By Courtney Trenwith
With Dubai’s hotel market reaching maturity, the question of standards has moved to the forefront, says Courtney Trenwith
It is a tricky and somewhat impossible formula to solve: exactly how many hotel rooms does one city need, and of what calibre?
Hoteliers operating in the GCC or considering launching in the region have been grappling with the equation in recent years. The constant economic changes locally and in source markets, as well as the consistent addition to tourism infrastructure and attractions and growing number of high profile international events makes predicting the future of the industry challenging.
Take Dubai, where 5,000 new hotel rooms were added to the market in the year to February, according to the Department of Tourism and Commerce Marketing (DTCM).
At the same time, the average daily rate fell AED109 ($29.69), or nearly 12 percent, to AED833.80, according to analysts STR Global. DTCM estimates the average rate is lower, but the decline has been similar. The revenue per available room (RevPAR) also fell at a similar pace to AED687.64.
The declining RevPAR – the key statistic used to measure a hospitality market – may appear to shine a dim light on future proposals but the rate remains relatively high compared to major international cities, according to STR Global. Occupancy levels - well over 80 percent – are also extremely healthy.
Add to the strong base line figures a persistent increase in tourism numbers, a continuously growing population both in the emirate and nearby source markets, and the highly anticipated World Expo 2020, and it seems Dubai could still soak up many more thousands of rooms.
Deloitte claims Dubai hotels will need to accept a “new norm” for occupancy rates of between 70-75 percent in the near future. But whether this becomes reality will obviously depend on whether developers accurately read the market and visitor numbers continue to rise. International hoteliers are evidently still viewing Dubai as a ‘need-to-be-in’ city. Some such as the Waldorf Astoria and Four Seasons have recently opened in multiple locations in the emirate.
Meanwhile, the government is targeting 20 million visitors by 2020, requiring about one-third, or 5 million more than last year. It may seem far-fetched on an average global scale, but based on the emirate’s recent performance it is highly plausible.
What makes Dubai unique compared to developed destination hotspots such as London and New York is its versatility: when the number of Russian, Egyptian and French tourists declined, for example, visitors from countries such as India and Saudi Arabia grew by double digits.
The answer, it seems, is that Dubai - and its neighbours - can certainly consume more hotels. But deeper than the headline number of rooms, is the question of standards. Led by Dubai, the region’s main cities, including Abu Dhabi, Doha, Jeddah and Makkah, have emphasised luxury when it comes to accommodation. From the St Regis to the One&Only and Palazzo Versace, the region is awash with hotels and resorts as high on the five-star scale as is possible.
The question plays out most visibly in Dubai, where one-third of all hotel rooms are five-star rated, compared to 22 percent for four-star, 20 percent for one-three stars and the rest serviced apartments. The argument has often been that in a city such as Dubai, luxury is the only way to recoup costs, although PwC says a white paper to be released this week will show that mid-market hotels designed correctly can provide similar returns.
In fact, PwC Middle East partner Philip Shepherd argues that the emirate’s hotels will eventually be forced to accommodate mid-market visitors, with older ‘luxury’ properties overridden by newcomers and thus forced to lower their prices.
During the first two months of the year, five-star properties had the lowest level of occupancy than any other category. However, the rate of 83 percent is still pleasing and far from a deterrent to newcomers. At the end of the day, it seems whatever accommodation you build in Dubai, and the region, right now will do well compared to other markets globally and that in itself is what hoteliers are looking for.For all the latest travel news from the UAE and Gulf countries, follow us on Twitter and Linkedin, like us on Facebook and subscribe to our YouTube page, which is updated daily.