Market Update: Abu Dhabi

With visitor numbers and hotel occupancy figures on the way up, Abu Dhabi’s hospitality market appears to be going from strength to strength. But are reports of falling room rates proving a case of too much too soon?

Trying to predict what will happen in the Abu Dhabi hospitality market is quickly becoming something of a fool’s errand. Over the last few months, government organisations have released a seemingly endless stream of positive tourism figures which, when taken with a steady supply of new hotel openings in the market is creating an exciting buzz.

For example, the most recent figures released by the UAE capital’s Tourism and Culture Authority (TCA Abu Dhabi) have revealed that by the end of May, 1.1 million guests had stayed in Abu Dhabi’s hotels this year.

Those visitor figures represent a 12% rise on the first five months of 2012, with those guests delivering a total of 3,573,854 guest nights, up 26% year-to-date, with the average-length-of-stay moving up 13% to 3.25 nights.

In addition to this, year-to-date revenues for hotels have climbed 17% to AED 2.3 billion (US $626 million) with May delivering its best-ever showing with 232,650 guests checking into the emirate’s accommodation, a rise of 21% on May 2012.

These figures, according to TCA Abu Dhabi director of strategy and policy Mohammed Al Dhaheri, show that Abu Dhabi is “well-placed to achieve its 2013 hotel guest target of 2.5 million.”

“With a blockbuster schedule of world-class culture, leisure and sporting events lined up over the next six months and the Abu Dhabi Convention Bureau generating fresh optimism in the emirate’s business tourism capacity, we anticipate further growth through to December and another record-breaking year for the emirate’s hotel stock,” adds Al Dhaheri.

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Funny Figures
However, these positive figures released by TCA Abu Dhabi seem to contradict the recent Abu Dhabi HotStats market performance figures released by TRI Hospitality Consulting, which reveal a continual decline in ARR in the city, with a fall of 8.3% to AED 460 ($125) in May.

This is a trend that according to TRI Hospitality Consulting senior consultant Christopher Hewett can be clearly attributed to the “sheer number of hotels coming online in the Abu Dhabi market.”

“One of the main factors is the highly competitive corporate market that is present in Abu Dhabi at the moment. The corporate market is still the main driver for the Abu Dhabi market and the amount of supply on offer is giving corporate customers the ability to bid hotels against each other in order to drive rates down,” adds Hewett.

This cautious view is shared by STR Global’s area director for Middle East and Africa Philip Wooller, who believes that Abu Dhabi has suffered from the optimism and excitement generated prior to the recent economic downturn.

“The vision for Abu Dhabi, especially before the crash of a few years ago, was incredibly exciting. This in turn caused a lot of international operators to begin clambering over themselves to open a property there. Unfortunately, things stalled slightly during the downturn but these projects stayed in development and what we are seeing now is the fruition of that,” says Wooller.

“In the period between 2010 and 2011 I believe, supply in Abu Dhabi went up something like 50%, while in the luxury sector in 2012 supply went up around 68%. This in turn caused 2012 occupancy levels to fall across the board. However, those difficult times are appearing to be behind us, with demand in 2013 so far going up 20% in contrast to supply which has so far gone up only 12%,” adds Wooller.

This optimism for the year ahead is also shared by Hewett at TRI who states that “the good news is that visitor numbers are increasing and that things are looking good when it comes to demand. Over the last 12 months Abu Dhabi has successfully widened the leisure opportunities of the city and that appears to be paying dividends.”

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Looking up for Luxury?
In addition to the increasing number of visitors to the UAE capital, another part of the Abu Dhabi hospitality market that seems to be rapidly going up is the number of luxury and five star hotels in operation.

The last few months alone have seen the opening of the 189-key, 34-storey Rosewood Abu Dhabi in the city’s Central Business District (CBD) and the 533-key Dusit Thani Abu Dhabi located near the Abu Dhabi National Exhibition Centre; both of which will soon to be joined by the 283-room St Regis Abu Dhabi on the corniche, the city’s second St Regis after its sister property located on Saadiyat Island.

This wave of development is, according to Hewett, beginning to show that “unfortunately, it is looking as if Abu Dhabi may soon reach the point of saturation when it comes to luxury properties.”

However, TCA’s Al Dhaheri believes this recent wave of luxury hotel openings in the city is an indication that “international operators and investors believe Abu Dhabi represents a solid proposition for luxury and economy properties.”

“Buoyed by greater ever-growing hotel guest arrivals, we believe the luxury segment is holding up very well. There are obviously challenges from increased competition and Abu Dhabi’s luxury operators must continue to package affordably and utilise international client databases to increase their footing in the local marketplace,” says Al Dhaheri.

Listening to the mixture of disappointment and optimism from market analysts, it can be easy to feel confused about the outlook for the Abu Dhabi market over the next 12 months. However, hotel operators on the ground appear to be much more practical when it comes to the market’s continued growth.

Dilip Mukundan, director of sales and marketing at the recently opened, AED 1.5 billion Ritz-Carlton Abu Dhabi Grand Canal, one of the largest luxury hotels on the market with 532 rooms, reveals a careful plan for the hotel to play to its strengths.

‘From a business standpoint, with the inventory that we have, then the MICE market is a huge focus for us. Looking at the Abu Dhabi market in general, we believe the corporate travel segment will be one segment where we foresee continued growth,” comments Mukundan.

“Of course when you build any new hotels you initially feel the pinch, but we are intending to follow the long term growth and vision of Abu Dhabi. This is not a simple quick affair but a marriage and we are here for the long term and committed to seeing this market grow,” he adds.

This is a message echoed by another international operator in the city, with Hilton Worldwide’s vice president for the Arabian Peninsula Christian Grage insisting that Abu Dhabi is “a healthy mix between leisure and corporate business, and both are very important for us, especially as they tie into our seasonal market.”

“Abu Dhabi is clearly progressing and we feel that this is the right time to be in the market. I wouldn’t even term it as competition, as every luxury hotel that comes onto the market is actually selling the destination and developing Abu Dhabi.

Looking at the financial data that we are seeing on the Abu Dhabi market, for the first quarter we are seeing a 15% revenue growth over last year, with a 6% growth in visitor numbers to the city. So that tells a story that I believe everyone is finding their share of the market,” adds Grage.

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Mid market matters
Finding a share of the market is something that Philip Wooller at STR believes is one of the main causes of the difficult market data that Abu Dhabi has experienced over the previous few years.

"Each hotel, whether it be luxury, upscale or mid market will eventually find their place in the market. However, when times are bad, those pricing lines will blur and you see luxury properties begin to drop into upscale pricing brackets.

Alternatively, when the market is strong then it will swing the other way and midscale rates may encroach into upscale. Therefore the rate fluctuations we have seen are just a natural side effect of a market that is continuing to establish itself,” says Wooller.

Looking ahead, one development in Abu Dhabi is the growing popularity of mid market leisure and business hotels, with the Novotel Abu Dhabi Al Bostan and Adagio Abu Dhabi Al Bostan hotels due to open in the next six months alone.

For example, when the 414-room Centro Capital Centre by Rotana opened in February of this year, becoming the third Centro open in Abu Dhabi alone, Rotana group COO Omer Kaddouri described the brand as “our fastest-growing”, and predicted that this rate of growth would “continue as demand for affordable accommodation offering comfort, functionality and style has never been stronger.”

To Christopher Hewett at TRI, the real benefits of the mid-market is its ability to “appeal to the widest range of customers. It is these hotels which are looking in prime position to take advantage of the growing number of visitors to the emirate looking for affordable accommodation,” he concludes.