Getting the right mix

Operators attaching their names to mixed-use projects for a one-stop solution that can reduce risk, guarantee guests and boost brand awareness are warned not to commit too quickly. Louise Birchall reports.
Getting the right mix
Abu Dhabi’s exhibition lifestyle development the Capital Centre.
By Louise Birchall
Thu 09 Jul 2009 04:00 AM

Operators attaching their names to mixed-use projects for a one-stop solution that can reduce risk, guarantee guests and boost brand awareness are warned not to commit too quickly. Louise Birchall reports.

The current market is a tempting place for opportunistic hotel chains that have identified falling construction and property prices as a chance to place themselves at the centre of some of the region’s mega projects.

The one thing that is driving the continued interest in mega projects from international hotel chains is the guaranteed captive audience.

However, rushing in could weaken a hotel’s brand image and even compromise the success of the development, according to experts.

Firstly, when it comes to mixed-use developments, getting the right mix is essential, according to Abu Dhabi National Exhibitions Company (ADNEC) business director Sanjay Tanna.

Tanna, one of the brains behind the development of Abu Dhabi’s Capital Centre — a 23-tower micro-city and hotel project — says it is crucial to get the correct combination of hotel brands to complement each other and each of the functions of the development.

The fully-interconnected, exhibition and lifestyle destination called Capital Centre will house a mix of residential, commercial and serviced accommodation.

Choosing the perfect hotel brand to operate floors 18 to 35 of Capital Gate, an integral part of the centre, comprising an 160m tower with an 18° lean (five times that of the Leaning Tower of Pisa) and more than 20,000m² of luxury office space was not an easy decision for the company.

“We approached numerous operators, but we felt Hyatt was the perfect marriage between ADNEC and the operator. There were no other Hyatt properties in Abu Dhabi and the brand fits in with the environment,” says Tanna.

Similarly, the four-star, 400-room aloft Abu Dhabi hotel integrated into ADNEC and due to open in October will mark the brand’s entrance into the Middle East. Its ‘hip hotel’ image was thought to appeal to young people increasingly travelling to the UAE capital on business, explains Tanna.

Other confirmed Capital Centre hotel brands include Rotana, Millennium, Westin, Aruba, Hyatt and Starwood’s extended-stay product Element, with more to be confirmed over the next few months.

“It is absolutely critical that the right brands come into the right area. For example, there are some brands which would not be applicable to the Capital Centre; you need to get the right mix because that is what makes the development successful,” reiterates Tanna. Making it work

“The location and function are the most important considerations for hotels looking at mixed-use developments,” agrees Sherwood Independent Property Consultants commercial manager David Schuin, who has worked on various developments in the UAE, including an office, hotel and retail space in Business Bay’s Crystal Tower and Jumeirah Lake Towers in Dubai.

“A hotel in Business Bay may not be suited to leisure guests, but if it’s on the waterfront it’s a different story and they may come to stay there,” says Schuin.

One year away from completion, Crystal Tower features office space on the first 15 floors and situated across floors 16 to 32 are hotel-operated serviced apartments, with a basic retail and coffee shop on the ground floor.

Single buildings with different functionalities — commercial, retail, residential and hotel — is just one concept under the mixed-use development umbrella and it’s a popular one in the Middle East, with iconic buildings like Emaar’s Burj Dubai leading the trend.

However, for the concept to be successful, operators need to ensure the product design is tailored to the consumer more than ever.

“You’ve got to think about how the logistics of people coming in and out of the hotel all day will affect the living and working environment,” says Schuin.

“A hotel that is located within a building containing offices should not label itself as a resort; this gives the image of kids running through the corridors — the last thing businesses would want,” he adds.

Schuin recommends that mixed-use developments under one roof should stick to business or leisure. However, there are occasions when a combination can work, he says; it’s all in the design.

He cites hotels such as The Monarch Dubai and The Shangri-La Hotel Dubai, which have all the hotel, office and serviced apartment components, as examples of how to do it properly.

“What they’ve done is create and separate different entrances and accesses for each component,” points out Schuin. Fools rush in

There are a number of factors that can determine the success of a development and the hotels in it, according to Schuin.

He says while there are developments and deals in the market place offering hotels the potential to make a good return on investment, caution should be taken in committing to developments that are nowhere near completion.

Rather than having one full-on building, hotels can choose to take on 15 to 16 floors in several different high-profile developments and spread their brand.

There should be some level of sceptism with the downturn taking hold, he advises. As a result, Schuin says more and more operators are demanding to see the reality of the development, not the brochures.

And for the braver hotel brands, attaching their name to hotel developments in the early stages can be a wise step.

“There are so many opportunities that hotels can be a part of going forward over the next five to 10 years,” says Tanna.

“It’s a very solid market in the Middle East. Abu Dhabi is one of the most stable cities in the world,” he adds.

Tanna claims that despite big delays on one or two of the individual developer’s projects that were expected to overspill into the first or second quarter of 2013, the US $2.1 billion Capital Centre was on track to be completed in the fourth quarter of 2009.

Making the commitment

So what is the appeal of a mixed-use development to a hotel brand? Tanna says “the one thing that is driving the continued interest in mega projects from international hotel chains is the guaranteed captive audience”.

“We expect to see more than three million people visiting Capital Centre from 2010 onwards. Each one will need somewhere to rest their heads and it’s almost certain that will be at one of the conveniently-located hotels on the development,” says Tanna.

“Whether it is the hotel restaurants attracting residents and staff or business bookings from the development’s office clientele, people will always choose to utilise the hotels onsite for the convenience,” agrees Schuin.

Furthermore, Schuin says the increase in opportunities for hotels to be part of mixed-use developments is opening the market to new and smaller brands.

“Rather than having one full-on building, hotels can choose to take on 15 to 16 floors in several different high-profile developments and spread their brand. This is a great way for hotels to increase their market presence, get more exposure and to advertise,” says Schuin.

Similarly, Four Seasons regional sales director for the Middle East Shaker Akbar says the hotel brand will be leveraging the location and the facilities of the mixed-use Bahrain Bay development, where its first Bahrain hotel, Four Seasons Bahrain, will be situated when the project is completed in 2011.

Looking at the bigger picture from an owner’s perspective, Tanna says there is less risk with mixed-use projects as return on investment is not dependent on one component; it can come from retail, commercial and residential sources.

And, after all, a successful development is likely to mean a successful hotel.

Destination Saudi Arabia

The Middle East hotel sector and Riyadh in particular is holding up well compared to the rest of the world, according to Four Seasons regional sales director Shaker Akbar, who says Saudi Arabia is somewhat insulated.

Hotelier Middle East rounds up the top three mixed-use developments in Saudi Arabia. 1. King Abdullah Economic City (KAEC)

Being developed by Emaar Properties, construction on the US $50 billion-project started in 2006 and the first phase is expected to be completed by the end of 2009. The project’s Sea Resort component provides a built-up area exceeding 3.5 million m² for hotels, residential apartments, golf resorts, spas and water sports facilities.

2. Sudair City Development

Saudi Industrial Property Authority (Modon) is developing a $40 billion, mixed-use development that includes residential, commercial, entertainment and educational facilities. Sudair City will span an area of 258 million m² north of Riyadh.

3. Jizan Economic City (JEC)

This MMC Group and Saudi Binladin Group venture costing $3 billion will be completed in phases until the end of 2020 and will include residential, commercial and industrial zones, located 725km south of Jeddah by the Red Sea.

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