Hotel rooms get cheaper, but rate recovery seen in 2010
The regional hospitality sector that was at the receiving end of the global economic slowdown may have some mixed news in store this year. While the hotels saw a dip in their cash flows as a result of several factors, some global players in the hospitality sector seem to be eyeing the Middle East and North Africa (Mena) for their expansion plans due to bottomed out valuations.
Analysts point out that hotel occupancy has improved in the region but at the cost of reduction in room rates. Yet, industry experts remain optimistic about the sector and expect a slow but steady recovery by the end of 2010.
Samir Daqqaq, Senior Vice-President for Development, Mena at the €9.2 billion (Dh46.34bn) company, Oetker Hotel Collection (OHC) told Emirates Business: "Hospitality is a volatile sector worldwide. During a slowdown it is the first one to be affected. But I think this (slowdown) is just a temporary phase or cycle and by the end of 2010 or first quarter of 2011, the revival would commence."
Analysts, however, point out that Mena players have suffered as a result of the recession but not as badly as their counterparts in Europe and in the US.
Fighting the slowdown
The region showed modest signs of recovery by the end of 2009 with occupancy rates improving gradually, though rates were still nowhere near what hoteliers would have liked them to be, according to MKG Hospitality, a French research firm. The findings reveal that as the Gulf Cooperation Council (GCC) countries showed mixed reactions in 2009, room rates in the UAE have fallen and are now at par with 2007 levels.
The UAE continues to remain ahead of most of its counterparts in Mena as far as RevPAR (revenue per available room) is concerned. UAE hotels' RevPAR rate was only second to that of Lebanon, according to MKG research.
Hotels' bottom line has shrunk on account of reduced room rates, resulting in lower RevPAR. The UAE recorded a 20.8 per cent RevPAR decrease. This was due to a 15.2 per cent decrease in average daily rate (ADR). In 2008, average room rates increased by 16.5 per cent over 2007. Dubai was worst-affected with a 27.5 per cent decrease in RevPAR. Abu Dhabi remained resilient with a 4.9 per cent drop.
The report said hotel demand was showing modest signs of recovery in Mena with December increasing by 4.6 per cent. "This is a clear sign that hotels are entering the next stage of the cycle and that slow recovery is on the way. At the moment, rates reflect the state of the economy and in particular, the drop in purchasing power," explained Vanguelis Panayotis, Director of Development, MKG Hospitality.
Saudi Arabia too witnessed a decrease of 1.6 per cent in its RevPAR in 2009 and a 5.4 per cent drop in ADR against the corresponding period. While Jeddah remained the only city to record an average rate and occupancy increase for the year, Riyadh saw a turnaround with a 13.5 per cent increase. Other GCC countries like Bahrain, Oman and Qatar suffered a double-digit RevPAR drop in 2009. Kuwait was the exception, improving on the fall in RevPAR from a 3.4 percent dip in 2008 to 1.6 per cent in 2009.
Although average rates continue to drop, demand may increase as rates seem to have hit a nadir. Morocco, Tunisia, Algeria and Egypt as well as Turkey and South Africa all reveal positive Occupancy Rate (OR) signs over the last quarter of 2009. Meanwhile in the Levant, Lebanon clearly recorded the best growth in 2009 as the country moved closer to normalcy. Jordan also showed a small positive turnaround towards the end of the year, with RevPAR falling by 11.5 per cent as against an increase of 11.2 per cent in 2008.
Middle East less hit
The hospitality sector has taken a phenomenal hit on its balance sheets, but is gradually finding its feet. A recent annual hotel survey by Hogg Robinson Group (HRG) says it was a challenging year for the industry, with average room rates declining worldwide.
The Middle East experienced weaker rate falls than most of the regions covered by the study. Abu Dhabi moved up from fifth position to second position in the ranking. The UAE capital saw only one per cent decrease in average room rate.
Elsewhere, London saw a five per cent decline in average rate, down from the three per cent growth over the same period last year. Although New York City saw one of the largest declines in local currency terms (23 per cent), market conditions there showed some signs of improvement towards the end of 2009.
Foreign players eye Mena
Douglas McWilliams, Chief Executive of the Centre for Economics and Business Research (CEBR), said: "We have just been through the deepest recession since the 1930s and recovery is at a relatively early stage. The survey highlights signs of recovery, particularly in dynamic emerging economies."
Several global players have been eyeing Mena as the valuations are now more attractive. "For any global player it makes sense to invest at lower valuations and the Mena region will witness more investments," said Daqqaq. Oetker plans to open around 10-15 hotels in Mena by 2020. Indian Hotels Company (IHCL) has signed a memorandum of understanding with Palm Hills Developments, to manage three hotels in Egypt.
CRISTAL SEES 84% OCCUPANCY
Cristal Hotels and Resorts, an Abu Dhabi-based hotel chain, said yesterday it has achieved 84 per cent occupancy in January this year.
The figure is in line with the Abu Dhabi Tourism Authority's (ADTA) 10 per cent growth forecast in hotel guests in the capital this year.
Abu Dhabi accommodated around 1.5 million hotel guests in 2009, which ADTA says, will grow to 2.3 million by 2012.
Keep up with the latest business news from the region with the Emirates Business 24|7 daily newsletter. To subscribe to the newsletter, please click here.
Follow Emirates 24|7 on Google News.