Hospitality market in GCC expected to grow 8.1%

Abu Dhabi: The GCC’s hospitality market is expected to grow at an annual rate of 8.1 per cent to $28.3 billion by 2016 compared to $19.2 billion in 2011, according to Alpen Capital’s industry report published on Sunday on the hospitality sector in the GCC.

The report focuses on key performance indicators of the GCC region’s hospitality industry such as the number of hotel rooms, average daily rate (ADR), occupancy rates, RevPAR, growth rates, and the industry’s outlook over the next five years.

According to the report, occupancy rates are expected to average around 67–73 per cent between 2012 and 2016. ADR is likely to average around $212–$247 between 2012 and 2016, it said.

It is difficult to look at the GCC region as a whole when referring to the hospitality industry “as each market has its own idiosyncrasies,” said Christopher Hewett, consultant with TRI Hospitality Consulting. “We would look at each country and evaluate a cross section of variables,” he said.

As for the UAE, which is strongly marketing itself as a world tourist destination, the hospitality sector is expected to grow at a CAGR (compounded annual growth rate) of 10.4 per cent over 2011-2016, which would be due to strong tourist inflows and steadily strengthening operating metrics, the report said.

Tourist arrivals in the UAE is likely to grow at a CAGR of 5.3 per cent between 2012 and 2022. Hotel supply in the UAE is expected to increase at a CAGR of 5.3 per cent from 96,992 hotel rooms in Dubai and Abu Dhabi to 125,383 in 2016. There are currently 93 properties in the planning and construction phase in the UAE.

Hewett told Gulf News that the projects for future room supply is in line with their data. “We believe that the increase in rooms, particularly in Abu Dhabi, will put continued pressure on a market which is currently facing challenges from increased supply,” he said. “Dubai hotels have witnessed an increase in performance in 2012 as the city benefits from an increase in leisure tourism as a result of the ongoing unrest in the Levant region. In addition, Dubai has witnessed an improvement in business sentiment which has resulted in stronger demand from the corporate segment.”

Occupancy rates are expected to grow from 71 per cent in 2011 to 75.1 per cent in 2016 as the tourist arrivals growth momentum picks up. As business travel in the country continues an uptrend, leisure demand for the upscale segment grows. ADR is expected to increase at a CAGR of 3.7 per cent from $183.5 in 2011 to $220 by 2016.

As hotel room supply in the region is expected to grow with the rise in demand, oversupply of hotel rooms could be a challenge for the market going forward. It could affect the performance of the industry by reducing occupancy rates and by putting pressure on ADRs.

“Although the market will witness an increase in supply in late 2012 and early 2013, particularly around Shaikh Zayed Road, we feel the hotels will be able to achieve solid performance levels albeit with marginally lower occupancies and average daily rates,” he said.

“Abu Dhabi hotels will continue to experience challenges from an increase in supply and limited demand generators over the next two to three [years]. The current development of leisure infrastructure, notably on Saadiyat with the Cultural District, is a positive step in strengthening leisure tourism. However, in the meantime, hotels will need to ensure that they do not fall into a looming rate war with new entrants, and look at providing value for money for new and existing guests.”