Deloitte advise Dubai hoteliers: 70-75% occupancy is the new normal

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With the inaugural Serviced Apartment Summit MEA taking place later next month, we were delighted to attend Deloitte's 2015 Middle East Travel, Hospitality and Leisure Seminar for an update on the sector, hosted at the Meydan Hotel, Dubai.

After a brief welcome and introduction by Robin Williamson, Managing Director, Real Estate, Deloitte, he handed over to Phillip Wooller, Area Director - Middle East & Africa, STR Global for an overview and update on hotel performance for the region and international market.

Dubai hotel and international market performance - overview and update

Wooller said that demand is up across the globe, except for the South American region, highlighting both North America, and Europe as the star Year on Year performers with an identical increase of 7.4% each.

North America having experienced 65 months of consecutive REVPAR growth, with 66.7% average occupancy and $119 average room rate. And "despite lurching from one crisis to another" the European region has sold 10% more rooms Y on Y. The weakness of the Euro being cited as a potential reason for the increased occupancy.

Wooller highlighted the Middle East region had experienced a 2.2% point REVPAR drop Year on Year. "Although, up to this point there has been 40 months of consecutive REVPAR growth." The main reason for the drop being a 7% point increase in supply versus a lower 5% increase in demand causing oversupply in the market.

The general consensus was Dubai hotel investors had experienced an exceptional 50.5% increase over the past 5 years, with overnight stays having increased from 13 million to 21 million during the period, and this was slowing.

"Dubai has occupancy of 76% and a decline of 7.5% average daily rate is expected over the next 12 months" said Wooller, as a result of expected increases in supply and as the country looks to achieve its Dubai World Expo 2020target. "We expect ADR to drop again in 2016, and start increasing from 2017 onwards" said Wooller.

Dubai hotel performance and pipeline

Grant Salter, Director of Hospitality, Deloitte presented on Dubai hotel performance and pipeline looking at source markets.

Salter highlighted that the Dubai hotel market is experiencing its lowest growth rate since 2009. Despite this there has been strong visitor number increases from the Iran Islamic Republic, and China visitor numbers grew by an impressive 24.3%. "With supply trending higher than demand growth since 2014, occupancy is lower as a result - for Dubai, 70-75% occupancy is the new normal (over coming years)" said Salter.

Dubai's hotel supply continues to rise 2010 -2015:

  • 7.5% supply growth across Dubai (all classes).
  • Strong growth (15%) continues in the upper upscale class.
  • Luxury growth lower than previous years but still strong at 5%.
  • Mid-market growth rising (5%) although base is still low.

 Dubai's hotel pipeline 2015 - 2019 with supply and demand predictions:

  • Supply set to grow by CAGR of 6.3% up to 2019.
  • Upscale class set to grow at 10.7% CAGR.
  • Luxury class growth at 7.4%.
  • Mid-market incentives seem to be effective, resulting in 55% additional supply at CAGR of 9.2%.
  • Continuous pipeline growth expected, with some attrition (20%).
  • Market wide occupancy is estimated to decline to 72% before rising slowly.
  • Demand growth to average just below 4% up to 2019.

Dubai hotel demand lags behind supply growth

In closing Salter said " Dubai supply is 7% points against 5% demand" and the statistics presented should not be alarming, with projections highlighting an expected softening of a maturing marketplace. "The Government has a range of future tourism priorities, one being to ensure hotel occupancy does not rise over certain parameters, as at 80% and above occupancy, Dubai becomes expensive hindering visitor growth.

Palm Jumeirah hotels are almost a separate marketplace with 5,400 beds currently, experiencing better occupancy levels of 79%."

"The mid and upper mid market is the sweet spot for the future", said Salter continuing "at the known pipeline, Dubai will be 150 hotels short by 2020, equivalent to around 7,000 keys." 

Key drivers, opportunities and challenges for Dubai hoteliers

Information on the key drivers, opportunities and challenges for Dubai's hotel market, was presented by Martin Cooper, Real Estate Director at Deloitte, stating the country currently welcomes 14.26 million international overnight visitors spending $11.7 billion per annum, equating to US$4,668 per city resident, the highest in the world. Visitors from Saudi Arabia had trebled since 2010, with India showing impressive growth numbers. "Future opportunities for hotel investors will ultimately be based around the location, market and product segment" said Cooper, with increased supply and competitor pressure amongst the risks.

Driving market-level growth in the tourism industry

The final presentation was delivered by Mike Romkey, Director of Deloitte Monitor. Romkey focused on how tourism destinations face a set of dynamics over which they have increasingly little control - more complex customer segmentation, heightened competition for example.  Resulting in the need to shift their strategy from 'product driven' towards a deeper 'traveller focused' understanding. Morocco was highlighted as a successful case study with a new SMMT marketing strategy adopted in 2003; a redefined organisation and capability mid 2004; a 2020 strategy agreed in 2008, and the creation of a tourism development fund in 2011, leading to almost 400% outperformance of increased tourist arrivals versus the worldwide base.

In summary Romkey offered Dubai hoteliers and hotel investors tips on how to support the development of the Dubai tourism sector:

  • Engage with policy makers to identify and define priority segments.
  • Develop assets and attractions for priority segments.
  • Gather customer feedback to inform gaps in the tourism cluster.
  • Collaborate with policy makers & peers to address tourism cluster gaps.

To download the presentations, click here

Much of the information presented will be discussed at Serviced Apartment Summit MEA.The inaugural conference and exhibition focuses on how the hotel marketplace 'sits' within the serviced apartment, aparthotel, branded residence and short-term rental sector October 26-27, Fairmont on the Palm Dubai.

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