Hotel firms face obstacles
Dubai faces a challenge to provide enough hotel rooms for the growing number of mid-market tourists the emirate is seeking to attract, industry experts have said.
The city is aiming to bring in millions more middle-income visitors by 2020, with the Indian and Chinese markets among the prime targets.
Commentators at The Hotel Show Dubai this week said established chains such as Emaar and Rotana are investing in attractive three and four-star hotel offerings – the Rove and Centro brands respectively.
But they said other firms are finding it difficult to break into the market, or are reluctant to do so over concerns about the profits they may make.
PricewaterhouseCoopers (PwC) said in a report in April that just 20 per cent of Dubai’s hotel stock was classed as one to three-star, compared with 22 per cent four-star and 32 per cent five-star.
A separate measure means about half of the city’s hotels are classed as four and five-star in contrast to New York, which has just 11 per cent, London, which has 12 per cent, and Hong Kong at 24 per cent.
In total, there were about 98,300 hotel rooms in Dubai, PwC said in April.
Vikram Loomba, Director of Real Estate Hospitality and Leisure at PwC, said: “Dubai has spent the last decade establishing and marketing itself as a ‘luxury’ destination, however, with growing importance of emerging millennial travellers, global traveller trends have shifted dramatically.
“In order to cater for the 25 million tourists expected for 2020, Dubai will need about 25,000 to 35,000 new midmarket hotel rooms.”
He added: “The millennial travellers are the key target markets for most of the mature and upcoming travel destinations globally. These travellers range between the ages of 18 and 34 and contribute almost $200 billion to $300 billion in annual spending worldwide – numbers too large to brush aside.”
Grant Salter, Head of Travel, Hospitality and Leisure Advisory in the Middle East Region for Deloitte, said there is no shortage of supply for those new hotel rooms once built.
He said Dubai Tourism is targeting China and India and families in an effort to brand itself “the new Orlando”.
He added: “Within the next 18 months to two years there is a sea-change in terms of the offering from a tourism infrastructure perspective that is talking to that mid-market sector.”
Yet Dubai’s hospitality sector is struggling to ride the huge wave of potential growth in the mid-market sector due to the high price of land and construction costs, Salter said.
He added: “You’ve got two major components; your cost of construction and your price of land. Accessible, quality land in good locations is expensive. So you put those two together with a relatively lower price-point for a midmarket product – around $150 – and the maths doesn’t work.
“Unless there’s some meeting of minds between the land owner and the potential developer on the sharing of the risk related to the land value, it’s going to be very difficult.”
He said large hotel firms that bought land in the past are able to overcome that challenge.
Salter said: “Emaar has something in the region of eight or nine Rove hotels that will open in the next three or four years. They can do that, they’ve got the formula now and it works.
“Also Rotana’s Centro brand is starting to take hold in the market – and it’s a great product.”