While Abu Dhabi has long been a destination for business and government travellers, recent expansion of the emirate’s culture and entertainment portfolio has meant the emirate’s hotel owners and developers have also had to widen their offering. This has dovetailed with the expansion of Abu Dhabi as an international transport hub, along with promotional campaigns aimed at giving the emirate a distinct profile within the UAE. The result has been a surge in demand – and accompanying supply – in terms of new hotels. New leisure establishments, from the economical to high end, have opened for business in recent years, allowing Abu Dhabi to offer attractive packages for a wide range of holiday-makers and corporate travellers.
Now, however, the sector faces the challenge of fitting new supply to demand in a world and region where economic growth has seen a sluggish few years. This has been exacerbated by the Covid-19 pandemic that began in the first quarter of 2020, which significantly impacted the travel and tourism sector worldwide. At the same time, competition within the region continues to increase, particularly given changes in Saudi Arabia to grow tourism. Owners and investors will have to balance these challenges with their expectations of future growth. The emirate’s hotel industry thus finds itself at a pivotal moment, with much to play for in the years ahead.
At the start of the 21st century Abu Dhabi was some way off the global leisure tourism map. Studies published in the International Journal of Tourism Research estimated that the number of leisure visitors in 2000-01 was 75,000-100,000 per year, while hotel occupancy was 67% during major conferences, falling to 32% in the hot summer months. There were 25 international-standard hotels in the emirate in 2001, primarily catering to international visitors attending meetings, incentives, conferences and exhibitions. By 2010 the number of hotel guests had grown to 1.8m, according to the Department of Culture and Tourism – Abu Dhabi (DCT Abu Dhabi), with the average year-round hotel occupancy rate at 65%. By 2014 there were 160 hotels in the emirate, which increased to 162 in 2017 and 168 in 2019, according to Statistics Centre - Abu Dhabi (SCAD). That year occupancy rates hit 73%, with 5.1m hotel guests and an average length of stay of 2.6 nights. The total guest count, meanwhile, was up 2.1% on 2018 and average revenue per available room was 6.4% higher.
The number of room keys in Abu Dhabi has increased in step with these figures. Between 2015 and 2017 the rise was gentle, growing from 26,700 to 27,500, according to JLL. Since then, there has been a considerable surge. According to DCT Abu Dhabi, the number of keys grew to 29,700 in 2018, and then to 30,100 by the third quarter of 2019 – representing an increase of 9.45% compared to 2017. According to the most recent SCAD figures, there were 32,818 rooms in the emirate as of end-2019, although the figure for room keys was unavailable.
Meeting the Market
The top source market for hotels has long been the UAE itself, with 1.48m domestic tourists staying in 2019, according to SCAD. Non-Arab Asian countries followed, with 1.4m guests that year, while Europeans accounted for 910,000. In 2019 India was the largest non-UAE source market, with around 450,000 guests and a 9% share of the total; followed by China, with 396,000 and 8%; the UK, with 267,000 and 5%; and the US, with 204,000 and 4%.
As evidenced by DCT Abu Dhabi figures for 2019, Abu Dhabi is primarily a high-end hotel destination, with 54 hotels out of 168 in the five-star category that In 2019 India was the largest non-UAE source market for hotel stays, with around 450,00 guests and a 9% share of the total, followed by China (8%) and the UK (5%) year, and 36 hotels in the four-star category. There were 33 hotels that had one to three stars, while the remainder were hotel apartments.
According to SCAD data, in 2019 the five-star group was the most popular, attracting approximately 2.32m guests out of that year’s total, while four-star hotels attracted 1.61m. The largest geographic cluster was the Al Markaziyah and Al Zahiya district, the location for 26% of all hotels, followed by the Corniche, Lulu and Al Bateen Marina area, with 24%.
