The UAE is not far behind in terms of hotel investment. Dmg Events Middle East reports that the total value of active hospitality projects in the UAE reached AED262.7 billion ($71.6 billion) at the beginning of September.
But it’s not just the luxury hotel market that is booming. The mid-market segment has seen an exponential rise in the region and it continues to be identified as offering significant opportunities for owners and operators alike.
There are 40,231 rooms in the luxury segment in the Middle East and 60,909 in the upper upscale chain, compared to 17,914 rooms in upper midscale chains and 15,991 rooms in midscale chains, as of January 2017. There are 12,571 rooms under construction in the luxury chain segment and 2,897 rooms under construction in the midscale chains.
STR managing director Robin Rossmann at AHIC 2017 provided insight into mid-scale hotels’ pipeline and performance in the GCC, revealing that mid-market supply is set to match luxury by 2021. And major hoteliers in the region agree with his assessment. According to Rossmann, the mid-scale has out-performed the ‘upscale & upper md classes’ and ‘luxury & upper upscale classes’ since 2011 across the GCC.
“Testament to the potential for the mid-market in the Middle East is the launch of US-based hotelier Choice Hotels International in the UAE and Saudi Arabia, with a pipeline of seven signed hotels already and many more to come,” STR board director and AHIC co-founder Jonathan Worsley added.
IHG CEO India, Middle East and Africa, Pascal Gauvin, declared that while there will always be a need for luxury hotels in the region, the company was currently focused on the mid-market segment “in order to fill the gaps in the market”.
“It is clear that in the luxury segment, the capital costs are high and the ROI is not necessarily high and/or immediate. The mid-market segment on the other hand has lower capital expenditure and does provide high return on investment in a shorter span of time. Given that there is a lack of quality mid-scale hotels in the market, the returns can be delivered in a shorter period,” Gauvin said.
Mid-scale hotel brand Park Inn by Radisson debuted in the city of Makkah in Saudi Arabia with the opening in Makkah Al Naseem earlier this year. Mark Willis, area senior vice president, Middle East, Turkey & Africa for the Carlson Rezidor Hotel Group, and one of Hotelier Middle East’s Top 50 hoteliers, said in a statement, “This is a significant hotel addition not just for the Park Inn by Radisson brand but for the Carlson Rezidor Hotel Group, as we now begin to see our strong development pipeline across Saudi Arabia materialise, with multiple hotel openings coming to fruition in the next 18 months.”
The group also recently announced plans to open the world’s largest Radisson Blu and Park Inn by Radisson hotels in Makkah. The operator remains on track to achieve its target to operate 100 hotels across the Middle East by 2020.
However, with the implementation of VAT on January 1, 2018, it’s yet to be seen if its implementation will affect hotel investment decisions in the region. A question Hotelier Middle East asked to a pool of 30 members of the AHIC advisory board this year was whether the implementation of VAT from 2018 will affect hotel investment decisions — 47% said it would, while 20% were not sure yet. One-third said it would not.
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