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Wed 16 Mar 2011 10:17 AM

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Kempinski mothballs Dubai hotel amid Middle East expansion

Poor state planning has left Dubai’s hotel market oversupplied, says Middle East head

Kempinski mothballs Dubai hotel amid Middle East expansion
PALM PLAN: An artists impression of the Kempinski Palm project.
Kempinski mothballs Dubai hotel amid Middle East expansion
The Palm, Nakheel
Kempinski mothballs Dubai hotel amid Middle East expansion
Kempinski hotel stock image
Kempinski mothballs Dubai hotel amid Middle East expansion
While it may be the smallest of the three Palm islands planned for Dubais coastline, it remains the only one developed so retains the title it snatched in 2007 when the final breakwater stone was laid.

Statistics:

Development: The Palm Jumeirah

Location: Dubai

Work started: August 2001

Completed: October 2003 (land reclaimation)

Developer: Nakheel

Main contractor: Van Oord (land reclamation)

Designer: Nakheel

Cost: $12b

Size: 560 hectares

Nearest rivals: Palm Jebel Ali and Palm Deira, both still under construction. (Nakheel)

Luxury hotel operator Kempinski is delaying a Dubai project by two years, even as it expands elsewhere in the Middle East because authorities have allowed the market to become oversupplied, according to the company’s president for the region.

A 253-room development on Dubai’s palm tree-shaped artificial island will remain a “shell” for the time being, with the opening pushed back until 2013, said Ulrich Eckhardt, the Geneva-based company’s head of the Middle East and Africa.

“I’m concerned about what I consider poor planning from those in a position to approve new hotels,” Eckhardt, 69, said in an interview in Dubai. Building permission was granted without studying “existing inventory, growth rates and future demand,” he said.

Dubai occupancy rates and room prices probably will decline as 30,000 additional hotel rooms are added over the next five years to the current supply of about 50,000, Deloitte estimated in December. The number of visitors would need to rise to about 12 million annually from 9.5 million now to fill the hotels, the auditing company said.

Kempinski plans to open nine properties in the next three years in Abu Dhabi, Bahrain, Saudi Arabia, Oman, Lebanon, Syria and Egypt. The company will open 82 luxury serviced apartments and 10 villas on Palm Jumeirah in June.

“As we open these hotels, we have to create a customer base,” Eckhardt said. “We knew it was impossible to create that with all these other hotels opening at the same time. You would be diverting business, not creating it.”

State-owned developer Nakheel, which built the palm island and a world map-shaped archipelago, said it will restart work on seven postponed projects in various stages of completion after prices fell by more than 60 percent.

Even though many hotel projects are pending across Dubai, Eckhardt says he expects growth to be better managed in the future after developers were chastened by the crash.

“Those who have been dictating this phenomenal growth are no longer there,” he said. “The Nakheels are gone and the real people who actually think about where and how they spend money won’t spend it because they have reasons to think ‘maybe later.’”

Dubai ruler Sheikh Mohammed bin Rashid al-Maktoum’s vision of creating a market through large-scale development was proven right in principle, Eckhardt said. The difficulty was with the execution by property companies.

“They failed to deliver with a coordinated, sustainable action plan and went overboard,” he said. “It wasn’t because Sheikh Mohammed said ‘go until you’re dead.’”

Dubai’s Real Estate Regulatory Agency came into existence too late in 2007 when “most of the damage had been done,” he said. “Can they rectify what was done wrong? I’m not sure, because they would have to tear down a lot of stuff that was built.”

Kempinski, which manages the $1.1bn Emirates Palace, Abu Dhabi’s biggest hotel, will open another one “deep in the desert” in two years, Eckhardt said.

The company was founded in 1897 and operates more than 60 hotels in Europe, Africa the Middle East and Asia, according to its website.

Abu Dhabi will surpass Dubai because its market has more depth and its urban planning process is better, Eckhardt said.

The sheikhdom, which is building branches of the Louvre and Guggenheim museums, will also appeal to travellers who don’t want “the binging that Dubai is known for,” Eckhardt said.

“You will have incredible cultural aspects one day when everything is done,” he said. “I’m not saying that the building of two or three museums will replace Paris or London, but they will certainly surpass what Dubai has to offer.”

Kempinski, which manages 15 hotels in the Middle East and Africa, will open a new one in Bahrain in June. Construction is under way in Al Khobar, Jeddah and Riyadh in Saudi Arabia and Oman’s capital, Muscat. A Cairo hotel will be opened in Giza near the pyramids, Eckhardt said.

