Hospitality competition benefits the tourist

Visitors to the UAE are often faced with the decision of which emirate to visit and whether they should spend more time in Abu Dhabi or Dubai. A similar dilemma is faced by institutional investors in the UAE's hospitality sector when it comes to making a choice between the two emirates.

The decision is based on their individual risk-return expectations, industry performance and demand-supply forecasts. For visitors, while the choice depends on issues such as connecting flights from port of origin, purpose of travel and personal preferences, it has always been easier to choose Dubai over Abu Dhabi, due to the fact that the former is well regarded as a more established tourist destination.

In spite of this, 2008 and 2009 were particularly tough for Dubai's hospitality sector with Abu Dhabi performing much better with regards to occupancies, room rates and revenues per available room (RevPAR's). According to STR Global's report, Dubai's occupancy rate was 77 per cent in 2008 and Abu Dhabi's was reported at 81 per cent.

The year 2009 saw depressed occupancy rates across the region with Abu Dhabi's occupancy rate at a low of 71 per cent and Dubai's falling by over 10 per cent to reach 69 per cent.

Performing better than Dubai was positive for Abu Dhabi's tourism sector since the emirate had been growing the infrastructure required for MICE and business visitors and promoting its beaches, deserts, archeological sites and museums.

The focused approach to establish the Abu Dhabi brand globally had started bearing fruit with both leisure and business tourists beginning to come looking for a unique experience.

However, Dubai seems to have bounced back over the last two years, with year-to-April 2010 and year-to-April 2011 occupancies at 77 and 81 per cent compared to Abu Dhabi's which has continued its decline, touching 58 and 69 per cent for the same period.

Having looked at the two markets' historical performance, it is important to understand what the future holds as well. Both Dubai and Abu Dhabi initially had ambitious targets with regards to visitor arrivals; with Dubai targeting guest numbers to rise from seven million in 2007 to 15 million by 2015 and Abu Dhabi targeting guest numbers to rise from 1.5 million in 2007 to three million by 2015.

While these targets have probably been altered, our forecasts illustrate that in 2012, Dubai is likely to host close to nine million guests, while Abu Dhabi will reach almost two million guests. Looking at upcoming stock, hotel room supply is estimated to rise by 25 per cent in Dubai between 2011 and 2013, resulting in a decline in occupancies, though only marginally.

However, Abu Dhabi's room supply is forecast to rise by a whopping 160 per cent during the same period which will put extensive downward pressure on occupancies and room rates.

As such, the hospitality sectors of both the emirates have their own strength and weaknesses and going forward the competition is expected to only get fiercer with both trying to lure both business and leisure guests with different types of offerings. The winner in the end is expected to be the visitor to the UAE who will have more accommodation choices, more freebies and more activities to do and more places to visit.

The writer is the head of valuations and research at Chesterton International.