Gulf hospitality sector to grow to $28.3bn by 2016

Room oversupply, lack of debt financing and shortage of labour to curb growth - report
Gulf hospitality sector to grow to $28.3bn by 2016
(Picture for illustrative purposes only)
By Claire Valdini
Tue 09 Oct 2012 12:39 PM

The GCC hospitality industry is expected to grow at an annual rate of 8.1 percent to $28.3bn by 2016, up from $19.2bn in 2011, according to a report by investment bank Alpen Capital.

Oversupply of hotel rooms, a lack of debt funding for new hospitality projects and a shortage of skilled labour and employee will continue to remain challenges within the industry, the firm said.

“The GCC hospitality sector is poised for a health growth owning to factors such as favourable economic conditions combined with infrastructure development, increased bids to host high profile events and government support to the private sector,” said Sameena Ahmad, managing director at Alpen Capital.

“All these factors have contributed to the steady increase in tourist arrivals, which in turn has facilitated the growth of the hospitality sector in the region,” she added.

Oil-rich Gulf countries are investing billions of dollars in tourism, transport and infrastructure as they look to diversify their economies away from oil.

Abu Dhabi is building a number of museums including franchises of the Louvre and Guggenheim branches as it looks to boost its revenues from tourism, while Saudi Arabia is ramping up the number of hospitality projects as it gears up to accommodate the growing number of Muslim pilgrims. 

In Dubai, home some of the world’s most lavish shopping malls and hotels, tourism contributed 31 percent to the emirate’s GDP in 2011 while the number of visitors to the emirate is expected to rise ten percent this year, according to official data.

Saudi Arabia is expected to remain the largest of the GCC markets in terms of revenues from hospitality followed by the UAE, said Alpen Capital.

GCC occupancy rates are estimated to average around 67–73 percent between 2012 and 2016 while the average daily room rate is expected to be around $212-247 during the same period, it added.

Regional governments’ attempts to reduce the oversupply have been successful but are reliant on regional political stability, said Alpen Capital.

“Over the past few years, the hotel pipeline has increased considerably to meet the growing demand. However, a fall in tourist activities during an economically turbulent environment will impact the demand for hotels by affecting occupancy levels and average daily rates,” noted the report.

Access to funding for new hospitality projects could remain challenging, it added.

“Banks have adopted stringent lending policies such as higher interest rates and lower loan-to-value ratios. As a result, several hotel construction projects have been put on hold, canceled or delayed due to the lack of debt financing.” 

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