Business | Tourism

Hotel industry in Dubai picks up pace amid demand

Emirate remains top destination for key events; High demand for rooms will lead to rate increase of 5-10% in 2012

  • By Shweta Jain, Senior Reporter
  • Published: 00:00 February 26, 2012
  • Gulf News

Occupancies across Dubai hotels are starting to skyrocket and are expected to continue the trend
  • Image Credit: Gulf News Archives
  • Occupancies across Dubai hotels are starting to skyrocket and are expected to continue the trend during the course of the year, largely driven by the Arab Spring and opening of new tourism markets.

Dubai: The boom days are back for Dubai hotels, a majority of which are running at occupancy levels comparable to 2008, and this is likely to continue, according to Peter Goddard, Managing Director of TRI Hospitality Consulting.

"The upper four-star, five-star and luxury hotels are likely to witness a 5-10 per cent increase in average daily rates (ADRs) in 2012, with rates at the mid-market hotels remaining static," Goddard said.

Global consulting firm Ernst & Young (E&Y) also expects ADR growth to hover around the five per cent mark for the year.

"Dubai is witnessing a growth in leisure demand. The political instability in some markets across the region such as Egypt and Syria has forced an upward growth in leisure demand in Dubai," says Yousuf Wahbah, Mena head of Transaction Real Estate at E&Y.

Full occupancy

Typically, it is the MICE (meetings, incentives, conferences, and exhibitions) market that pushes room rates up in the city's hotels, as it works for most hotels around the world.

For instance, the hotels enjoyed almost full occupancy last week during Gulfood 2012 and seemed to offer rooms at almost double their normal rates. The next such wave is likely to be witnessed during yet another industry event, the Arabian Travel Market (ATM) in May.

The Dubai World Trade Centre is expected to host 115 conferences and exhibitions in 2012, 15 per cent more than in the previous year, according to the Department of Tourism and Commerce Marketing (DTCM).

"This will lead to increased demand for hotel rooms," said Eyad Abdul Rahman, DTCM Executive Director of Media Relations and Business Development.

"Dubai does an incredible job to remain a top destination through annual events like Dubai Shopping Festival (DSF), the expansion of Emirates airline into new markets, and hosting world class sporting events and major exhibitions like Gulfood and Arabian Travel Market," said Avsar Koc, Regional Director of Sales-Middle East and Africa, for Kempinski Hotels.

Hotels back on track

A budget hotel room in Dubai going for around Dh800 a night would have sounded perfectly normal in 2008 before the recession checked in. The hoteliers saw room rates reduced to a naught ever since, until recently. But, 2012 is likely to see room rates and occupancies for Dubai hotels on an upward swing once again.

Market experts indicate room rates could see an approximate climb of 5-10 per cent this year over current levels as demand starts to soar. As a direct upshot, occupancies across thea city's hotels are also starting to skyrocket and are expected to continue the trend during the course of the year, largely driven by the Arab Spring and opening of new tourism markets.

"A majority of hotels are running at occupancy levels comparable to 2008 albeit at lower average daily rates," Peter Goddard, managing director of TRI Hospitality Consulting, told Gulf News. He added that upper four-star, five-star and luxury hotels are likely to witness a "5-10 per cent increase" in average daily rates (ADRs), with rates by the mid-market hotels remaining "static".

Goddard pointed out that room rates along Shaikh Zayed Road have certainly increased while areas in Al Barsha and Bur Dubai are very competitive and have seen limited rate growth. "Dubai has benefited from the Arab Spring and its perception of being safe and conducive with both family and business guests," he said.

It's however, important to note that typically, it's the Mice (meetings, incentives, conferences, and exhibitions) market that pushes room rates up, as it works for most hotels around the world.

Occupancy on the rise

Hotels ran almost full occupancies last week during Gulfood 2012 and seemed to offer rooms at almost double their normal rates.

The Ibis Al Barsha — a budget hotel, for example, which is normally priced at average Dh250, offered rooms for over Dh450 last week, according to the hotel's website. Likewise, Holiday Inn Express Dubai-Safa Park's rates on its website showed average nightly rate of around Dh800 (including taxes) and upwards, almost double its usual rate of approximately Dh400.

"Dubai does an incredible job to remain a top destination through annual events like Dubai Shopping Festival (DSF), the expansion of Emirates airline into new markets, and hosting world class sporting events and major exhibitions like Gulfood and Arabian Travel Market (ATM)," Kempinski's Koc said. "Additionally, unrest in the region has helped lure holidaymakers, who might normally have gone to Egypt or North Africa."

The Dubai World Trade Centre, meanwhile, is expected to host 115 conferences and exhibitions in 2012, 15 per cent more than the previous year, according to the Department of Tourism and Commerce Marketing (DTCM). "This will lead to increased demand for hotel rooms," Eyad Abdul Rahman, executive director, Media Relations and Business Development, DTCM, said.

"Another segment of growth is cruise tourism. There will be more than 400,000 cruise tourists coming this year," he added.

Events push

According to Marriott's Strachan, there have been quite a few events falling one on top of the other such as Saudi Arabia school holidays, Chinese New Year, the large number of cruise ships, DSF and the general drivers of commerce.

