AHIC panellists discuss challenges for new build

Regional and international hospitality leaders expect labour, energy and design of hotels to be the leading costs for new builds over the next five years.

While discussing the profitability of new builds in Dubai and the outlook for the industry over the next five years at the International Hotel Investment Conference, Margreet Papamichael , director of AECOM Economics said design would be a significant cost for upcoming hotels that align profit.

“The pressure on design for a new build in line with its operational structure and ensuring where it’s heading within the market is becoming more and more important. You can’t just build your own hotel anymore. You can only do it if you have the operator in place, if you understand what it is that you are building and fully understand where it is you are going with that product. Design should be driven by its operation - that should be so closely aligned to ensure the profitability of the new build in Dubai,” she said.

Labour was a key factor the panellists said would drive operating costs up. “If there is going to be an increase in costs going forward, it will be the labour cost,” said Cherif Hosny, senior vice president development, Middle East, Africa and South Asia.

Russel Sharpe, Chief operating officer of Citymax Hotels – Landmark Group explained, “Today people are making more demands on the hygiene conditions. There was once a time when the greatest supply of labour came from India, but today they can have the same conditions and even better salaries back in India. So it’s changing now to new regions. In the future I think there will be a balance but you will have to pay better salaries and provide better conditions. For instance, there are still a lot of hotel companies that don’t pay the service charge to the staff. That’s going to be a challenge in the future.”

David Thomson, chief operating officer of JA Resorts & Hotels agreed, saying, “The standard of living that is expected of people working in Dubai has increased and the government has been the key driver of that and that’s a good thing. But that obviously puts a lot of pressure on the payroll. As demand goes up and properties go online, it becomes a bigger issue and naturally the price you pay for those people goes up. So labour is probably the biggest single factor that is going to affect operating costs going forward.”

Thomson also noted the possibility of rising energy costs: “Of course there will be pressure from utilities. As DEWA comes under more pressure to provide energy, that’s going to cost us as well. However, I think the energy prices are quite reasonable considering everything we do has to be driven by air conditioned units, but there’s bound to be an increase,” he said.