Market update: A Dubai hospitality growth story

Dubai’s Department of Tourism and Commerce Marketing (Dubai Tourism) is sounding confident. And why not? Its recently released annual visitor figures show Dubai attracted 14.9 million overnight visitors in 2016, recording a robust 5% increase over 2015.

In comparison with the rest of the world, there is no surprise at the sentiment that these figures represent stable momentum and the likely attainment of Dubai Tourism’s 2020 goals.

The emirate has seen the opening of numerous luxury properties such as The St. Regis Dubai, W Dubai and Westin at Al Habtoor City, Palazzo Versace Dubai and Jumeirah Al Naseem, contributing to another 5% increase, this time in room supply. The result is the 100,000 room supply mark being reached and passed with a current tally of 102,845 rooms.

No doubt the opening of attractions like IMG Worlds of Adventure, the world’s largest indoor theme park, and Dubai Parks and Resorts, the region’s largest integrated theme park resort, have helped. Dubai Opera was a welcome addition as was City Walk, and His Excellency Helal Saeed Almarri, director general, Dubai Tourism, says the growth through “a period of unforeseen macro-economic upheavals” validates the ability of Dubai’s tourism sector to adapt and respond with agility.

The performance has certainly been impressive; however, a report by Knight Frank stated the UAE’s hospitality market remained subdued in 2016 on the back of weaker macroeconomic conditions, further strengthening of the US dollar and a strong supply pipeline.

Average daily rates (ADR) dropped 12% YTD Nov 2016 compared to the same period in 2015, which resulted in a 12% decline in revenue per available room (RevPAR).

According to a HotStats survey, Dubai hotels achieved an average occupancy of 80.2% in 2016, which is 0.3% higher than 2015. However, the survey also found that average room rates fell 7.8% to $258.5 and the fall in top line revenues had a direct impact on profits, which fell 6.8% to $150.6.

There are many who say these figures are an indication that times are changing within Dubai’s hospitality sector.

TRI Consulting associate director Chris Hewett is assertive when he says the sector “is witnessing a dramatic change”, as the city matures from a luxury destination to a leisure and family mass tourism market.

“To reach the goal of 20 million visitors by 2020, the city needs to achieve an annual visitor growth of 7-8% and this can only be achieved by targeting a wider range of visitors and new source markets,” he asserts. “The rise in strength of the US dollar in 2017 impacted the affordability of Dubai for visitors and when coupled with the change in source markets, result in lower overall revenues and profits compared to 2015.”

Filippo Sona, head of hotels — MENA for Colliers International reveals that Dubai’s hospitality market has seen a slight increase in occupancy (+1.3%) in 2016, “even though there was an influx of 6,700 keys into the market in the same year”. “This reinforces Dubai’s positioning as a tourism hub with continued increase in tourist arrivals and an increase in average length of stay,” he continues. “However, when it comes to ADR, the market has seen a significant dip (-10.2%) in 2016, which can be attributed to the aforementioned increase in supply.”

Debrah Dhugga, managing director, Dukes Dubai and Dukes London explains that while supply increased by an additional 6,700 keys in 2016, the market is “showing great resilience and displaying signs of maturity”.

“These figures were recorded against the backdrop of issues in four of the emirate’s key source markets; the scrapping of high-value notes in India; slower economic growth in Saudi Arabia caused by low oil revenues; the uncertainty surrounding the Brexit referendum; and finally, the strong dollar, which has resulted in a bullish US economic outlook,” she asserts.

While tourists stayed a slightly shorter time (3.6 nights against 3.7 nights in 2015), which is perhaps a reflection of lower tourist spending power, Dhugga expects this to reverse.

“As the city capitalises on the recently opened theme park offerings, there will be an increasing appeal for visiting families,” she says. “Dubai has also devoted 17% of government spending for 2017 towards improving transport infrastructure, expanding the gateway and making it easier to access all areas of the emirate efficiently.”

One company that has witnessed Dubai’s astronomic rise for many years is Hilton and Rudi Jagersbacher, president, Hilton Middle East & Africa tells Hotelier that 2016 “has been a year of continued, organic growth for Hilton” in the emirate. “We now have over 8,000 rooms currently trading or in our pipeline and have taken major strides into the mid-market segment with the introduction of three Hilton Garden Inn hotels as the segment continues to exhibit strong growth potential,” he explains.

Looking ahead, Hilton guests can continue to expect exciting new additions, with DoubleTree by Hilton Business Bay set to open later this year. 

Trends in a trendy city

Both external and internal changes have brought about new trends across the emirate. Leisure tourism is on the rise and hotels and serviced apartments have experienced a steep increase in leisure guests in the last few years, according to Sona.

“With the opening of the Dubai Parks and Resorts, IMG World of Adventures and some upcoming developments such as Bluewaters, this trend is expected to continue and hospitality establishments will have to cater to the needs and preferences of this important segment,” he adds.

Dubai is becoming increasingly family friendly and the mid-market segment will be required to cater to the more price-sensitive demand, Dhugga says.

“Another emerging trend, and certainly a very positive and welcome one, is the strong demand from the Chinese market, especially after the removal of visa restrictions for Chinese customers travelling to Dubai,” she continues. “The emirate is also witnessing a surge in Russian tourists thanks to a recovery in the value of the Russian rouble.”

Jagersbacher agrees, but adds that while the growth of mid-market has been a recent ‘hot topic’ of the hospitality industry, “we expect a continued increase in the number of guests seeking mid-market hotel options this year”.

Hilton now has six Hilton Garden Inn properties and will launch Hampton by Hilton in the region in 2018 with the opening of Hampton by Hilton Dubai Al Qusais, the brand’s largest property under development in the world.

