Starwood plans to add 25 hotels

Dubai: Starwood Hotels, international owner and operator of brands such as Sheraton and Le Meridien, plans to expand in the Middle East with 25 new hotels in the pipeline representing 50 per cent growth by 2015, a spokesman said yesterday.

"With more than 70 per cent of the world's growth over the decade coming from fast-growing markets such as the Middle East, the region plays a central role in our global expansion and development strategy," said Frits van Paasschen, President and CEO of Starwood Hotels and Resorts, in a statement.

Starwood would add 10 new hotels in the UAE over the next few years to the 20 they currently operated here, making the UAE home to the largest number of their hotels in the region, he said.

Upcoming projects include a new Sheraton Sharjah due to open in 2013, their first venture into the emirate.

In the first six months of 2010, tourism to Dubai increased by six per cent compared to the same period last year - enough to justify the extra hotel rooms, said Eyad Abdulrahman, executive director of media relations and business development with Dubai Tourism and Commerce Marketing.

“When Starwood builds properties in the next three years, it’s looking at the long-term when Dubai makes a come back,” he said.

The main challenges ahead were to secure fin-ance for these projects, and an oversupply in the Dubai market, analysts said.

Starwood only has a management contract for most of the hotels but they were owned by third-party investors who raised the capital for projects, analysts said.

Securing finance for luxury hotels was a "significant problem" as banks were just beginning to reconsider funding projects that were halted during the crisis, said Peter Goddard, Managing Director of TRI Consultancy.

Opened the taps

"They haven't opened the taps and I don't see that changing this year," he said.

"If the hotel owners can't get the finance for the projects, Starwood may not open as many hotels as it planned. It's easy to get a management contract, it's more difficult to build the hotels."

The big question is whether the UAE market can absorb new hotels when the local luxury hotel market faced oversupply, said Guy Wilkinson, General Manager of Viability.

"I don't see demand improving significantly in the short or medium term. All new properties are going to face difficult opening years.

"They will take longer to reach the point of stabilisation or cruise speed," said Goddard.

"We will see softening room rates and a more competitive market."

Occupancy

With its 500 hotels and service departments, Dubai experienced a drop in occupancy from 90 per cent in during the boom years to 65 per cent last year and reduced room rates, Wilkinson said.

He added that the reduction was acceptable as hotels continued to open along the beaches.

Assuming Dubai continued to expand, there would be enough occupancy, he said.

With Emirates and Etihad Airways continuing to buy aircraft and expand their networks and as Dubai focused on its core strengths of trading and logistics, the emirate would attract guests and need a continuing supply of new hotels, Wilkinson said.

"There may be a danger of undersupply because Dubai is so successful with PR and bringing people in," he said, noting that Dubai would recover in the medium term to "buoyant" levels.

Reduction in corporate travel spending in the next few years as companies trimmed budgets, would also hit the new luxury properties rather than three or four-star hotels, said Goddard.

If they became less profitable, investors would be less inclined to invest in new luxury hotels, he added.

Starwood was also planning to expand in the Muscat with the Westin, Element, and W opening in 2013 and adding 700 rooms to the capital.

Leisure tourism

"Oman has made leisure tourism one of its key contributors to economic diversification driven by its dwindling oil reserves," said Harmen de Jong, a consultant with PKF.

Muscat is seeing a shift in the balance of power in hotel chains as Starwood is "encroaching on the territory" of the Inter-Continental which was the dominant luxury hotel chain, said Wilkinson.

Some of these were being demolished to make way for the three new hotels, he said.

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