Dubai’s rise as a major tourist destination and travel hub over the past two decades has been facilitated by large-scale investment in the hospitality and lodging industry. The emirate has taken a leading role not only in the Middle East – where it has long been a popular tourism market – but, increasingly, further afield, where it is seen to be a growing stopover destination.
Driving this reputational growth has been a spate of hotel development, with many new properties set to come on-line, such as the Hard Rock Café Hotel Dubai Marina, the Gevora Hotel and the Mandarin Oriental Jumeira Beach, in 2018 alone. According to the real estate consultancy firm JLL’s “Dubai Real Estate Overview Q3 2017” report, Dubai had 82,200 hotel rooms, with 4100 expected to enter the market in the final quarter of the year. Another 12,100 rooms are expected in 2018 and a further 15,100 in 2019.
During the 2010-15 period the UAE as a whole saw the addition of 38,300 rooms in total, according to the “GCC Hospitality Industry 2016” report published by Alpen Capital, a Dubai-based economic research house. For the 2015-20 period Alpen forecasts the addition of 57,000 rooms in new hotels and serviced apartments in Dubai alone. This makes the emirate the most active hotel market in the GCC by a significant degree, and among the most active in the Middle East. The next-deepest hotel pipeline in the Gulf is in Saudi Arabia, where Alpen forecasts some 47,000 rooms will be added by 2020. “There are concerns among some hoteliers and market watchers alike about the potential for oversupply in Dubai’s hotel market in the coming years,” Craig Plumb, the head of research for JLL in the MENA, told OBG in May 2017. “But we think the market here will support the new capacity, albeit it at slightly reduced rates.”
For at least the past two decades Dubai has been a key destination for the world’s largest hotel brands and hotel management organisations. The development of hotels in the emirate can be traced back to the 1960s, a handful of small-scale, owner-operated properties were built in and around Deira and Bur Dubai. During the 1970s-80s the government began to develop tourism in earnest, and the first international hotel chains entered the market. In 1985 Emirates, Dubai’s flag carrier, was launched. This was followed four years later by the establishment of the Dubai Commerce and Tourism Promotion Board. In 1997 the board was reorganised and renamed the Department of Tourism and Commerce Marketing (DTCM). Today the DTCM is Dubai’s “principal authority for the planning, supervision, development and marketing of tourism”, according to the department’s mission statement.
In 2002 the government introduced special economic zones where foreigners are allowed to purchase property on a freehold basis, thereby setting the stage for an influx of international investment. Major freehold areas in the emirate include Dubai Marina, Jumeirah Lake Towers, The Palm, Downtown and Business Bay, Dubai International Financial Centre, Emirates Hills, the Lakes and the Meadows, among other places. At the same time the government engaged in a major infrastructure upgrade programme, building new roads and public transit networks, and adding a considerable amount of airport capacity (see Transport chapter).
As a result of all of this activity, Dubai’s reputation as a tourism destination grew exponentially over the course of the first decade of the 2000s, which drove demand for new hotel capacity. The hospitality industry has worked to meet rising demand ever since. From 2004 through 2013 the emirate saw a compound annual growth rate of nearly 5% in hotel supply and of 10% in hotel room supply, according to data from Viability, a Dubai-based hospitality consulting firm and Pandox Hotels, a Swedish hotel real estate company. In 2004 the emirate had some 275 hotels with around 26,000 rooms in total. By 2008, during the height of the mid-decade economic boom, this figure had grown to 350 properties with more than 40,000 rooms. The bulk of this expansion took place at the upper end of the sector, and particularly among five-star properties. By 2013 Dubai offered a selection of 416 hotels with more than 61,000 rooms in total. The number of hotel-apartment units on the market grew from around 7000 in 2004 to 23,000 by 2013. This rapid pace of growth has continued. By end-2015, Dubai had around 95,000 rooms, with nearly 21,000 new rooms slated for the end of 2018.
Most major international hospitality brands have a long-standing presence in Dubai. InterContinental opened in the emirate in 1975, in a Deira property which is now managed by Radisson Blu. In 2007 InterContinental opened a new hotel in Dubai Festival City, near a Crowne Plaza property. The Hyatt Regency also opened in Deira relatively early on in the development of Dubai’s tourism industry in 1980. Other major brands active in the city include Raffles, JW Marriott, Kempinski and Ritz-Carlton.
The emirate is one of the most lucrative hotel markets in the world, with an average daily rate (ADR) in excess of $250 by mid-2014, for instance, the fourth-highest in the world at the time, after only Abuja and Lagos, Nigeria and Paris, France, according to Viability and Pandox. Since then the ADR has dropped off in Dubai, as a result of increased economic pressures, rising supply, a deep pipeline and softening business visitor numbers, in particular. During the first 11 months of 2015 the emirate’s ADR was at $213, according to data from JLL. This figure fell further – by around 10% – over the following year (November 2015 to November 2016), to $191.
Occupancy remained the same in 2015 and 2016, at 77%, though the lower rates were widely seen to be necessary to keep occupancy up in the face of an influx of new supply. “Dubai, the market leader in the GCC, continues to suffer from lower demand due in part to oversupply due to opening of new hotels, resulting in a lower average room rate,” Vijay Raghagan, the director of the Golden Sands Hotels Company, which operates properties in the emirate, told local media in 2016. “Stable oil prices and greater regional political stability are critical to the long-term continued growth of the hospitality industry.”
Key Growth Marker
In late 2016 the DTCM announced that the emirate had surpassed the 100,000-room mark in its hotel and serviced apartment portfolio with the opening of the Westin Dubai Al Habtoor City in August. “For the hotel sector, high demand from international travellers, and the consequent growth in tourism volumes, has been the cornerstone of fostering continued investments in supply enhancement,” Helal Saeed Almarri, director-general of the DTCM, told local media in October 2016. “[This] has seen us cross the historic 100, 000-rooms threshold.” According to the DTCM’s forecasts, in 2018 Dubai is set to reach 35.9m room nights in hotels and serviced apartments, which would represent an increase of 11% on 2015.
This expansion is closely tied to Expo 2020, which has been put forward as a key tourism growth target by the DTCM and the government more generally. The emirate’s aim is to increase the number of annual tourists from 14.9m in 2016 to 20m by 2020 (see overview). The expected influx of guests has changed some hospitality firms’ strategy. Whereas traditionally the emirate has been treated as primarily a high-end, luxury-hotel market, more recently many firms have introduced mid-tier, family-friendly properties, in an effort to cater to rising hospitality demand from visitors from Eastern Europe, India and China, all of which are considered to be key growth markets.
Indeed, Hilton currently operates six Hilton Garden Inn properties across the Middle East, and plans to launch a Hampton by Hilton – another mid-tier brand – in Dubai in 2018. The introduction of new mid-tier capacity will likely bring about a further decline in ADR in the emirate, though most local operators are optimistic that, given the still-high ADR, this drop will ultimately be more than compensated for in volume.
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