The UAE is a thriving market, pulsating with an ever-growing hospitality and leisure (H&L)

segment within the larger, real estate sector.


Steady growth of UAE Hospitality Sector


Research indicates that international tourist arrivals in the UAE grew at a compound annual growth rate (CAGR) of 12.4%, from 9.5 million tourists in 2010 to approximately 17 million tourists in 2015, which is markedly above the global growth rate of 3.9% for the same period. Considering the Travel & Tourism related spending, the UAE witnessed a total of US$33.7 billion being incurred in 2015, which has been growing at rate of 7.8% since 2010. Leisure accounted for over 80% of that expenditure, emanating from source markets such as Western Europe and other GCC states. To an extent, demand has been fueled by measures such as airport expansion, building of theme parks and providing tourists with a wide range of hotel accommodation.


The supply of hotel rooms in Dubai increased by 6.5% y/y in Q1 2016 to 82,760 rooms. The Department of Tourism and Commerce Marketing (DTCM) is targeting 140,000 to 160,000 hotel rooms by the end of the decade. Data from STR Global also shows that a further 20,291 hotel rooms are currently under construction in Dubai, of which 10,019 are due to come online by year end.


Technology-driven transformation in the Global Hospitality Sector including UAE Globally, economies have begun to be increasingly intertwined, resulting in worldwide interdependencies among stakeholders within the Hospitality and Leisure sector.


As investment in technology bears fruit, social media, search engines e-commerce portals, and other online marketing channels significantly contribute to consumer preference of hotel brand and locational awareness within tourism. Previously obscure options and locations have begun to emerge on the luxury map.


The top seven areas in which technological advances are transforming the hospitality industry and enabling a new level of customer service:


  1. On-line booking systems

  2. EPOS (Electronic Point-of-Sale)

  3. CRM (Customer Relationship Management)

  4. Marketing Automation

  5. Social Media

  6. Smart Phones

  7. Smart Appliances

There are a number of solutions that have already begun to change the way that business is done, or the way that it will be done in the near future. The common attribute that they all share is the fact that they allow businesses to have a more convenient, informed and valuable relationship with their customers.


 


Luxury is still the name of the game in UAE Hospitality sector


The entire UAE hotel sector is overcrowded with 5-star luxury rooms, housed in prime real estate in enviable locations, and with a number of upscale and luxury brands managing them. Dubai still remains as a preferred destination for luxury and mid-market travelers alike. By 2020 an additional 20,000 rooms are expected to be introduced of which 53% will be luxury offerings. Our secondary researches reveal the under-mentioned for Mid-market vs Luxury sector hotels in the leading retail destinations of the World:


  • London- 88%:12%

  • New York- 89%:11%

  • Paris- 66%: 34%

  • Hong Kong- 74%: 36%

  • Los Angles- 90%: 10%

  • Dubai- 49%: 51%

 


Changing face of UAE Hospitality Sector


When a market is awash with choices in the high-end sector, there’s bound to be an overspill. Dubai as a market is seeing the construction of 54,000 rooms imminently, and another 72,000 are planned for the region; leading to a possibility of a supply overhang. Since the UAE hospitality sector has been predominantly occupancy-driven, it can be quite difficult to fill up a hotel room without compromising on price measured by the hotel’s Average Daily Rate or ADRs. For example, the UAE, inspite of fresh introduction of supply, witnessed occupancy % rise from 66% in 2010 to 77% in 2015.


On the contrary, the ADRs in 2015 dropped by over 5% to US$ 231 in Dubai and 3.1% in the UAE as a whole to US$ 190, in face of such a rise in competition. Consequently, Revenue Per Available Rooms (REVPAR) has declined considerably over the years.


Going forward this may imply greater investment of resources in loyalty programs and a myriad of promotional activities in the print and electronic media. Such innovative marketing may be favorable for occupancy – however not for ADR of luxury properties. Intensifying competition has maintained pressure on ADRs, where H1 2016 witnessed ADRs in Dubai fall by 3.5%, when compared to the same time last year.


 


 Inverted Pyramid


Imagine the food pyramid one grows up learning. At the very bottom of the pyramid is a surplus of all the basic, requirements that sustain one’s body but as one goes higher, the foods become more decadent, and therefore its availability scarce.


A mature hospitality market tends to work on a similar principal – the more humble, mid-range options are available in surplus, whereas the luxury and upscale options are limited for the discerning leisure traveler. In the face of tightening corporate travel budgets, business travel too is faced with this grim reality. This then transcends into carefully ‘adjusted’ investment returns from hospitality projects, based on more ‘rationalized’ development costs and return expectations.


Being in the UAE, one might already observe that this pyramid is inverted. There is huge percentage of luxury offerings at the top and relatively weak mid-market supply at the bottom.


 


Changing face of UAE Hospitality Sector


Governments and their respective Tourism Authorities bear cognizance of the threat of a potential supply overhang of luxury and upscale hotel rooms, and are therefore willing to encourage development of 3 and 4 star hotels, which fall within the purview of the ‘affordable’ or the ‘mid-market’ segment. This has affected under-construction up-scale hotels, which have either stalled or deferred their launch dates or are contemplating a distress sale in some cases. Furthermore, hotel guests tend to evaluate the cost of services that matter to them and are equitable in their opinion – leading to a reduced affinity for luxury offerings.


In the face of rationalized leisure and corporate spending, international operators are responding to the need to diversify the region’s hotel mix – Premier Inn is investing in the region, and Hilton and Marriot hotels are introducing mid-scale brands in the market. Local hotel developer Emaar has also introduced its new mid-segment hotel brand, Rove, in the light of these developments. As the dynamic of ‘luxury’ changes, and more mid-scale hotel options begin flourishing in the region, it will not be long before the fundamental assessment of what defines luxury changes and the “Royal Suite” fails to be the standard all luxury is measured against.


 


Changing landscape- Leisure and Hospitality beyond hotel rooms


Dubai is witnessing new trends emerge in the hospitality. Therefore, comes a need to extend hospitality offerings beyond in-resort amenities, to sustain tourist inflow. ‘Theme parks’ with unparalleled offerings are now taking center-stage in the tourism sector, along with increased MICE activity. For example, Dubai introduced two mega theme parks in 2016 – IMG Worlds of Adventure, and Dubai Parks and Resorts. MICE traffic is expected to get a significant boost from the Expo 2020.


Other attractions planned:


  1. 2000 seater amphitheater at Al Habtoor city

  2. Dubai Opera

  3. Ferris Wheel Dubai (Dubai Eye)

  4. Museum of the Future

New theme parks are also planned for Abu Dhabi. The Louvre and Zayed National Museum are also a few new diversified offerings upcoming in Abu Dhabi.


Therefore, with such developments taking center stage, hotel accommodation would be expected to rationalize its offering to cater to the ‘new normal’.


 


Appearing in Property, Gulf News, on March 1, 2017 - click here to read more