By Gavin Gibbon
Latest Cavendish Maxwell report reveals opportunities for investors as industry gradually recovers
Investors looking to cash in on the coronavirus pandemic are being urged to bide their time and potentially pick-up a bargain in the UAE’s hospitality industry, according to the latest report from Cavendish Maxwell.
Despite the industry being arguably one of the hardest hit by the lockdown measures and travel restrictions, introduced to curb the spread of the virus, the ‘Covid-19 impact on hotel valuation’ report revealed that opportunities exist in what was described as “material uncertainty”.
Daniel Harrison, associate partner, specialist commercial property valuation, said: “We expect potential investors to take a longer-term view on hospitality assets. Once hotel performance begins to stabilise and assets are placed onto the market, buyers with higher levels of liquidity will be in a position to acquire assets at prices below both replacement cost and recent norms.
“Irrespective of the downward trends associated with market performance, an opportunity for high returns will be created.”
Although Dubai opened its doors to international tourists on July 7, visitor visas for the rest of the UAE remain suspended since March.
The report revealed that, as of June 2020, 16 percent of hotels within the UAE tracked by hotel data firm AM:PM have closed their doors, while the number of rooms closed within Dubai stood at 27 percent and eight percent for Abu Dhabi.
“It is likely that as we get further into the year, more hotels will follow suit,” Harrison said.
During this time, Dubai’s RevPAR (Revenue Per Available Room) fell 73.5 percent when compared with June 2019. Abu Dhabi City Hotels RevPAR was down 13.6 percent against June 2019 and Abu Dhabi Resorts RevPAR declined 48 percent. Ras Al Khaimah and Fujairah stood at -32 percent and -42 percent, respectively.
Harrison said: “From anecdotal research, a typical hotel needs to maintain around 40 percent occupancy to achieve break even.”
This was outlined in the report as being the ‘Most Likely Case’ scenario, which forecast a 41.9 percent occupancy rate with a Gross Operating Profit (GOP) of 4.2 percent in the first year of the forecast (July 2020 – July 2021).
This also includes a potential yield of 8.5 percent.
Harrison said that the stimulus measures introduced by the UAE Central Bank in economic support for banks, including zero-cost facilities, capital buffer relief and holiday payments until September 15 in a package worth over AED250 billion, will go a long way to supporting customers.
“Given the relief measures introduced by the Central Bank, market activity will reflect yield and discount rates above historical averages, given the additional perceived risk or high level of uncertainty,” he said.
“As these measures are lifted we should see a shift towards lower leveraged, or even 100 percent cash transactions.”