Arrival of 50,000 rooms in the coming years will result in more volatility in the market
Dubai hotel operators and owners may be used to 80 percent occupancy rates, but they will have to learn to operate at 65-70 percent occupancy and still be profitable, according to Emaar Hospitality CEO Olivier Harnisch.
Despite the city having had progressive hotel rates of anywhere in the world in the last 20 years, the arrival of Expo 2020 will result in more volatility in the market, Harnisch told Arabian Business at the Gulf and Indian Ocean Hotel Investors’ Summit (GIOHIS) in Abu Dhabi.
“Demand and supply will grow strongly, but they will not be perfectly correlated. We’ve seen it last year in Dubai, where micro markets developed differently. The beach hotels were doing really well, and there was revenue increase year-on-year, whereas Downtown was a bit more subdued,” he said.
"It’s growing fast. We’re talking about 50,000 new rooms coming onto the market in the next few years. This is a lot. So there will be moments as a single hotel, you will have two or three hotels open in your immediate vicinity, and the demand growth will not be able to immediately accommodate that.”
Business models will need to be flexible in order to deal with lower occupancy rates, Harnisch added, explaining that cost-cutting is needed in the construction process.
“We’ll have to learn to build hotels more efficiently – still as beautiful as they are now, but all those areas which the guests don’t see, such as the back of the house, the storage space and the office space need to be done more efficiently,” he said.
Moreover, hoteliers will need to strengthen their operational engine as much as their commercial engine, to be able to deal with temporarily lower volumes.
“[Hotels] have been really spoiled in Dubai in the last 20 years in terms of growth rates, except the 2009-2010 period, but overall we’ve had tremendous growth rates,” he said.
The chief executive, who spent 14 years in Europe before joining Emaar, said the hotel industry in other countries is ‘a very different world’ in terms of momentums of growth.
“If I had to choose where to be as a hotelier, Dubai would be at the very top of my list, because of the fundamentals here,” he said.