'Ego-driven' developers missing out on MidEast hotel profits

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Marriott Hotels International.

Marriott Hotels International.

The surge in expat workers in the Middle East has seen extended stay accommodation record occupancy rates significant higher than other markets, a senior hotel group executive has said.

Diane Mayer, vice president of Residence Inn, one of Marriott’s extended stay brands, added that ego-driven developers still building headline-attracting luxury hotels are missing out on the opportunity.

About 40 percent of business related hotel booking nights in the Middle East were part of an extended stay, classified as five nights or more, compared to about 33 percent globally, Mayer told Arabian Business.

Additionally, long-term guests in the Middle East tended to stay for months, compared to an average two weeks in the US.

Marriott’s three extended stay hotels in Dubai – Marriott Executive Apartments in Dubai Creek, Green Community and Zabeel - are consistently sold out.

“There’s even more demand for extended stay in this part of the world than there is in other places,” Mayer said.

“A lot of that is because of the types of work; there’s a lot of infrastructure work, a lot of construction work, a lot of long-term project work. But it’s also because it’s pretty much a long haul flight from everywhere.”

Marriott, one of the largest hotel chains in the world, with more than 3800 properties, plans to fill the gap by focusing its new hotels in the region to accommodate extended stay guests.

Accommodation in such hotels typically include self-service facilities such as kitchens and washing machines and do not rely on profits from outside guests at its restaurants.

Of the 23 Marriott Executive Apartments – which particularly cater for long-term guests - in the pipeline, five will be built in this region, while there are plans to open 44 new Residence Inn hotels by 2020.

“So you can see how the growth is very disproportionate to the Middle East,” Mayer said.

“The region really wants to jumpstart development for Residence Inn. We want to stimulate growth and we want to do it quickly.

“One of the reasons Residence Inn is such a growth vehicle for the Marriott in the region is because there’s a tonne of demand and there is no product.

“Most of what you have here in the market is re-purposed residential development [that was converted] into serviced apartments because the demand is there. It’s not built to be that so a lot of the time the services aren’t there, the amenities aren’t there and the company managing it doesn’t really know hospitality.

“So what little product there is is not particularly high quality. Just because the room or apartment is large doesn’t mean it’s necessarily functional.”

Mayer said Residence Inn ran at a far higher RevPAR index (revenue per available room) than other hotel types, with an average in the mid to high 120s.

It also had the highest profit margin, which was usually 10 points greater than select-service hotels and 20 points more than traditional, full-service hotels.

“So from an investor’s perspective it’s a great investment, with much better returns,” Mayer said.

“The reason for that is, the more extended stay occupancy you have, obviously you have fewer check-ins and check-outs, so you need less labour at reception.

"It’s less of a burden on your house keepers because a stay over clean is less labour than a checkout clean, and extended stay guests tend to start going to the store, so they’re their own shampoo, soap and breakfast ... so your costs for your amenities and your food and beverage costs and your labour costs, which are always the highest, start to come down and that makes your margins go up.

“It also gives you tremendous pricing power on those transient room nights you have less to sell.”

However, Mayer said only a select few had caught on to the investment opportunity.

The majority of new hotels announced for booming cities including Dubai and Saudi Arabia’s Riyadh and Jeddah in recent months have been five-star, luxury accommodation, which some analysts say is reaching the point of oversupply in Dubai.

“There are investors who stayed away at investments in luxury hotels – the non-ego-driven investor – and they are the investors coming into the extended stay market,” Mayer said.

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