He adds: “Our mid-market pipeline in the Middle East & Africa now includes more than 35 hotels under either our Hilton Garden Inn or Hampton by Hilton brands. In addition, Turkey represents a major opportunity for us with 14 mid-market properties in the pipeline.”

TRI’s Hewett says the company has seen, from a development perspective, investors “shift away from the traditional hotel operators towards more unique and immersive styles of brands and management”.

“Dubai is reaching a saturation point with mainstay hotel brands and as the market matures and owners increase their knowledge and understanding of the industry, this emergence will continue and Dubai will witness an increasing number of truly unique hotels providing individualised hospitality,” he explains.

Aside from new trends, there have also been a wealth of new operators in Dubai, Dhugga flagging Bulgari, Langham, Paramount, Viceroy and “of course, Dukes Dubai”.

“The region’s fundamentals are strong, making it an attractive investment destination and the Dubai Government provides great confidence as it continues to invest in infrastructure and tourism,” she explains. “Landmark projects such as Dubai Safari Park, Dubai Creek, the Dubai Eye and the 20 million square foot Dubai Harbour project, will also help drive tourism numbers.”

Dubai has crossed the 100,000 keys mark and joined a select group of cities (globally) with this kind of a supply, so it is natural that most hotel operators and brands want to have their presence in the city, Sona says.

“Furthermore, as developers continue to increase the hotel stock and raise the bar with unique concepts and hospitality offerings, there is natural shift to new, differentiated and innovative labels and brands, for example, Nikki Beach, Bulgari Hotels, Lapita (Dubai Parks), Langham Hotels and home-grown brands like Rove Hotels,” he adds.

Another year, familiar and fresh challenges

It is a story known throughout the world though. Where there is money to be made, there is a subsequent increase in competition. The major challenges the hospitality sector faces in Dubai is the continuous increase in the supply of rooms as hotels compete to obtain fair market share growth, Dhugga iterates.

“Dubai has already set itself the target of 160,000 hotel keys by 2020 and these must be absorbed into what is already an incredibly competitive market place,” she says.

For Hewett, the number one challenge for the market in 2017 will be responding to the expected further decline in average rates whilst maintaining quality service levels and profitability for owners.

“It will require hoteliers to be creative in how they respond to the wider change in the market and adapt their business plans and strategies to preserve market share and limit the decline in revenues and profits,” he asserts.

And it is Sona who explains that as the market consolidates and absorbs the new influx of supply, the “reduced levels of RevPAR will be challenging for hotel operators and owners to manage”.

This presents, he says, an opportunity for asset management services to focus on increasing efficiency and bottom-line for the owners. He says: “In line with this expected trend, our hotel asset management business has grown twofold in the last couple of years.”

Sona says that development activity is expected to continue as Dubai “races towards its aims to achieve 160,000 keys by 2020”. “This coupled with the slowdown in corporate tourism in the region (due to oil prices) and slowdown in certain key source markets such as Russia, will put additional pressure on ADRs,” he continues.

“As a result, Colliers expects a 2% to 3% drop in RevPARs across the market; however, for some leisure districts such as Palm Jumeirah, Colliers expects a 5% increase in ADR and 2% increase in RevPAR in 2017.”

And there is optimism, as Hewett demonstrates when he says: “I anticipate that 2017 will have similar challenges in 2016, however, I believe that hoteliers will be better prepared to respond to these challenges.”

“The slow shift towards a mass tourism market will strengthen, particularly with the entry of quality mid-scale hotels which are expected throughout the year,” he explains. “This will place pressure on rates performance, however with the announcement of new policies which includes the provision for Russian visitors to receive visas on arrival, we are expecting to see tourist growth to continue, maintaining strong occupancy level throughout the market.”

According to Jagersbacher, with the region benefitting from proximity and ease of access to rapidly emerging markets in Asia and Africa, “hospitality companies which demonstrate a clear vision in terms of leadership, an ability to operate innovatively and efficiently under strong, distinct brands — will continue to attract developers, employees and guests in 2017 and beyond”.

Dhugga believes that relaxed visa regulations for travellers from China and Russia will drive demand from these two important markets. “The addition of attractions to Dubai’s already burgeoning tourist offering is expected to drive large numbers to the emirate,” she continues. “However, new supply continues to come onto the market, with 46,979 keys in the pipeline according to STR. This gives tourists greater choice and may force hotels to reduce their ADR or explore ways of adding value to their existing offers.”

The Knight Frank report on the Dubai and Abu Dhabi hotel supply says the short-term outlook for the hospitality market “remains clouded by the continued appreciation of the US$ and prevalent economic uncertainties”. However, the delivery of Dubai’s theme park complex along with the Opera District and other demand generators is expected to drive demand for Dubai’s hospitality market in the next 12 months. The report continues that, looking ahead and amid a strong supply pipeline, “hotel operators need to diversify their products to offer more budget accommodation to cater for diverse travellers”.

And His Excellency Almarri urges that collaboration with industry partners and key government stakeholders is integral for sustained growth.

“By consistently outpacing the global forecast for visitors, we remain extremely confident about the future outlook for Dubai, especially considering the global headwinds we have faced in last year, as we remain in the top four most visited cities in the world,” HE Almarri continues.

“The solid foundations that we have put in place through diversification of markets, a broadening portfolio of attractions and facilities and a collaborative approach between the hotel and hospitality sectors and the retail community, as well as the collective contribution of government, public and private enterprises will allow us to accelerate the pace of growth in 2017 and well into the future.”

Dubai Tourism is confident, are you?