Market Update 2016: Doha

Doha’s hospitality industry is not experiencing its busiest season. As per official figures from the tourism authority, visitor numbers were down 6% in the first half of 2016 YTD as the country welcomed 1.4 million visitors in the first six months of the year.

Hoteliers and industry stakeholders are concerned over falling room rates and occupancy levels. Operators say that the five-star and luxury segment has borne the brunt with travellers turning more towards four- and three-star accommodation. This is partly due to companies reducing their spending on corporate and business trips for their employees.

In 2015, Qatar tourism enjoyed a slight growth YoY. The Annual Tourism Report for 2015 by the Qatar Tourism Authority (QTA) stated that the country’s tourism sector “had emerged strong” at the end of last year, marking a 3.7% growth from the previous year with 2.93 million visitors coming to Qatar.

However, in the report, QTA admits that it had to rework its estimated target of three million visitors, after a dip in arrivals through Q4 2015. Some 2,929,630 tourists visited Qatar in 2015, as the country fell just short of its estimated goal.

At the beginning of 2015, QTA stated there were 22,484 rooms under construction across 56 hotels under construction. A further 4,168 hotel apartments would also be ready to come to the market in the subsequent years.
Room supply and demand.

At the end of 2015 the total number of available keys in Qatar rose by 30% to 20,713 rooms as versus 15,879 at the end of 2014. Meliá Doha opened in February 2015, and its general manager Sherief Abouelmagd tells Hotelier Qatar: “In 2016, there were an additional 27% rooms in the market and I started the year with three hotels opening around me in the immediate area – Rotana, Shangri-La and Hyatt Residence. You see in front of me the Waldorf Astoria and just behind this hotel the JW Marriott is coming up, but these are at least one to two years away.

Abouelmagd is referring to the supply in the West Bay district of Doha, which is the focus of many international operators with Thai-based Centara Hotels and Resorts set to open its first Middle East property there in Q4 2016.

Abouelmagd adds: “Basically, you have supply outpacing demand. Besides the drop in business in Doha, there is a struggle at the moment and all the hotels are fighting against each other in the market.”

TRI Consulting associate director Christopher Hewett tells Hotelier Qatar: “Hoteliers in Doha are certainly experiencing a challenging environment with revenues and profits falling. With a strong pipeline of new hotels, particularly in and around West Bay, we expect heavy competition to continue in the area for the foreseeable future.”

Hewett adds that Doha’s supply pipeline includes more than 11,000 hotel rooms which are expected to enter the market over the next three to five years. “The majority of the supply will be centred around the West Bay area and in large mixed-use developments such as Lusail,” Hewitt says.

Colliers International director-head of hotels ­­­­— MENA region Filippo Sona tells Hotelier Qatar: “Doha saw an influx of 538 hotel keys in Q2 2016. The most recent openings included properties such as the Mövenpick Al Aziziyah and the Centro Capital Doha. Supply is expected to grow at a strong pace, with a large pipeline over the next few years.”

Sona says, however, that 20% of properties in the pipeline have experienced notable “delays by one or two years”. “This leaves more time for the market to absorb the new supply,” Sona adds.

Rates and occupancy

Grappling with prices and occupancy has been a challenge for the hotels in operation especially in Doha’s West Bay district.

On the occupancy and revenue front, QTA’s report states that hotels in Qatar experienced strong demand growth (rooms sold up 28%) in 2015, but this was outstripped by growth in supply (available room nights up 32%). This resulted in slightly lower occupancy rates on average compared to the same period last year.

Average hotel occupancy was 70.7% in 2015 compared to 73.1% in 2014, which represents a 3.3% reduction. The only segment which enjoyed occupancy growth was the four-star segment with 76.5% average occupancy in 2015 compared to 75.8% in 2014.

For the first half of 2016, hotel occupancy and average room rates were lower compared to the same period in 2015. Occupancy rates in the tourist accommodation sector have seen a 15% fall from the first half of 2015, with an average of 64% occupancy recorded across all hotels and hotel apartments in the first half of 2016, the QTA said in its H1 2016 report.

In 2015, RevPAR (revenue per available room) struggled, falling by 8.8% on average across the entire hotel segment compared to 2014. RevPAR fell most significantly across the one- and two-star segment (-17.3%), as well as the four-star segment (-11.7%). The five-star and three-star segments fared better, with only slight drops in RevPAR (-2.6% and -1.8%) respectively; this was achieved through higher ARR (average room rates), which increased by 3.8% and 9.1% respectively.”

Sona says: “Due to a drop in oil prices, slowing economic activity, and Ramadan, hotels experienced a decline in demand during the second quarter of 2016. Hotel occupancy is forecasted to close at 64% for 2016, which is still relatively higher than the occupancy rate in some GCC cities which are also heavily reliant on the corporate segment.”

The QTA claims that the drop was generated partly by a 10% net increase in the number of available rooms, as four new properties has opened their doors since the end of June 2015. Average room rates across all hotels and apartments was US $137.31 (QAR 500), and RevPAR was $87.60 (QAR 319).

