I recently attended the Great General Managers Debate at the Jumeirah Beach Hotel in Dubai which attracted over 180 hotel managers from across the Gulf Cooperative Council (GCC). Given that the focus of the debate was on the hotel and resort market in Abu Dhabi and Dubai, I had the opportunity to canvas opinions on how each market is performing.

Most hotel managers agree that the Abu Dhabi hotel market has experienced a dramatic shift in performance in recent years. The substantial growth in hotel room supply and a notable slowdown in traditional growth sectors such as financial services, real estate and tourism in 2009 and 2010 caused performance levels to drop significantly during these years. Despite the tough conditions, the city saw some green shoots of recovery in 2011/12 owing to the growth in tourist arrivals, mainly from Mena and Asian countries.

Despite the growth in overall tourism activity, hotel performance in Abu Dhabi has remained subdued in the first eight months of 2012. TRI’s HotStats Survey indicates that rooms occupancy for the four and five-star chain hotels in Abu Dhabi increased by 1.5 percentage points compared to the same period last year, while average room rate declined by 15.1 per cent during the period. The combined effect of these changes resulted in a 13.1 per cent drop in RevPAR (revenue per available room) to $91.68 (Dh336.7).

The influx of supply over the last three-four years appears to have caused a temporary oversupply in the market, mainly in the five-star segment. Total rooms supply has jumped from roughly 13,000 in 2008 to about 22,000 in the first half of 2012, according to government estimates. The upscale hotels’ decision to cut rates in response to the growing competition to shore up occupancies has caused a ripple effect across the market as other segments followed suit to maintain market share, affecting room rates across the market.

Interestingly, the Abu Dhabi Tourism Authority is implementing a demand diversification plan for the tourism sector in Abu Dhabi as part of the larger Plan Abu Dhabi 2030, which focused on the development of MICE (meetings, incentives, conferences and exhibitions) and leisure-related infrastructure in the emirate. Key development projects on Yas and Saadiyat Islands, such as the Yas Waterpark and the Louvre and Guggenheim Museums, are seen as a positive step forward as they will increase leisure-related demand. These attractions will develop Abu Dhabi as an all-inclusive destination providing greater stability in the future as it diversifies demand away from the traditional markets such as corporate and government demand. However, in our opinion, material improvements in occupancy are not likely to occur until 2014/15.

Dubai — a success story

Conversely, hoteliers agree that the Dubai hotel market is without doubt the region’s success story when it comes to developing a true all-encompassing destination, with the city attracting demand from a wide range of segments, including leisure, corporate and MICE travellers. The leisure market remains the dominant sector, contributing over 40 per cent of the total room nights. However, business demand is increasing due to the improvement in business sentiment in the region. Dubai has also become the preferred MICE destination in the region, hosting large international and regional events, including Arab Health, World Economic Forum and Dubai Airshow. These events attract upwards of 80,000 attendees over a period of two or three days.

Furthermore, the Arab Spring has been a major factor in the rebound of hotel performance in 2011-2012 as traditional leisure destinations in the Levant and Egypt faced political and social unrest during this period, forcing tourists to opt for safe destinations like Dubai. Demand from GCC nationals has been at the forefront of this shift in demand, with the city experiencing a dramatic influx of regional tourists during the summer months and traditional holiday periods.

These factors have resulted in hotels in Dubai reaching record levels of occupancy and RevPAR, with April witnessing the highest RevPAR level in three years. Hotels have recorded a year-to-date occupancy of 80 per cent, with an average rate of $280.58 which is 0.9 percentage point and 8.4 per cent higher than the same period last year.

Growth in hotel rooms supply, on the other hand, appears to have slowed down during the year mainly as an after-effect of the widespread construction delays over the last two to three years following the credit crisis. However, the recent recovery in Dubai’s tourism and hotel demand and a renewed confidence in its real estate and other growth sectors appear to be encouraging developers to restart planned or stalled developments, including some landmark tourism and hospitality projects in Dubailand, Palm Jumeirah and Business Bay.

Some of the major openings in 2011 included the Ritz-Carlton DIFC, Jumeirah Zabeel Saray and Millennium Plaza on Shaikh Zayed Road. Looking forward, Dubai is expected to witness an increase in hotel openings in 2012, including some high profile projects such as JW Marriott Marquis, touted to be the world’s tallest dedicated hotel when opened, and the Palazzo Versace Hotel in Al Jadaf.

In summary, the outlook for hotels in Dubai into 2013 appears to be buoyant, albeit with a relatively stable or marginally reduced occupancy levels due to the anticipated increase in supply. Conversely, hotels in Abu Dhabi are likely to experience continued challenges to maintain occupancy and average rates over the coming 12 months.

The writer is the founding partner and general manager of TRI Hospitality Consulting, a consultancy specialising in hotel, tourism and the leisure industry.