Hotelier Investor met Roya International chief executive  Ahmed Ramdan to discuss the new mindset needed in Middle East hotel operations and why it is the right time to invest

How do you see the market at the moment in the UAE?

Dubai has always been like a capital for the Gulf. When Dubai was going up it brought the rest of the Gulf with it and now it is going down it is taking the rest with it. Some people might not like [to think] that, but they have to accept it as a reality.

Right now there are four or five reasons why the tourism business and hotel occupancies are where they are.

One of them is obviously the global crunch, particularly in the Western world. Number two is currency issues; all of a sudden pounds and Euros are weaker so Dubai has become 30% more expensive.

Thirdly, the neighbourhood [of surrounding countries] is waking up and copying Dubai. And the fourth reason is that we have had a large amount of inventory coming into the market in the past 18 months.

These four reasons coming together at the same time have definitely created this issue.

Funnily enough, until recently the most affected occupancy in Dubai has been in the five-star market. Slowly it is eroding into the four-star territory in downtown Deira and downtown Bur Dubai where there are a large number of three-star and four-star properties. They are not quite losing their occupancy yet.

On the positive note, we are so spoiled [in Dubai]. For the past four years we have been growing on the back of a fantastic economy and now maybe we are dipping back towards the global average. We are so spoilt that everyone is panicking — but it is honestly not that bad.

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[In the future] I think we will go further down for a few reasons.
 
"One of them is that more supply will come into the market. There are some developments that are about to finish and some due in the next couple of months and these will put downward pressure [on occupancy].

And again our neighbours [in surrounding countries and destinations] are aggressively marketing themselves.

We also have a reputation as a very expensive destination, which is not sustainable when we are charging people so much for a bottle of water or a room or a meal.

Do you see performance tapering off, or will it be a sharp drop in business?

I don’t think there will be a sharp drop, because you have to remember that Dubai is one of the most advanced destinations in terms of infrastructure in the region.

We have an airport that is ready, roads that are ready, a train system that is nearly underway and a great reputation globally.
 
We [as hoteliers] and the government need to accept that it is time to bring [Dubai’s] prices back to reality. Right now there are destinations like Singapore that are aggressively marketing their features and they are undercutting us quite seriously.

So I don’t see it having a large crash, but it will continue to decline until the summer and there will be a decline then as well.

I think we will have some feeling by June or July [for future trends], but after that comes summer and then Ramadan, so business will continue to decline. I think it will be tough throughout the year in 2009.

A lot of people  appear to be waiting it out to see what happens in the first half or first quarter of this year.

In terms of developing hotels, of those that are at the planning and design stage a big portion of them have put their plans on hold.

In our company we have sadly seen several of our projects grind to a halt.