Decline in occupancy sees Dubai hotels become more affordable

Average room rates fall below Dh1,000 for the first time in 2012

Occupancy levels at Dubai hotels declined from 86.5 per cent in April to 78.8 per cent in May 2012, prompting a decline in average room rate (ARR) to below Dh1,000 for the first time this year, and making Dubai more affordable for leisure tourists, who are expected to sustain demand during the summer months.

According to the latest HotStats survey of full-service hotels in six Mena cities by TRI Hospitality Consulting, Dubai’s hotels have seen a gradual decline in occupancy this year – from a high of 87.7 per cent in January to 78.8 per cent in May – as rents surged to cross an all-time high of Dh1,320 per room in April.

Analysts believe that higher room rates coupled with the ongoing economic concerns in Europe, one of Dubai’s major source markets, and a weak currency in India – another of Dubai’s major source of tourists – might have made the emirate a bit unaffordable for some of the tourists planning to visit the destination.

However, the month of May saw the average room rate decline by more than Dh400, or over 31 per cent, to Dh910.64 ($247.93), making the emirate a much more affordable destination.

Moreover, despite the decline in occupancy, revenues and profitability at Dubai hotels remain robust, with total revenue per available room in the emirate’s full-service hotels registering a 9.7 per cent year-on-year growth to clock Dh1,367 in the month of May – a regional high.

According to HotStats data, profitability of Dubai’s hotels grew by 12.4 per cent year-on-year for the month of May, and the GOP PAR (gross operating profit per available room) now stands at Dh536 ($145.93).

In comparison, full-service hotels in neighbouring Abu Dhabi saw a 17.3 per cent y-o-y decline in their GOP PAR for May, with profitability slumping to just Dh256 ($69.79) per room – less than half of that enjoyed by Dubai hotels.

Revenue per Available Room (RevPAR) in Dubai increased 9.6 per cent to Dh718 ($195.47) in May driven by a 6.5 per cent growth in Average Room Rate (ARR) to Dh911 ($247.93) and a nominal increase of 2.3 percentage point in occupancy to 78.8 per cent compared to the same month last year, the report highlights.

“As the month of May historically indicates the start of the summer, corporate demand is replaced by the leisure segment which is attracted to the discounted rates and packages offered during this period,” noted the report, suggesting that demand will remain buoyant although on the back of deals and discounts offered to lure leisure tourists.

“The strength of Dubai’s hotel market was once again shown in May with hotels improving in all areas of performance, especially with occupancy increasing to 78.8 per cent,” said Peter Goddard, managing director of TRI Hospitality Consulting in Dubai.

“The spending power of visitors was highlighted by a 9.7 per cent increase in Total Revenue Per Available Room (TRevPAR) to $372.21 (Dh1,367), driven by a 24.7 per cent increase in food and beverage spend to $147.93 (Dh543), accounting for 39.7 per cent of TRevPAR,” Goddard added.

In addition, demand is likely to be sustained in the summer months owing to an expected inflow of tourists from within the Gulf region, as well as demand from European tourists who are expected to take advantage of the discounted packages on offer.

“Although historically the summer months result in lower occupancies in the GCC, we believe Dubai will continue to attract high demand as the leisure segment particularly from Saudi Arabia and Kuwait, and some demand from Europe who exploit the attractive rates and packages on offer during this period,” said Goddard.

Hotels in the UAE’s capital, on the other hand, continue to reel under lack of demand and further impacting their profitability, the report states. “A marginal reduction in occupancy levels by 0.7 percentage points to 64 per cent coupled with a 14 per cent fall in ARR to $128.67 (Dh473), resulted in RevPAR dropping 15 per cent to $82.33 (Dh302.40),” the report states, adding that the fall in revenues resulted in a GOPPAR of $69.79 (Dh256), 17.3 per cent lower than the same period last year.

“Our HotStats data for Abu Dhabi hotels in May further reiterates the overall reduction in rates, occupancy and profitability witnessed in 2012. Hotels have seen ARR and RevPAR fall by 16.5 and 15.6 per cent, respectively since January 2012, resulting in a 20.8 per cent fall in profitability (GOPPAR),” said Goddard.

“We do not envision the situation to improve in the UAE capital in the near future as corporate and conference demand continues to slow on the back of lower business activity, especially in the wake of the continuing European debt crisis,” he added.

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