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UAE LEADING THE REGION’S HOTEL MARKETS

October 2015

With ever increasing tourist arrivals and a widening hospitality & leisure offering, the UAE hotel sector presents an attractive investment prospect.

Dubai is probably the only city in the world where you can find all major global hotel brands in one place. Visitors are spoilt for choice when it comes to hotel and hospitality offerings, with all of the world’s finest hotel brands and restaurants present in the emirate.

Driven mainly by tourism, Dubai’s hotel market is set for further expansion, especially since the government announced its ambitious Tourism 2020 Vision which aims to make Dubai the world’s most visited city by 2020.

And with a 9.8% growth in hotel revenue in Dubai during 2014, the hospitality sector remains a promising one for investors, says JLL.  New projects keep being added to the pipeline with 21,600 new rooms expected by the end of 2017 and c. 39,000 by 2019, according to JLL’s latest Dubai Hotel Intelligence research.

UAE versus MENA

First of all, let’s look at how the UAE, and in particular Dubai, compares to other countries in the region.

According to Chiheb Ben Mahmoud, Executive Vice President – Head of Hotels & Hospitality Group, Middle East & Africa, JLL, what differentiates the UAE from other countries in the region is the fact that it is supported by a clear strategic commitment towards destination building and tourism promotion. Furthermore, the actual process of hotel development in the UAE is fairly easy compared to other Middle Eastern markets in the sense that here, all of the required services such as design, technical, contracting etc. are readily available, Mahmoud adds.

It is probably on the back of this that in general, the UAE has always been one of the most desirable places for hotel development, says Filippo Sona, Director, Head of Hotels MENA at Colliers International.

“In particular Dubai, Abu Dhabi and Ras Al Khaimah have managed to attract more of an international investor audience when compared to Sharjah, Fujairah and Ajman. Political stability, consistent economic growth, security and innovation are the key reasons for the prime position [of these emirates] as most desirable place to invest. Furthermore Dubai has one of top ten highest Hotel Gross Operating profits in the world, hence for investors a dollar invested in places like Dubai generates more profits than somewhere else,” Sona explains.

Room for growth

As Dubai moves ahead with its goal to become the world’s most visited city by 2020, a significant boost in the current hotel supply is needed. According to Colliers’ Sona, the current hotel pipeline is in excess of 169 hotels, however supply is growing at a pace that is in line with Dubai tourism development growth, says Mahmoud from JLL.

Key projects under development such as Dubai Parks, Marvel World of Adventure, Dubai Creek, Bluewater Island and the Business Bay canal project will generate induced demand, which will allow new hotels to be absorbed by the market in the build up to 2020, says Sona.

However, key to the success and long term sustainability of the Dubai hospitality industry is the continuous growth of the Emirates airline route network and other low cost airline regional network, Sona adds.

From an investment perspective, the challenge lies in finding a balance between financial return to hotel owners and value proposition to guests, says Mahmoud. “A shortage in lodging capacity leads to a lack of competitiveness. On the other hand, a supply exceeding the capacity of the destination to generate arrivals, will hurt the financial returns and hence the economic sustainability of the business,” Mahmoud explains.

Sona adds that considering the volume of hotel projects in the pipeline, developing the right size of hotel is also important to maintain Dubai as an attractive and lucrative investment destination. “Continuous development of very large hotels (above 700 keys) will force operators of new hotels to offer promotional rates to attract demand, disregarding the fact that this creates rate compression across the industry, especially in the case of new five star hotels,” Sona comments.

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