Market Update: Oman's market gap

As the Omani hotel market puts another strong year of hotel performance behind it, with the latest industry figures revealing that tourism now contributes $2.4 billion to the country’s economy, some experts are predicting that the country will soon find itself at a crossroads between relying on an established market of luxury hotels, or finally establishing an economy hotel market to call its own

The year 2013 was by all accounts another strong trading period for the Omani hotel market, with the latest industry figures from Colliers International revealing a 3% rise in the value contributed to Oman’s economy in the first half of last year, with 2.4 million tourists passing through Muscat and Salalah airports.

Looking ahead to 2014, the positive market figures continue, with a recent World Tourism and Travel Council report predicting that the Oman hotel market is looking at an annual growth rate of 6-8% until 2017, as new investments pour in to develop the sultanate as a tourism destination.

Speaking at a recent Arabian Hotel Investment Conference regional briefing in Muscat, STR Global area director for the Middle East & Africa Philip Wooller was similarly upbeat, declaring: “The charm of the Sultanate of Oman is undeniable – its people, rich history and culture, nature and activities all combine to offer a wonderful leisure experience.

“The Omani government forges ahead with the vision for 2020 with considerable inward investment and with the new airport in Muscat due to open in late 2014, demand for hotel rooms is likely to grow dramatically. In 2013 demand continued to outstrip the new supply which is an encouraging indicator – demand is up for hotel rooms by 23.3% while supply is up 9.7%; hotel revenues grew by 27%,” he added.

Wooller was joined in his optimism by Chiheb Ben-Mahmoud, head of Jones Lang LaSalle’s hotels & hospitality group - Middle East & Africa, who said: “Oman is a well-established destination on the world travel and tourism landscape with a unique offering combining exotic heritage, unique natural sites and a tourist friendly culture as well as opening the Arabic peninsula on the Indian ocean world.

“With such a unique offering, the hospitality industry is a strong value creator for private investors and economic development contributor for the country as a whole.

“The partnership between the public and the private sectors in Oman has been driving hotel investment in the Sultanate. While Oman, as a tourism destination, has very strong attributes, it could well be expected at the same time to benefit from the exceptional growth that tourism has been witnessing throughout the GCC region,” he said.

Article continues on next page ...

Budget Deficit
However, Wooller and Chiheb’s praise for the market is countered slightly by a recent report published by Colliers International, entitled ‘Oman, Muscat: Economy Hotel – Market Gap’, which highlights the continuing disparity between the development of luxury/five-star hotels and Oman’s economy and budget hotel market.

Speaking about the report, Filippo Sona, Colliers International head of hotels for MENA, explains how the announced forthcoming supply of hotels across Oman mainly consists of four-star and five-star properties, serving only to further widen an existing gap in the market for branded economy hotels.

“Of the Omani pipeline, the majority of upcoming supply is in the four- and five-star segment. This has caused some rate compression, partly in the five-star market, but mostly within four-star hotels,” says Sona.

“As the hotel market develops, the top and bottom tend to do very well, but it is the middle that gets squeezed the most,” he adds.

Colliers’ latest industry figures show 6616 hotel rooms and serviced apartments are currently in the pipeline for Muscat in the next five years. Most of the forthcoming hotel supply, however, is in the four- and five-star segments.

Based on the Colliers Econometric Model for the period 2013-2017, the Muscat market could potentially absorb an additional 985 economy hotel rooms over and above forthcoming supply.

“The majority of economy hotels in Oman are either locally branded or unbranded, and many are not purpose built and of a limited size. Due to the fragmented nature of the market, hotel apartments and guest houses tend to compete with the economy hotel market, as there is a lack of differentiation between the two products from a consumer standpoint,” Sona explains further.

This disparity is reflected in the news that Muscat had one of the highest average hotel prices in the world last year, with the Omani capital beating other notoriously glamorous and expensive hotspots such as New York, Tokyo and London, according to a Hotel Price Index report compiled by booking website Hotels.com for H1 2013.

According to Hotels.com’s findings, the average price paid by its customers for a stay in a Muscat hotel room in the first half of last year was US $310 (OMR 119), a rise of 16% compared to Hotels.com findings in the same period last year.

It’s no surprise then that the trend for luxury hotel developments carries through to 2014, with a raft of new luxury hotels on the horizon and some international operators taking their first steps into the Omani hospitality market.

Article continues on next page ...

For example, last year Dubai’s Jumeirah Group signed a management agreement with Saraya Bandar Jissah SAOH to operate a luxury resort in Muscat, marking the hotelier’s first property in the Sultanate.

