Dubai tourism remains key to economic growth

Filed on January 3, 2017 | Last updated on January 3, 2017 at 08.24 pm
Dubai tourism remains key to economic growth
Dubai hospitality industry is set to become more prominent as tourist inflow is expected to rise.

(KT file)

Over the last three decades Dubai has managed to become one of the global hubs for travel and tourism. Today, Dubai developed to one of the top destinations for global travellers and has become a centre of attraction for leisure and business visitors offering guests with a multifaceted destination combining beaches, desert, luxury hotels, shopping, entertainment and a thriving business centre. The city is in a unique situation wherein a city with a population base of only 2.3 million receives seven times as many tourists (hotel and hotel apartment guests) annually.

2016 yet again been another year of growth in capacity for the city's tourism and hospitality sectors. By the end of December 2016 it is expected that ca. 15-16 million tourists would have visited Dubai (from ca. 14.2 million in 2015) - this would be in line with the target to reach 20 million tourists by 2020 as set out by Dubai's Department of Tourism & Commerce Marketing (DTCM) which would require achieving an average annual growth in visitors (overnight guests) of seven-nine per cent over the next four years. Also, this year marked another milestone for the city's hospitality industry - Dubai finally marked the establishment of 100,000 hotel rooms and hotel apartments (ca. 75 per cent of which are hotel rooms).    

Going forward, Dubai will still keep adding hotel supply to its existing portfolio. Over the next two years the supply of hotel rooms and hotel apartments will reach 134,000 by the end of 2018 and further current forecast figures indicate that 69 new hotels will be added in the period between 2017 and 2020.

Looking at that tremendous growth rate in terms of hotel capacity and supply one might wonder how all additional capacity gets filled up to keep Dubai's hospitality sector in a healthy state. Dubai managed to keep its hospitality capacity filled with an average occupancy rate of 76 per cent in 2015 and so far it looks a similar average rate will be achieved for full year 2016. However, increasing pressure by additional supply of hotel rooms and hotel apartments can be seen in the latest revenue figures - the year to date (October 2016) figures indicate that average daily rates (ADR) dropped by 10.9 per cent to Dh497 compared to the same period last year. Consequently, this resulted in a decrease of revenue per available room (RevPAR) by 11.2 per cent to Dh380 (October 2016 vs same period last year). Furthermore, Dubai's tourism industry recently faced challenges in the short term on the back of global macroeconomic issues such as falling oil prices and currency valuations, which put pressure on tourist spending. Especially, currency valuations in key source markets as Russia for instance led to a decrease in tourist numbers and spend from potential Russian tourists visiting Dubai.  

Going forward, having the additional supply of new hotels in mind, Dubai needs to pay attention to manage and monitor hotel supply and demand effectively. With this regards, an important trend is the increasing demand for good value for money hospitality in the mid market sector. In 2016 and over the next three-four years both hotel developers and operators announced the opening of new mid market hotels in the three to four star segment. Creating a bigger supply of good value for money hotels apart from the existing five-star premium market also enhances Dubai's aim to extend the average length of stay per hotel guest from the current 3.6 nights per visit. Another lever to increase incoming tourist flows is the introduction of new visa on arrival rules. For instance, the recent introduction of visa on arrival for Chinese nationals as announced in September 2016 immediately resulted in a boost to Dubai's tourist industry over the last months.

The current and near term future obstacles caused by macroeconomic factors such as a lower oil price (although the oil price seems to be on the rise after the recent deal between Opec and Non-Opec members to jointly limit output) as well as currency valuations are likely to put Dubai's hospitality market under pressure to fill capacity with healthy ADR and RevPAR figures in the short to medium term.

But in the long term (possibly after Q2 2017), having in mind a recovering oil prince and also considering that Dubai is perceived as safe haven in a volatile Middle East region one can predict that tourism, business investment, trade and inward expatiates will increasingly play a pivotal role in the years to come. These distinctive characteristics underpin the strength of Dubai's established position as a global business, transport and tourism hub. Alongside this, Dubai's hospitality industry is set to become more prominent as tourist inflow is expected to increase in the foreseeable future - research predicts that by 2030 ca 25-30 million tourists will be visiting Dubai.

These upward developments and also the growth of the hospitality and tourism industry in Dubai is sustained by substantial infrastructure investments, such as major events like Expo 2020, the development of large scale tourist attractions such as Dubai Opera and new theme parks (IMG and Dubai Parks & Resorts) or the establishment of Dubai World Central Airport which will be the world's largest after completion. As such, tourism is clearly an area of strength for Dubai and it is expected to continue to be a strong contributor to Dubai's economy over the foreseeable future.

The writer is head of Corporate Development at GRMC Advisory Services. Views expressed are his own and do not reflect the newspaper's policy.





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