Market experts second their view. "Many factors are benefiting the tourism market, including the expansion of Dubai International Airport, Emirates increasing its routes, the quality hospitality offerings and the growth of Mice demand," E&Y's Wahbah said.

There are 386 hotels boasting 53,999 rooms at present, according to DTCM, in addition to 190 hotel apartments comprising 21,400 flats.

The hotels sector also experienced a 19 per cent increase in revenues during January-September 2011, which stood at Dh10.9 billion, according to DTCM. "We strongly believe that the RevPAR will continue the same trend in Dubai in 2012 despite new properties coming online, which might put pressure on the growth rate," Abdul Rahman said.

According to the TRI Hospitality database, 12 new properties (3/4/5 star hotels) with roughly 3,600 keys opened last year. And the consulting firm estimates "18 new properties" scheduled to open in 2012 with around 6,600 keys. "Dubai has many new hotels which will open in 2012/2013 and this will affect area wide occupancy," TRI's Goddard said.

Added HVS' Choufany: "We forecast occupancies to remain strong in 2012 despite some additional hotel openings which are likely to be absorbed well into the market."

Global consulting firm Ernst & Young (E&Y) too expects limited ADR growth to hover around the five per cent mark for 2012. "Dubai is witnessing a growth in leisure demand. The political instability in some markets across the region such as Egypt and Syria has forced an upward growth in leisure demand in Dubai," Yousuf Wahbah, Mena [Middle East and North Africa] head of Transaction Real Estate at E&Y, said.

According to HVS Global Hospitality Services' Dubai managing director Hala Mattar Choufany, it is supply and demand dynamics triggering rate movements in the city's hotels. "We expect a marginal growth in room rates, if any. While occupancy has grown substantially, there has been a marginal rate growth," she said, adding cautiously that rates are "not likely to grow much further" in the next two to three years. "That's due to the additional supply that is coming into the market," she said.

According to the STR Global analysis, the Middle East reported a 6.8 per cent decrease in occupancy in 2011, to 57.1 per cent besides a 5.3 per cent increase in average daily rate to $162.81 (Dh597.79) and a 1.8 per cent decrease in revenue per available room (RevPAR) to $92.99.

Mounting tariffs

Meanwhile, hotels across segments in Dubai have seen a sharp increase in room rates as demand rises, raising occupancies further, leaving visitors hunting for a hotel room.

Kempinski Hotels, for instance, has seen average rates go up since October 2011 for its two properties — the Kempinski Hotel Mall of the Emirates and Kempinski Hotel & Residences Palm Jumeirah, according to the company's regional director of sales — Middle East and Africa, Avsar Koc. "And the trend continues," he said, adding that both hotels currently see occupancy percentages in the "high 80s", with some weekends completely sold out.

Jeff Strachan, Marriott International's VP sales and marketing, for Middle East and Africa Continent, seems to agree when he said that hotel average rates are "creeping up". "The hotel business is by nature one of supply and demand. It is important to consider though that there has been unusually high compression. Average rate increases in January touched double digit growth year on year," he said, adding that occupancy levels at Marriott have been "creeping upwards since mid-2011" reflecting the high 90's the city is seeing.

Similarly, hotels in the mid-scale category are experiencing spiralling room rates at present. Arabian Courtyard Hotel & Spa, for instance, recently witnessed an increase of "15-20 per cent" in its average room rate, while clocking steep occupancies of over 90 per cent.

"It's a very basic principle of supply and demand. When the demand is high, it's very natural that the price will rise. Dubai had been selling at below par to its compatible cities like Singapore and Hong Kong in the last couple of years. But recently we have witnessed an increase," Habib Khan, the hotel's general manager said.

Ramada Downtown Dubai, on the other hand, has mostly seen "stable" room rates for the past three months, with marginal increases occasionally, according to Wael Al Behi, the executive assistant manager. "Due to the political instability in the Mena region, many tour operators, business travellers and investors have shifted their business and started to focus on Dubai and the UAE as a safe and stable destination," he said, adding that the high demand helped the hotel capitalise on key periods.

Meanwhile, occupancies at Ramada Downtown Dubai have a constantly increasing as the hotel achieved 85 per cent occupancy in November 2011, going up to 88 per cent in December, 95 per cent in January, and so far 94 per cent in February, according to Al Behi. "March and April look very promising as well," he said.

Similarly, Emirates Grand Hotel on Shaikh Zayed Road has seen a surge in occupancy. "It's true that we have seen an increase in occupancy level in the Dubai hotels. We have recorded high occupancy rate especially during the last quarter of the year, reaching occupancy to as much as 85 per cent," Frank Owens, the hotel's group general manager and business development director, said. He added that the hotel has booked over 10,000 room nights in February alone.

However, not everyone expects occupancies to grow rapidly in 2012. As TRI's Goddard put it: "I do not anticipate occupancies to increase in 2012, they will either maintain their levels or drop marginally."

Gulf News
Retail Gold Rate
Business Editor's choice
Quick Access

  1. Markets

  2. Economy

  3. Property

  4. Aviation

Business Top Stories

  1. Kuwait's Khorafis win $200m suit in Dubai

  2. Xbox One: more than a games console

  3. MediaTek gearing up to take on rivals

  4. Mobility leads the way in Middle East healthcare

  5. Watch: Making of the Emirates Airbus A380