Developers urged to diversify mixed-use projects

Mixed-use developments in the Middle East need to be increasingly innovative, with more time and money spent on research and development, industry experts said.

Developments which combine hotels with other entities need to re-think the standard strategy of selling residential units to generate cash, and then using that money to invest in the hotel, Salman A. Haider, executive managing director, hotels - Majid Al Futtaim Properties, said during a panel debate at AHIC.

“Mixed-use shouldn’t just be limited to having serviced apartments – there are a lot of other things which are needed in developing cities around the Middle East,” added Fergal Harris, head of real estate in the Middle East for Standard Chartered

“Maybe dedicate a quarter of the hotel for the elderly and they can then benefit from the back of house in the hotel. They are also things that make it an interesting proposition in terms of diversifying the cash flow,” he said.

Patrick Smith, senior asset management vice president at IFA Hotel Investments, added that the research and development stage needed to be focussed on more in the region.

“At Yotel in New York, we did research and found that 25% of the residents we were targeting would have dogs, so they created an area in the basement with a dog showering and grooming facility and it was a big hit,” he explained. “The more you can do in that upfront stage the better.”

However, Haider added that in the region a lot of developers of mixed-use buildings focused too heavily on the revenue they can generate from residential components, which subsidise the hotel.

“Hotels in themselves need to survive and be financially feasible, and they can be if you don’t go out and overdo them. So, as owners and developers, that’s what lenders ask us,” said Haider. “Lenders say you gold-plate everything then don’t make enough money out of it. They have been bitten in other places of the world, so I have some kind of empathy that they are cautious.”