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Hotel rooms in Dubai predicted to increase by 100pc in 5 years

DUBAI — Dubai is expected to see an estimated 18,000 to 20,000 more hotel rooms by 2010, an increase of almost 100 per cent on the number of rooms currently available, fuelling the risk of oversupply, according to a report entitled, 'The Dubai hotel market — Hot or soon to overheat?' prepared by international consultants, HVS International.

But although these figures (see graph) look alarmingly large, there is good reason to think that Dubai will be able to absorb such a large increase in rooms. The report states that given the historical growth in hotel demand, the forecast public spending on tourism in the emirate, and the current and future projects that are being developed in Dubai, "we expect demand to experience an average annual growth of 7-10 per cent over the next five to 10 years." If growth were to continue at such levels "this could imply that demand growth is likely to catch up with supply over the next few years," states the report.

Moreover, because Dubai has a stronger economic base than most other hotel market destinations in the Middle East, and the emirate benefits from possibly the best tourism infrastructure in the region, "this might, in turn, reduce the negative impact of the new supply," the consultants stated.

The hotel market is also expected to return a strong operating performance in 2005 and 2006. However, the market correction is envisaged to take place between 2007 and 2009, once further new supply comes on stream. From 2010 onwards, the market is forecast to recover, and occupancy to stabilise at around 70-75 per cent, down on current occupancy levels of about 90 per cent. The additional supply of rooms is also likely to put pressure on the average room rate, forcing it down for five star hotels down, between 5 and 10 per cent in 2008 and 2009.

In terms of occupancy, the average room rate and hence Revenue per Available Room (RevPAR) the Dubai hotel market has outperformed the Middle East as a whole over the last 10 years. Average occupancy stands at 74 per cent, the highest in the region.

In 2004, the industry achieved a 10-year record performance, with occupancy at approximately 86 per cent, with an average room rate of $145, resulting in RevPAR of $124. According to the report, the strong RevPAR performance of the market and its revenue characteristics, in particular, a strong demand for food and beverage facilities.

In 2005, the consultants predict that the market is likely to experience a slight decrease in occupancy compared to 2004. But they also predict that strong growth in the average daily roomrate (ADR) is anticipated this year, driven by firm pricing strategies adopted by hoteliers.

The report also suggests that the five-star hotel sector is becoming highly saturated. "Limited further opportunities exist for the development of such hotels in Dubai," states the report. "However, opportunities remain for the development of such properties in other key locations in the country." At the other end of the spectrum, significant opportunities are believed to exist in the emirate for the development of branded limited service or three-star hotels.

Other investment opportunities in Dubai are also believed to lie in developing extended stay and timeshare properties, condominium hotels and other types of shared ownership properties. A greater volume of international capital, notably from Asia and Europe, is forecast to flow into Dubai's hotel industry.

Europe is the main feeder for the five-star hotel market in Dubai, accounting for 47 per cent of total demand. The GCC and non-GCC Arab countries, account for another 27 per cent. Published plans also exist to attract the Turkish, Pakistani, Indian, Chinese and Iranian markets over the next three to five years. The government is also working on developing the cruise market to Dubai.

The report also highlights the significant difference in clientele between the Jumeirah Beach hotels and the City Centre hotel market (see graph). The European market accounts for 64 per cent of total demand at the Jumeirah Beach hotels while accounting for only 28 per cent of the City hotel market. The Arab world accounts for 38 per cent of the total demand for City hotels and is the main source market for downtown hotels.