Hewett says: “Doha has witnessed occupancy levels decline 4.2 percentage points in the past 12 months, from 71.2% to 67.0%. This trend extends to ADRs which have fallen 11.7% to US$193.98,” according to TRI’s statistics.

Ritz-Carlton Sharq Village general manager Wael Maatouk says: “There is a certain issue for demand and prices, which are going down across the city’s hotels year-on-year. This is because of all the previously planned hotels that are coming on the market now — the new supply in the market. This is the normal economic cycle, which is not strange.”

Segment diversification and source markets

Hotels in Doha have traditionally relied on corporate business, with leisure constituting a small percentage of the share.

Hotels need to diversify and start attracting leisure tourists as Grand Hyatt Doha director of sales Ali Moussa tells Hotelier Qatar: “We have noticed a drop in rates but our occupancies have been stable due to our aggressive pricing. This also helped to safeguard against a drop in our RevPar and we are still the leader in our secondary and primary competition set.

“Budget cuts in many sectors and industries have affected us, but as we are not reliant on one specific segment and the majority of our business is leisure, we have not been affected as much as the competition from the data we see. We had to adapt and change our pricing strategies accordingly.”

Meliá Doha’s Abouelmagd says oil and gas has been the backbone of Doha’s economy and because of the drop in prices the government has had to cut its budgets. “We are trying to work [with the QTA] but Doha is not a leisure city, Doha is more of a business, conference and sports destination. The leisure aspect is very minimal, but I have heard the government has long-term plans to increase the leisure segment.”

He adds: “There is excellent potential in the long term. However, in the short term there seems to be some sort of stability in oil and gas prices. Hence, we are all hoping that the government will increase its spending, which will restore some stability to the city.”

Abouelmagd states that the leisure segment constitutes “not more than 3% of business”. “The GCC market is a huge contributor to this segment; we have guests from the UAE and Saudi staying with us but it’s irregular,” he says.

Maatouk remains highly optimistic of Doha breaking its mould as just a corporate and government destination: “I think it’s on the rise now. Traditionally Doha was always a corporate and government destination. QTA started pushing into the leisure segment a few years ago. They were extremely serious with this when they launched the new brand identity for Qatar, back in November last year in London at the WTM. I think sooner or later, this strategy will start to bear fruit and this segment will take over the corporate and government business. This is merely a matter of time.”

Hewett adds: “As key leisure infrastructure continues to develop, including a number of super regional malls and large leisure projects, we expect Doha to attract an increasing number of regional GCC visitors as well as stopover transit passengers using Qatar Airways.”

Of the 1.4 million tourists that visited Qatar in the first six months of 2016, 665,355 were GCC nationals, according to the Tourism Performance Summary for the first half (H1) of 2016.

QTA says the timing of Ramadan, which this year began early in June compared to mid-June last year, had a clear impact on arrivals for the second quarter. However August performance wasexpected to be supported by the Qatar Summer Festival which ran for the duration of the month.

The festival was designed to attract visits at a traditionally off-peak period in Qatar’s hospitality and retail sectors, with hotel and shopping promotions, cultural performances and sports events to drive footfall to establishments and venues, QTA states.

KSA remains the biggest source market for Qatar as was evident by the number of Saudis that visited the country in 2015 — 855,555 tourists to be precise. Indian tourists were the second highest, with 375,910 visitors coming to Qatar followed by the UK with 135,645 visitors. Bahrain, UAE, Oman and Kuwaiti tourists are among the top 10 source markets.

The trend continued in 2016, as Saudi Arabia remains the largest source market and is also responsible for the bulk of the growth recorded in the number of GCC visitor arrivals, bringing to Qatar 39,650 additional Saudi visitors, representing 10% of the growth. Some additional substantial growth was evident from the UAE (13%), while arrivals from Bahrain also increased marginally (1%).

In August 2016, the Qatari government announced visas on arrival for Chinese, Indian and Russian visitors in a bid to boost inbound tourism in the country. This has been a long-time request of the operators, who made it clear to QTA that visa regulations needed to be relaxed. Maattouk says: “…one of the things we complained about was getting tourists from new source markets, but getting a visa was rather tedious for them. They [QTA] were extremely helpful [to change the regulations]. They are already on track to diversify the market share, and increase the number of guest visitors in Doha.”

Moussa agrees on the topic of visa regulations and says that “removing the visa restrictions for some nationalities will be very helpful and productive”.

Abouelmagd is satisfied with QTA and the efforts it takes to collaborate with hoteliers. “QTA is definitely doing a great job. It is one of the active ministries of tourism that I have come across, having worked in many countries. The manner in which it communicates with the hotels, the participation in trade shows and following trends in the city – as a general manager I’m happy to receive all the information and be connected.”

For the rest of 2016, QTA remains confident the numbers will pick up. A QTA spokesperson stated in the Performance Summary Report for H1 2016: “Visitor arrival figures should see a further increase in Q4 as the 2016/17 cruise season begins in October.

32 ships have already registered to dock in Doha’s ports, and are expected to carry more than 50,000 visitors on board, a ten fold increase from last year. This growth will continue as QTA and its partners set in motion plans to redevelop Doha Port, creating an attractive stop for cruise ships in the Gulf.”