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Why are UAE hotels taking the mid-market route?

For some hospitality players, a midmarket strategy isn’t just about being affordable

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A recently opened property in Healthcare City is Rove’s third hotel in Dubai
Property Weekly

Dubai is working towards growing its inventory of mid-scale hotels to address a huge market gap. The emirate has had a large supply of five-star hotel rooms compared with other cities around the world, which analysts see as an opportunity to create demand at the other end of the market spectrum.

“Dubai’s five-star hotel rooms contribute more than 30 per cent of the hotel rooms that are available, whereas in other places five-star rooms would make up 10 per cent of all the rooms,” says Sanjay Chimnani, managing director of real estate firm Raine & Horne, which recently partnered with India’s midscale hotel operator Lemon Tree to open new properties in the region – three-star Red Fox, four-star Lemon Tree and four-star deluxe Lemon Tree Premium.

“The city connects with two-thirds of the world’s population within a seven-hour flying distance,” says Chimnani. “A big number of economy class passengers are flying into the country on every flight. As an example, an A380 Emirates carries 12 first class, 54 business class and 300 economy passengers. Dubai desperately needs to bridge the shortfall of mid-market hotels.”

Chimnani says the lack of mid-scale hotels is also an issue with other Asian countries, including India and China, which did not recognise the concept until about 10 to 15 years ago. In comparison, mid-scale properties have been operating in the West for a long time.

Marko Vucinic, senior vice-president and acting head of hotels and hospitality group for the Middle East and North Africa at JLL, says the large number of upper-tier hotels reflects how the region has traditionally evolved in terms of supply – positioned mainly in the primary areas of regional cities where the land prices have traditionally been the highest. “With the decrease in the cost of flying over the past 10 years and the increase in the number of tourists, there has been growth in the mid-market sector,” he says.

Market transition

Phil Rist, associate director of strategic advisory at CBRE Middle East, says the UAE hospitality market is progressively shifting towards a more balanced offering over the past five years.

“The government has been instrumental in promoting the growth of the mid-market and economy hotels through strong incentives to developers,” says Rist. “These include waiving the standard 10 per cent district charge on development permits for three and four-star hotels, reducing the time frame for all regulatory approvals to two months, the designation of government land specifically for these hotels and creating a single-window system for all necessary approvals from Dubai Municipality.”

As of the fourth quarter last year, Rist says there were approximately 102,845 hotel and hotel apartment keys in Dubai as per the Dubai Tourism and Commerce Marketing. “Of this only 21 per cent fall within the one- to three-star classification, with the remaining 79 per cent representing four-star, five-star or hotel apartments,” says Rist. “The overall cost of a one-night stay at hotels is currently Dh99 to Dh12,000. The affordable segment of the market is priced between Dh99 and Dh425.”

Rist says there is a mismatch between existing supply of affordable hotel options and the current and future demand. “So there exists an opportunity to capture this demand once additional budget hotel options are delivered.”

Hotel operators

Rist points out that many leading international players have already introduced limited service and economy brands to the UAE market. These include Holiday Inn Express (IHG), Ibis and Ibis Styles (Accor), Hilton Garden Inn (Hilton), Park Inn (Carlson Rezidor) and Premier Inn (Whitbread). He adds that regional players have also introduced affordable options such as Centro (Rotana), Venu (Jumeirah) and Rove (Emaar Hospitality Group and Meraas).

“The majority of budget and economy hotel options in the UAE are still provided by non-branded local operators, which have been long established in the market and usually located within the traditional commercial trading areas of the city in Bur Dubai and Deira,” says Rist.

Super-budget hotels have also made an appearance in Dubai such as easyHotel, which opened in Jebel Ali in 2013. “There are plans in place to add two more easyHotels in Dubai over the coming 24 months,” says Rist, adding that other super-budget brands such as Hotel Formule 1 (Ibis Budget) by Accor and Yotel (YO! Company) in Business Bay are under way.

New supply

The first Rove Hotel opened nine months ago and now it has three hotels in Downtown Dubai, Deira and Healthcare City. Rove Trade Centre is expected to open shortly and six more are in the pipeline in Dubai Marina and Dubai Parks and Resorts in a span of four years.

Explaining the company’s take on the mid-market concept, Olivier Harnisch, CEO of Emaar Hospitality Group, says, “Typical mid-market hotel guests are not necessarily those who have less money to spend, as there is no correlation between the positioning of the hotel and the ability to pay. The mid-scale hotel guests can be people that decide to spend a smaller portion of the budget on the accommodation because they want to spend more on dining, entertainment, etc.”

Harnisch says some features at Rove are a small supermarket and a laundry area that guests can use by themselves. There is a PlayStation in the lobby as the brand puts a lot of focus on technology and playfulness, adopting the concept of work hard and play hard, he says. In the meeting area, guests can play ping-pong and table football during breaks.

Another mid-market brand, Citymax Hotels, will open 700 hotel rooms in the UAE by year end with new properties in Al Barsha, Business Bay and Ras Al Khaimah. It already has hotels in Al Barsha (400 rooms), Bur Dubai (700 rooms) and Sharjah (450 rooms). “Across the region, we have plans to open around 15 hotels more by 2022,” says Russel Sharpe, COO of Citymax Hotels.

Al Khoory Group’s hospitality division plans to develop 1,200 rooms by 2019. “We see millennials are becoming a major percentage of travellers to Dubai, so our upcoming four projects will focus on vibrant colour themes, social spaces, smart technology, with an easy-to-mingle staff and friendly services,” says Pierre Sokhon, general manager of hospitality division at Al Khoory Hotels.

Sharpe says the biggest challenge is acquiring land “as we are up against leading developers like Meraas”. He adds: “The authorities should look at providing land at a reasonable price in the central locations close to its key attractions to the three-star operators like us.

“For instance, there is only one Polynesian-themed resort hotel near the Dubai Parks and Resorts with a room rate of Dh1,200, which is too expensive for all visitors to afford. Any mid-scale should range between Dh250 and Dh350.”

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