Markets such as India and China demand economy hotels in the city, but developers continue to build luxury accommodations
Despite around 50,000 new rooms scheduled for Dubai before Expo2020, the city needs more affordable hotels, according to Simon Allison, chief executive of UK-based hospitality investors association Hoftel.
Allison said Dubai has a "disproportionately" large percentage of rooms in the top end of the market, while many tourists demand economy hotels.
“It has a lot of luxury, upscale hotels, but a lot of the markets being developed, such as India and China, need 2-star, 3-star budget hotels. While some of the companies are entering the mid-market, the pipeline is still mostly upscale luxury,” he said, adding that the problem is not being addressed.
As a result, prices in the top end of the market will probably soften, particularly due to the high number of new rooms being built in the city, which will see occupancy levels drop.
“Dubai is one of the more expensive markets in the Middle East, but in terms of major international cities such as Paris or Hong Kong, it is not overpriced. However, between now and Expo2020, around 50,000 rooms are coming into the market, and Saudi Arabia has a similar or even bigger percentage increase. I’ve never seen any market, except possibly Las Vegas in the boom times, absorbing that many rooms without a hit to occupancy,” he said.
“Just mathematically, even if you are growing demand at 7% a year, which you are, if you’re adding properties at 14% a year, you’re going to have a hit to occupancy.”
Dubai witnessed firm occupancy in 2017 due to lower rates, as hotels introduced discounts to bring in new sources of business. The addition of new demand drivers, such as the Dubai Frame, theme parks and new airports, will also help attract tourists to the city in 2018, the CEO said.
While 2018 will have a soft performance, demand is set to catch up again ahead and during Expo2020. However, 2021 may well be difficult, due to the large amount of permanent projects being built for the short-term happening.
“The year after such a big event is often very tough, but then again, this is the reason to continue to build things to do, so I don’t see any long-term issues with the market,” he said.
Hoftel organises the Gulf and Indian Ocean Hotel Investors' Summit (GIOHIS) which takes place on 29-30th January at the Yas Viceroy in Abu Dhabi. Tickets can be purchased online at www.giohis.com.