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Sat 28 Mar 2015 10:03 AM

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New Gulf hotel construction may slow on oil price slump

Ernst & Young report says next 6-9 months will be 'critical period' to see how oil volatilty affects new supply

New Gulf hotel construction may slow on oil price slump
(Photo for illustrative purposes only)

The Middle East's tourism sector may face a slowdown if the oil price remains low or continues to decrease, Ernst & Young (EY) has said in a new report.

EY said the next six to nine months will be a "critical period" for the region's industry to see how the oil price affects the number of hospitality transactions and developments.

Yousef Wahbah, MENA head of transaction real estate at EY, said: "If occupancy rates are to remain the same or decrease; the extra supply that is slated to enter the MENA hospitality market in 2015, coupled with unstable oil price, may have an effect on the industry's growth rates over the coming year.

"Conditions may not be as vibrant as they were in 2014. There were over 4,000 keys expected to be delivered to the Dubai market in 2015, however we see the hotel developments construction pace slowing with delays in the scheduled opening dates of the hotels.

"In terms of transactions, the hospitality sector could see a drop in the number of deals given the uncertainty in the market."

The report said the UAE remained the top performer in the MENA region in terms of occupancy in 2014 while hotels across Dubai witnessed a 5.7 percent decrease in RevPAR in January compared to a year earlier.

Hotels in Dubai saw a number of Russian tourists cut their December holidays short upon news of economic uncertainty in their home country, the report said.

It added that the strong supply growth of hotels in Dubai continued to surpass the growth in demand in January.

Wahbah added: "The political situation and the weakening of the Russian ruble has led to a decrease of inbound travelers from Russia and some of the eastern European countries, which drives significant demand in the city.

"Dubai, however, is a global magnet, attracting tourists from all parts of the world, making it relatively resilient to fluctuations from one specific market. Dubai's occupancy rates continue to meet and sometimes outperform the rates of international established hotel markets such as London, Paris and New York.

"Although it will be difficult to sustain the same performance Dubai saw in 2014, if market conditions stabilize, 2015 could still be a very good year for Dubai's hotel market."

Abu Dhabi's RevPAR decreased by four percent in January, mainly due to a drop in ADR of 3.9 percent, while maintaining the same occupancy levels as last year.

"Overall the MENA hospitality market continued to see stable rates across the peak tourism season which lasts until March. We expect the UAE, Saudi Arabia and Qatar hospitality markets to maintain high occupancy and RevPAR levels," said Wahbah.

In the wider MENA region, Cairo, Manama, Doha and the major cities in Saudi Arabia saw noticeable increases in both occupancy and RevPAR, EY added.

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