There are several drivers behind the hotel expansion of recent years. First, there are the ongoing efforts of the emirate’s authorities to diversify the economy, a task set out in the Abu Dhabi Economic Vision 2030, with tourism seen as a strategically important enabler (see overview). In line with the vision, the emirate has grown its image as a cultural destination. Events such as the opening of Louvre Abu Dhabi in November 2017, for example, have been major milestones, with the Zayed National Museum scheduled to open in 2021 and Guggenheim Abu Dhabi also in the pipeline (see analysis).
These museums are all located on Saadiyat Island, in the Cultural District that is increasingly being targeted by hotel developers. Neighbouring Yas Island, which has an entertainment centre mandate, is also being targeted for development. The home of Ferrari World Abu Dhabi since 2010 and Yas Waterworld Abu Dhabi since 2013, Yas Island became the home of Warner Bros World Abu Dhabi in 2018. In addition to being international attractions, these amusement parks draw in many visitors from other emirates, as domestic guests can take advantage of the excellent road links across the UAE to easily visit Abu Dhabi. Providing accommodation for this important portfolio of leisure attractions has been a major driver behind the recent hike in hotel numbers.
Hotel revenue has been increasing alongside this expanding supply, hitting Dh1.1bn ($299.4m) in the third quarter of 2019, up 1.7% year-on-year. The average length of stay during this quarter was 2.5 nights. According to SCAD data, in 2019 revenue totalled some Dh5.8bn ($1.6bn), up 6.6% on 2018. This comprised room revenue (Dh3.2bn, $871m); food and beverage revenue (Dh2bn, $544.4m); and revenue from all other hotel services (Dh615m, $167.4m).
Saadiyat Island performed particularly well, with guest numbers on the island up 71.3% year-on-year in the third quarter of 2019, as a number of new hotels opened their doors. In 2018 the Saadiyat Rotana opened in May, Rixos Saadiyat commenced operations in October and Jumeirah Saadiyat launched in November. The average length of stay on the island was 3.5 nights, with around 43,976 visitors staying between July and September in 2019.
Another area where hotels performed especially well was the Abu Dhabi National Exhibition Centre district. Located near Zayed Sports City, hotels in this area saw revenue increase by 33.5% year-on-year in the third quarter of 2019, and revenue per available room rise by 36.5% year-on-year.
New Supply Challenges
In 2019 Radisson Blu opened on Abu Dhabi’s Corniche and at Al Ain; Al Wathba Desert Resort and Spa Resort, a 40-minute drive from Abu Dhabi City, commenced operations; and W Abu Dhabi - Yas Island opened. JLL expects that by the end of 2021 hotel supply will reach 32,500 keys in the emirate, with most of these new developments in the luxury segment. Hotels in the pipeline include the 563-room Fairmont Marina Abu Dhabi, which was scheduled to launch in March 2020, before the Covid-19 pandemic broke out; a themed Warner Bros hotel on Yas Island, scheduled for delivery in 2021; and Hilton Abu Dhabi Saadiyat Island Resort, which is set to open by the end of 2022.
While the pipeline of new hotel builds demonstrates the confidence that players have in the sector, oversupply is a growing concern. On top of this, the development of the Saudi tourism sector poses another challenge. Some 167,500 Saudis visited in 2018, but liberalisation in the Kingdom is widely expected to reduce the numbers of Saudis visiting other GCC states, including the UAE. Additionally, much new investment in the hotel sector is being channelled into Saudi Arabia. Millennium Hotels and Resorts alone has plans to open 25 new hotels in Saudi Arabia by 2025.
In this increasingly competitive environment, greater promotion of Abu Dhabi by the government and local stakeholders will be useful, with hotels that can offer a package of extras likely to perform better. The Anantara Eastern Mangroves Abu Dhabi Hotel, for example, had an occupancy rate of around 70% in 2019, according to hotel officials, with its resort offering including kayaking in the neighbouring mangrove preservation area and close tie-ins with national promotions. This strategy should see new facilities open in 2020 – although the Covid-19 pandemic could ultimately delay some of these. Scheduled openings include SeaWorld Abu Dhabi and National Aquarium at Al Qana – set to be the Middle East’s largest aquarium.
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