Dubai hotel rates may not see recovery until 2012

CBRE Hotels' Julian Kemp: Dubai hotels are unlikely to achieve rates experienced before the current downturn.

Dubai hotels may not experience rate improvement until the end of 2011 and beginning of 2012, according to recent analysis from CBRE Hotels EMEA.

The Dubai hotel sector will be slow in following the global trend for recovery, generally expected in 2011, because of the reliance upon leisure visitors, said CBRE Hotels EMEA associate director Julian Kemp.

“The general consensus is that room rates will not start to improve until 2011. It is fair to say that some markets will improve before this time but as a global perspective recovery will not be seen until 2011,” said Kemp.

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“Rate improvement generally follows a recovery in demand levels. With positive outlooks in respect of economic performance, it is expected that corporate demand will improve towards the latter part of 2010. As demand increases it allows hotels to start increasing negotiated rates. Leisure travel may take longer to improve and therefore leisure sector rates may remain depressed,” he continued.

“Dubai and UAE hotels are likely to follow a similar trend and as such hotels may experience an improvement in rate in 2011. However, with a large proportion of demand for Dubai hotel rooms generated from the leisure sector, rate improvement may take longer toward the end of 2011 and beginning of 2012,” asserted Kemp.

In addition, he said it would be “unlikely” that Dubai hotels would be able to charge room rates at levels achieved before the economic downturn that started in 2008.

Back in 2007, Dubai achieved the highest global average daily rate (ADR) worldwide according to STR Global, bringing in US $308.51 on average per room above the US $275.04 achieved in New York, the second highest performer.

“However, hotels within the deluxe market have in the current economic environment tended to suffer the most, with hotels having to offer significant discount to either generate or maintain demand levels,” said Kemp.

In Dubai in 2009, ADR decreased by 23.7% to US $235.48 compared to 2008 and on a global scale, Hong Kong experienced a decrease of 37.8% in ADR, which was the highest across a selection of key global cities.

“Dubai’s decrease is compounded by the continuing increase in supply of five-star rooms within the emirate,” said Kemp. “Together with declining occupancy levels due to the economic crisis there is a requirement by hoteliers to discount rates to secure demand.”

As a result, “recovery takes several years and may not get back to rates achieved previously,” said Kemp.

He concluded: “In our opinion it is unlikely that Dubai hotels will be able to achieve rates experienced pre the current downturn. This will be compounded by the future pipeline in Dubai and the ability of people to negotiate better rates on both a corporate and leisure basis".