Dubai hotels could face 'new normal'
Dubai hotels could face 'new normal'
01 OCTOBER 2014 7:54 AM
The mammoth development in Dubai won’t come without its challenges, according to speakers during the Hotel Show.
DUBAI, United Arab Emirates—A new twist in development and hotel offering is required to remain competitive in the United Arab Emirates, according to panelists speaking during the Vision Conference at the Hotel Show in Dubai.
Dubai officials plan to drive visitor numbers and roomnights. Demand and supply have been growing hand in hand, leading to the ambition of doubling hotel rooms to 160,000 by 2020, according to Issam AbdulRahim Kazim, CEO of the Dubai Corporation for Tourism and Commerce Marketing, speaking during the keynote.
“We are already the fifth most-visited city in the world, according to MasterCard’s Global Index. We will create the leisure offerings and work closely with hotel operators to achieve sustainable growth,” he said. 
Grant Salter, director & head of travel, hospitality & leisure advisory at Deloitte Corporate Finance, believes the mammoth growth won’t come without its challenges. 
Deloitte completed calculations to establish the supply gap, which needed to be built to fulfill the emirate’s ambitions by 2020. 
STR Global (sister company of Hotel News Now) currently counts 33 hotels in advanced stages of planning or under construction. In order to meet the target we would need to develop over 200 hotels in just over six years,” Salter said during the presentation “High growth challenges and opportunities.”
Taking into account a 36-month development cycle, 56 hotels are already due for completion during this time frame, or about 16 hotels per year, according to Salter.  
“At the 2011 peak, 26 hotels were delivered. What we need is a (compound annual growth rate) of 9.5% until 2020, or 42 hotels per year, near doubling the current CAGR of 4.9% to reach the target,” he added. 
“This is a tall task. Not that I think it can’t work. It can, but operators and owners may need to tune down expectations. There will be challenges in terms of profitability, potentially lower returns,” Salter said, pointing out that hoteliers might need to accept a “new normal” in terms of performance levels.
“This would mean to get used to occupancies around 70% rather than in the 80s, perfectly acceptable in Europe or the U.S., but expectations are higher in Dubai,” Salter said.
According to STR Global, the demand CAGR between 2003 and 2013 was 7.5%. 
“We would need this CAGR between 2014 to 2020 to be about 9%, then market occupancy would stabilize around 80%,” Salter said, adding it would be achievable if tourism infrastructure comes online as planned. 
“We haven’t seen the impact of that yet,” Salter said, at the same time alerting to rising development and human-resources costs, brands fighting for market share demanding exclusivity contracts and higher fees.
Mid-market melancholy
While Christopher Hewett, senior consultant at TRI Hospitality Consulting, agreed the ambitious vision is possible thanks to the upcoming leisure facilities, he also lamented that high development costs could affect the mid-market in particular. 
“They will have to be developed in secondary locations close to new key demand drivers. Hotels need to develop large destination properties to diversify the demand mix resistant to seasonality,” he said, speaking on the “Trends in hospitality and leisure” and “Development & growth of mid-range hotels” panels. 
Steven Miller, senior VP of business development at construction company Shapoorji Pallonji International, suggested using pre-fabricated pods to make hotel development cheaper and faster, if Dubai Municipality approves.  

Yousuf Lootah, executive director of tourism development & investments at Dubai’s Department of Tourism & Commerce Marketing, said the Dubai Municipality would keep an open mind and that place making was progressing in town and in the desert, where new destinations would increase plots’ future value.  
“New things are popping up across Dubai to become a family destination. The mid-market represents around one-third of the additional 80,000 keys, including hotel apartments. We have had already 51 applications this year for our incentive initiative, which helps mid-market with development costs waiving municipality fees,” he said. 
Meanwhile, two distinct development and operational models to remain competitive are emerging as trends. One is a multi-brand complex, according to Andre Saade, multi-property GM at Marriott International, who runs a hotel and a neighboring hotel apartment. 
“Guests can share the facilities,” he said. 
The No. 2 trend is independent lifestyle hotels, such as the successful Media One. 
“We enjoy high (revenue per available room),” said Rabih Feghal, director of business development at Roya International.  
By the numbers
The emirate remains the strongest candidate for hotel projects in the first class 4-star and luxury 5-star segments, according to data from TopHotel Projects shared during the presentation “Hotel development hotspot Middle East.”
The research company recorded 482 hotel projects totaling 131,623 rooms in 2014 through 2017 and beyond for the Middle East, which includes the Gulf Cooperation Council, the Levant, Iraq, Iran, Pakistan and Turkey. The majority, 283 hotels, will come online next year. The UAE takes the lion share of these projects, with 138 hotels under construction or on the drawing board, before Saudi Arabia with 113 projects, and in front of the FIFA 2022 candidate Qatar with 48 projects. 
Dubai leads as the top city overall, with 81 projects (30,644 rooms) in the pipeline, followed by Doha with 44 projects (11,614 rooms), and then Riyadh with 43 projects (9,168 rooms). 
Global chains are responsible for about 80% of the calculated supply, according to the data.

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