Dubai tops hotel growth with 14,000 new rooms

Dubai saw a 40 per cent revenue per available room (revPAR) decline last year, while the highest occupancy was recorded by Abu Dhabi, at 73 per cent, according to the latest industry report.

Global research, consulting and services organisation HVS released the data, indicating the hospitality sector was one of the hardest hit last year with the onset of the global recession.

As Q1 2010 results are trickling in, HVS predicts the financial crisis has seen a change in the economic policy with a concentration on restoring confidence in the UAE economy – particularly the financial and real estate sectors – with a focus on Dubai. Early indictors for investment in the UAE looks positive as Dubai tops the new development list with some 14,000 rooms entering the market, followed by Abu Dhabi with some 10,000 hotel rooms.

Market indicators

With a slowdown already under way in the latter part of 2008, there was little momentum for the UAE economy going into 2009.

Last year led to a sharp reduction in construction activity in the UAE, especially in Dubai, stated the report. This was in addition to Opec-mandated cuts in oil production (which affected Abu Dhabi's output for most of the year), weak growth in investment and almost no expansion in services, according to the report.

The market that took the worst hit in regards to revPAR was Ajman, which recorded a 43 per cent decline. Dubai lagged behind by three per cent, followed by Sharjah with a 34 per cent drop. In terms of occupancy, even though Abu Dhabi was the biggest achiever, it still saw an eight per cent drop from 2008's average.

However, the capital regained some lost ground by recording the highest average rate, finishing the year at $294 (Dh1,079), followed by Dubai ($184) and Ajman ($172). In terms of new hotel constructions, some 14,000 hotel rooms entered the region during 2009, of which 43 per cent were in the UAE market: 27 per cent in Dubai, 15 per cent in Abu Dhabi and one per cent in the other emirates.

In Abu Dhabi, some five hotels – totalling 1,330 rooms – were added to the market, with an additional 8,000 hotel rooms are in active pipeline, which are expected to enter the market over the next three to four years. Tourism indicators last year saw Europe maintain its position as the largest source market, albeit at the beginning of 2009 there were indications of a decrease in visitation compared to the same period in 2008.

The likely cause of this decline was the depreciation of the euro against the dirham in 2008 and 2009.

However, the euro is expected to appreciate in 2010 and this could help drive growth in the number of European guests, according to HVS. The number of local UAE visitors has continued to rise over the years and in 2009 visitation from the neighbouring emirates increased by about 50 per cent.

Overall trends

With the exception of Beirut, all markets within the region experienced a decline in occupancy levels.

Occupancy among quality hotels decreased by six percentage points to 69 per cent in 2009.

This was attributed largely to the global economic conditions as well as the opening of a number of new hotels in various cities last year.

Beirut's hotel market had a different story to tell; occupancy levels increased by 13 percentage points from 57 per cent in 2008 to 70 per cent in 2009, primarily on account of political stability, a relatively low number of hotel rooms and a growing number of visitors.

Despite the drop in occupancy, average daily room rate for the region increased by three per cent, from $185 in 2008 to $191 in 2009. The markets that were worst hit was Dubai with a 29 per cent decline, followed by Bahrain (21 per cent), Doha (14 per cent), Amman (13 per cent) and Egypt's Hurghada (10 per cent)

The resultant revPAR for the region posted a seven per cent decrease to $130 in 2009, compared to an 18 per cent increase in 2008.

Despite these market corrections, HVS maintains the Middle East remains the fastest-growing region in terms of tourism arrivals, accounting for less than five per cent of the total number of global tourist arrivals, which reflects strong potential for likely future growth in this area.

Growth in tourism in the region is mainly driven by intra-regional visitation.

With the exception of Dubai, Arab visitors account for the majority of tourist travellers in the region. The higher disposable income when compared to other parts in the world and liquidity generated by high oil prices are primary drivers for visitation.

Tourist arrivals from the Americas and Europe are dominated by corporate travellers who increasingly look at the opportunities arising in the region from the diversification and privatisation programmes, albeit that foreign companies have adopted a 'step back' attitude throughout 2009.

HVS predicts the general outlook for the hotel industry in 2010 and 2011 remains conservative, especially in light of the 50,000 hotel rooms that will enter the market over the next two to three years and all the signs pointing to a slow recovery in the key source markets for certain cities.

The uncertainty

The global economic downturn is a cause of much uncertainty; the immediate effect on hotel activity is a shrinkage in booking windows (much less business on the books, making it difficult to forecasts results even in the short term) and a shortening of the length of stay in all segments.

Occupancy levels are predicted to hover around the 68 per cent to 73 per cent bracket for most of the cities. On the other hand, HVS reports the current economic downturn has benefits for those developers with liquidity reserves: construction materials are cheaper, qualified labour is plentiful, and the promise of finalising new developments just in time to take advantage of the economic recovery is very appealing.

HVS estimates that some 50,000 rooms are likely to enter the Middle East market over the next four years. Including some 10,000 hotel rooms that opened in 2009 (bringing the total to 60,000 since 2009), some 23,000 rooms have been cancelled in comparison to 83,000 that were expected to enter the region at the beginning of 2009.

Topping the development list is Dubai, which will see some 14,000 rooms enter the market, followed by Abu Dhabi with some 10,000 rooms.

The most active operators in the expansion of their brands are Accor, Rotana, Marriott, Movenpick, Fairmont, Starwood, Wyndham and Hilton.