Sharjah, Ras Al Khaimah and even Abu Dhabi,” she said.
Podaras said the length of the Expo will prove beneficial.
“The Expo will last for a considerably longer period of time than other events and create elevated levels of demand for as much as 12 months. Therefore, the ramping up and ramping down of rates will be considerably more gradual. Assuming that Dubai’s overall perspective as an integrated development does go ahead as planned, and Expo is not simply a site on the way to Abu Dhabi but instead part of Dubai’s southern expansion, demand should be able to keep up with the planned supply for the longer term,” he said.
After the Expo, the site will become the new home of the World Trade Centre, whose current complex is in the central business district, confirmed the DTCM’s Almarri.
“Dubai World Trade Centre – Jebel Ali will be an education and cultural site including a university and national museum, which in itself will be a tourist attraction,” he said.
PKF-The Consulting House’s preliminary analysis of the Expo effect points to market-wide occupancy levels reaching approximately 90% during the six-month period.
“Any demand levels over and above would put even more pressure on the limited room inventory. Hotels in other Emirates, primarily Sharjah and Yas Island and Saadiyat Island in Abu Dhabi, are the likely beneficiaries of excess demand,” said Gade, concluding that “international (Expo) visitors would prefer staying in the ‘better quality’ segment, which may even lead to 100% occupancy at 3- to 5-star properties with shortages during peak times.”
Correction, 9 December 2013: An earlier version of this article listed the wrong title for Elie Milky.