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Jebel Ali Baba 8 years ago

Brave statement, Mr. Eckhardt. Everybody knew the bubble would burst one day and that luxury alone doesn't create a touristic market. Dubai is a hub - not a destination for most of the travelers. But Abu Dhabi and even Ajman as you know are doing better in attracting returning guests. Dubai created the image but others creating the values.

Kat 8 years ago

Dubai is Marbella, to Abu Dhabi's Puerto Banus

Saleem 8 years ago

Its always so simple to blame others in order to save your back ... lol.
Mr Eckhardt is quick to blame 'those in power' to grant building permits without study of market but his own company was blind to the situation. Did they not see new projects being announced every week and just approaching there own hotel so many other hotels breaking ground in vicinity.
So in Kabul if govt starts giving permits , would our genius Mr Eckhardt erect few hotels blindly following 'those in power' .
It is so funny to see incompetent people in position of power blaming each other being incompetent ... lol

Lee 8 years ago

Just a few days ago i was reading the hotel market in Dubai was booming as i sat by the half empty pool of a Dubai Marina hotel looking at the unfinished hotels on the palm........... Don't get me wrong i like Dubai as a former resident it was a good place to live and as i am now stuck in Doha it is one i would happily return too but it is still incredibly expensive and far less enchanting than the Caribbean or S/E Asia as a holiday destination.

BigDeeDubya 8 years ago

Fortunately this guy is at the end of his career, because no one is ever going to employ him after making a statement like that.
Would it be reasonable to expect the Regional Head of a global hotel chain to oversee a due dilligance process prior to investing millions of dollars in a very public White Elephant?
Obviously not...
If I were you I would take an empty cardboad box to work with you tomorrow, you will need something to clear your desk into!
enjoy your retirement Mr Eckhardt

Omar Shamma 8 years ago

This is a strange comment to make. Its like complaining of bad driving when you are the driver. Nothing stopped Kempinski from forecasting and planning prior to initiating the investment. At the same time Mr. Eckhardt is spot on wit his assessments of Abu Dhabi Vs. Dubai.

"Hindsight is always 20/20", however you had to be pretty blind not to see the approaching disaster. Intention and result are two different things. There is an Arabic saying "the best way is the middle way". Its a pity that Sheikh Mohammed did not adhere to this, and temper grand ambition witin the constraints of economic pregmatism.

Paul King 8 years ago

"Abu Dhabi will surpass Dubai because it's market has more depth"....I remember when these geniuses were predicting the same about Dubai with regard to surpassing Hong Kong & Singapore! Ignore these comments because the reality when you actually visit Abu Dhabi is that it's 20 years behind Dubai! Empty hotels, a big red building that's a big white elephant, a very boring race track that makes sense 1/365th of the year and roads & bridges that lead to nowhere!

jay 8 years ago

And that my dear girl is where the whole thing falls hopelessly apart.
Dubai and Abu Dhabi are neither , they're cities in an Islamic country with their own culture , arts and traditions.
People will realise that these cities are not hedonistic playgrounds but they're cities that have been built for people to have a higher quality of work and life.
The introduction of the 'Marbella , Puerto Banus ' attitude over the last 5 years have given these cities more bad and negative press than ever before.
If you want to party , got to Las Vegas

charles 8 years ago

You might not like what he says Big Dee but his wealth of experience gives him the persona to say that. Kempinski is an amazing brand. The huge difference here is that you are commenting and he is sharing his wealth of experience. I wonder who is listening to whom more.

NMQ 8 years ago

I do agree with Omar, but we also have to consider that Dubai had to run at breakneck speed to get itself established.

I distinctly remember that the common sentence used by "everyone" when the boom started is - "Dubai is becoming a bubble and it will burst one day". Everyone knew and participated in the economy, competing fiercly for projects, buying property on exhorbitant rates, paying huge rents etc - but we wanted to be in Dubai, the place of action.

I am a big admirer of Sheikh Mohammed. He single-handedly transformed a modest "just known in Asia" place to an international brand, where people wanted to either visit, stay, work or invest. Having stayed here for over 16 years, I still believe that the life here for most of us is much better than other places. Unfortunately Sheikh Mohammed lost out to time. He needed another 3 to 4 years of Global Economic Stability, and Dubai would have become a self generating economy with support from other GCC countries to transform the map