Saraya Bandar Jissah is a joint project between Omran, Oman’s tourism development and investment arm and Saraya Oman, a subsidiary of Saraya Holdings, with the property currently under development and expected to open in 2017.

Another new face coming to the Oman market is the Alila Hotels & Resorts Group, which is set to open its first Middle East hotel in Oman in Q2, 2014. Located in the Hajar Mountains and set 2000 metres above sea level, the Alila Jabal Akhdar Hotel will be part of Alila’s Lifestyle Collection.

Speaking about their new venture Alila’s president Mark Edleson says: “Alila is delighted to have been chosen to manage such a prestigious and unique hotel in such a breathtaking location. The Jabal Akhdar region is perfect for our first foray into the Middle East. Its combination of interesting natural eco-systems, physical beauty and intriguing history and culture perfectly fit within our development philosophy”.

Another development, Coral Muscat Hotel & Apartments, is due for completion by the second quarter of 2014, while last year Sundus Investments Projects, a specialist in mixed-use developments in the Middle East, signed an agreement with Rotana Hotel Management to manage its new project Sundus Arjaan by Rotana.

Speaking at the announcement of the project, Sundus Investments Projects chairman Mohammed Mahfood Saad Al Ardhi explained how their development was aiming to tie in directly with Oman’s ambitious mandate for the tourism sector as outlined in Vision 2020.

“Our projects in Oman are in line with the overall objective of the National Tourism Development Plan that prioritises the social and economic development of the Sultanate,” says Al Ardhi.

“It also supports Oman’s Vision 2020 that aims, among other things, to increase the tourism sector’s contribution to the economy by achieving an annual GDP growth of 7.4% and bring in about 12 million tourists annually by 2020. As part of Sundus Investments’ commitment to this goal, we are looking at launching a series of hospitality projects across Oman in the short term,” he adds.

There is some development in the mid-market, with Rezidor planning a Park Inn-branded property in Duqm and Premier Inn to launch in Muscat.

In this segment, Fady Abi Khalil, general manager of Golden Tulip Seeb Oman, in Muscat, says he is confident of his hotel’s ability to perform in a luxury dominated market.

“The hotel market is not yet crowded, and the ministry of tourism listens to all hoteliers. At the moment the ADR is acceptable, especially for three- and four-star hotels, so owners are looking to have a three- or four-star hotel, more than a five-star hotel, when looking at the return on investment” Khalil asserts.

Article continues on next page ...

New Developments
All of these ongoing projects across the hotel sector, which according to our own figures total an approximate pipeline of 3638 hotel rooms, are set to combine with a series of initiatives from Oman’s Ministry of Tourism, including the new ‘Yes... to Oman’ campaign, launched in January 2014, which will be run across the ministry’s website and a range of social media, and will include photography of the country’s most popular tourist sites.

Some of the other developments include the ongoing expansion of operations at Salalah international airport, which has so far added an additional 1,500 seats per week to the destination, and a recent partnership with the Abu Dhabi Tourism & Culture Authority (TCA Abu Dhabi) and the Department of Tourism and Commerce Marketing (DTCM) to raise the awareness of the Gulf as a international cruise destination.

Salim Al Mamari, director general of Tourism Development, Oman Ministry of Tourism praised these developments as “both timely and strategic”, saying “These are truly exciting times for the GCC region’s tourism industry, particularly across the luxury cruise segment, which has demonstrated continuous growth.”

Hoteliers are also showing their enthusiasm for the ongoing infrastructure developments, with Golden Tulip Seeb Oman’s Fady Abi Khalil saying “the new Airport project, roads and infrastructure under construction, are affecting our hotel’s business positively, not only in terms of rooms, but also, in the outlets, meeting rooms and even recreation facilities.

This can only help with increasing the number of multiple visits and day trips to Muscat of engineers and vendors involved in these projects.”

This is also a view held by Muriya Tourism Development, the developer of two of the largest hospitality projects in Oman, with the 6.2 million square metre Jebel Sifah and 15.6 million square metre Salalah Beach projects totalling 13 hotels and 2900 rooms, displaying their appreciation for the country’s airport developments in particular.

Muriya Tourism Development marketing director Bahaa Hefzallah explains that “some of the biggest opportunities for Oman operators are the re-developments of Muscat and Salalah airports increasing the number of direct flight between Muscat, Salalah and the main cities around the world.

“These will hopefully all work in tandem with the big marketing and promotional campaigns conducted by the Ministry of Tourism, which will all help in boosting our business,” he concludes.