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Wed 1 Nov 2006 12:00 AM

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Why the demand for three-star properties must be addressed

Gautam Sen Gupta, managing partner of Dubai-based Market Vision Research and Consulting Services, explains why Dubai needs more well managed three-star hotels, operated to international standards

Gone are the days when Dubai was just a small fishing hamlet, a remote trading point amidst the Gulf’s forlorn deserts.

The city is featured today in the glossy pages of the international travel trade press, in the brochures of all major tour operators, travel agents and airlines worldwide and hot deals inviting the leisure traveller pop up on numerous web sites.

Everywhere there is appreciation for Dubai’s world class accommodation, shopping, Arabian hospitality, year-long sun and the desert safaris that it has made famous.

As a result, tourist numbers continue to grow.

Dubai’s Department of Tourism and Commerce Marketing (DTCM) has indicated that its marketing efforts should see more than 15 million guests staying in Dubai’s hotels and hotel apartments by 2015.

The performance of Dubai’s hotels has been very good during 2005. According to various sources, the city achieved spectacular occupancy levels, the highest in the world at 86%, with New York and Singapore in second and third place respectively. The Emirate also reported the highest revenue per available room (RevPar) at US $175.

In order to meet demand, there has also been a substantial growth in hotel rooms since 2001, by 7.5% annually till 2005.

However, this growth has been skewed in favour of ‘superior’ hotel rooms - just under 10% annually in the five-star segment, more than 13% in the four-star, but under 5% in the three-star; while guest demand grew by 22%, 13% and 22% respectively across the three segments during this period.

This demand-supply mismatch explains the spectacular performance of the city’s hotels in recent times.

Interestingly, outside the ‘superior’ hotel segment, the number of rooms in the three-star segment actually declined by 5% in 2005. However, there was a rise in the number of hotel guests in this segment during the year.

This highlights the general direction in which Dubai’s accommodation infrastructure has been developing, as Dubai is increasingly portrayed as a luxury destination.

The message has been; enjoy the year-long sunshine, shop till you drop, taste the desert life; and do it all in the luxury of your high-end hotel, dotting the waterfront or straddling the city centre.

Most leading luxury hotel chains are represented in Dubai and they have developed signature, high-end properties; many more are on the way, including several boutique hotels.

Today, there are more rooms in the five-star category than the combined room strength in four and three-star.

The supply of rooms in the five-star segment is set to grow by nearly 15% annually until 2014, although demand is estimated to grow at 10% annually as seen in 2005 vis-à-vis 2004.

Similarly, rooms in the four-star segment are to grow by almost 20% annually, though demand is estimated to grow by 12% per year.

In contrast, annual supply of rooms in the three-star hotel segment is expected to grow by around 8%, but demand is anticipated to grow at 12% annually until 2014.

There is a case for more mid-market rooms in Dubai. High average room rates together with high occupancies cannot be sustained indefinitely.

The city needs more well managed three-star hotels, operated to international standards.

Fortunately, this lucrative market opportunity has not been lost on key industry players.

Accor is eyeing an extensive presence in the UAE and Middle East with its Novotel and Ibis hotels; Ibis Barsha and Novotel Barsha are expected to open in 2008, and Rotana has created a new brand for the purpose. The company will open two of its Centro-branded midrange hotels by 2007, with a promised average room rate of AED 250-300 (US $68-82).

The Emirates Group will launch Premier Travel Inns by end of 2007 in collaboration with Whitbread PLC; easyHotels plans a presence in Dubai by 2008; 38 Express by Holiday Inn properties are planned across the region in the next five years, starting with a presence in Dubai Knowledge Village in 2007; Marriott will open five Courtyard properties in Dubai, with the first already operational in the Green Community; Dubai International Capital has purchased a stake in the UK budget chain Travelodge; and, the Wafi Group opened its 318-room Arabian Park Hotel with a launch rate of AED 345 ($94) per night in July.

Clearly, there is growing interest in opportunities afforded in Dubai’s midmarket hotel segment.

This is the balance the industry requires as it gallops towards the goal of accommodating more than 15 million guests by 2014.

For more information, e-mail gautam@marketvision.com.

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