Is Dubai ready for 20,000 more hotel rooms?

Can the city cope with the additional supply predicted by Dubai Corporation for Tourism and Commerce Marketing
Is Dubai ready for 20,000 more hotel rooms?
Dubai hotels have reported falling RevPAR during typically busy months.
By Parinaaz Navdar
Tue 03 Mar 2015 01:33 PM

Tourism chiefs recently revealed that Dubai will add another 20,000 rooms by 2016. Hotelier Middle East finds out whether the city is quite ready for the additional supply.

Figures revealed by Dubai Corporation for Tourism and Commerce Marketing (DTCM) at recent networking event, Destination Dubai, showed the city is expected to add 20,000 more hotel rooms by 2016. DTCM says this means the emirate is on track to reach its target of 155,000 rooms by 2020.

“We saw over 10% [growth] in 2013 and I think last year was slightly below that, but definitely we are on track to deliver 20 million [tourists] by 2020,” DTCM CEO Issam Kazim said at the event.

“We are well under way to deliver roughly another 20,000 additional rooms by 2016.”

The optimistic outlook is one shared by others in the industry as well. According to Ròya International senior director hospitality and strategy Charbel Batrous, enough demand generators are always made available at the right time for the influx of accommodation.

“City-wide conferences, events, and festivals, are all in the pipeline to complement the upcoming inventory. Historically, these factors have always proven that the city should gear up to meet long-term increases in demand,” he explains.

However, with RevPAR consistently falling during what is typically the high season in the city, hoteliers attribute a number of factors to falling average rates.

Preliminary results from STR Global for January 2015 showed that demand in the city grew 3.7%, while supply increased by 6.8%, creating an imbalance for hotels in the emirate. A 2.9% decrease in occupancy to 85.6% was also reported, while average daily rate went down by 3.6% to AED 1070.89 ($291.55).

TRI Consulting senior consultant Christopher Hewett says: “Looking at 2015, I think there will be a marginal decrease in occupancy and average rate for Dubai throughout the year, and that has a lot to do with challenges on a regional and wider level such as Russia and Europe at the moment when it comes to their economies.”

Accor vice president operations for Gulf and Levant countries Olivier Hick also points to the revival of Egypt’s tourism market as a reason for falling Russian tourists in Dubai.

He says: “I think the Russian market drop is linked to the pick-up of Egypt, which has been recovering during the last six months. There is a huge increase again in Cairo, Hurghada, and Sharm El Sheikh.

“It’s probably at the expense of Dubai, but let’s not forget that we managed to get the Russian market when the unrest started in Egypt, so fair enough if they are going back, which we should have expected.

“So the question really is how do we replace the Russian market? It was the fifth-largest market in 2014, and obviously we need to tap into new markets like Asia. Even Iran is showing some good signs of tourists coming to Dubai.”

Ultimately, however, the upcoming supply is all part of DTCM’s plans for Expo 2020 and beyond. And hoteliers and experts alike are quick to dispel any talk of sluggish performance beyond the six-month event.

“This seems to be everybody’s major concern, but Dubai’s vision is much larger than that of Expo 2020. Exponential growth in numbers are not uncommon in Dubai and while it may seem otherwise, Expo 2020 is not the final destination for the city but rather an addition to the large portfolio of upcoming events and projects in the pipeline, which are required to accommodate the ever growing tourism industry,” Batrous asserts.

Hewett also believes the new supply, which will include a number of mid-market rooms, will help the emirate diversify its hotel offering, thus making the city more affordable.

“It’s a fact that this supply has been in the process for a while. I think it all started when the DTCM looked at initiatives to try and increase the supply of three- and four-star hotels, and looking at the supply pipeline, the vast majority of the rooms will be based on these segments.

“It’s part of the natural evolution of a tourism destination to try and increase the amount of affordable accommodation, and Dubai has got a very high proportion of five-star hotels, whereas more established markets have a much lower percentage. So this influx of new supply is trying to create a new market, which mimics supply balances in other markets,” he says.

Hick, however, is more pragmatic in his optimism, and believes the final number of rooms that come online in time for 2020 will most likely be scaled down as the event approaches.

He explains: “I think the figure announced [for 2020] was 160,000 rooms altogether, and I personally believe this number is a bit on the high side. I think we will more likely see 40,000 to 50,000 additional rooms compared to the 90,000 we have today. I think 120,000 rooms will probably be the number we will have by 2020.”

Hick also believes the emirate’s strategy post 2020 will have to be adapted to ensure Dubai’s tourism industry remains sustainable. He also asserts the onus lies with all the stakeholders to ensure the city’s growth.

“International chains like Accor and others will also have a part to play when marketing, looking at tapping into more markets. I don’t think it’s only the government’s responsibility or Dubai itself — all the operators and stakeholders will have to be part of the investment to ensure Dubai remains sustainable after 2020,” Hick comments.

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