(MENAFN- Khaleej Times) Shortly after oil prices began to tumble, average daily rates (ADR) began to decline across Dubai. Hotels were under pressure to maintain occupancy levels as corporate businesses turned to closing current contacts or relocating to more affordable options. The result was near on double digit declines in rates during 2015 and 2016.
Dubai has a total current supply of over 107,000 hotel units, of which 75 per cent are hotel rooms. During 2017, there was a growth of 3.25 per cent in overall inventory and 5.3 per cent in hotel rooms. In 2017, there was a further softening of average daily rates with a modest decline on average of 3.9 per cent, according to STR Global. Among the significant revenue streams facing heavy pressure are room revenue and food and beverage (F & B) revenue. This is the case for many hotels, particularly those rated four and five star, which currently dominate 57 per cent of the total inventory in Dubai.
The increasing hotel supply, including additional specialist F & B destinations, has led to increased competition in F & B and consequently, declines across the hotel industry. Based on a sample of properties in the luxury and upper upscale classes, F & B revenues have registered declines of 5.85 per cent on average in 2016 - a trend that continued throughout 2017.
At a surface level, the hotel market in Dubai is perceived to be struggling. However, looking at it from a broader perspective shows a different picture.
Based on figures released by the Dubai Statistics Centre for the third quarter of 2017, as well as the current growth rate, Dubai should have seen just over 16 million visitors in 2017. This figure represents an increase of 7.8 per cent from the previous year. As a result, Dubai has witnessed a wide occupancy increase of 0.5 per cent in 2017, registering at 77.2 per cent, according to STR Global.
Based on a sample of hotels tracked by Cavendish Maxwell, Dubai's current average gross operating profit (GOP) level stands at 43 per cent. On a global scale, this is among the best in the world, alongside Hong Kong, London and Sao Paulo. Dubai is home to some of the top performing hotel brands, with GOP levels that are currently the highest in the world. According to STR Global, Dubai produced a revenue per available room (RevPAR) of $142.5 (Dh523) in 2017, which is highly ranked along with London, Paris, New York, and Hong Kong.
Additionally, Cavendish Maxwell is tracking over 20,000 rooms that are currently under development and expected for completion before 2020. However, with a growing population and continually increasing demand in Dubai, this pipeline supply is crucial to keep up with demand. Dubai is the fourth most visited city in the world, but is only the ninth in terms of hospitality inventory. If Dubai completed the confirmed pipeline supply that Cavendish Maxwell is tracking, it would catapult the city to fifth, behind Beijing, Shanghai, Las Vegas and London.
Dubai continues to induce demand through government initiatives, visas on arrival, vast marketing campaigns, coupled with diversifying the economy to attract further tourism. Recent additions such as Dubai Parks, IMG World, Dubai Safari and Bluewaters Island, are all geared to help drive the growth in tourism.
We must be clear that Dubai is not building thousands of hotel rooms specifically for Expo 2020 - the rooms are being built to sustain the current demand levels.
We will most likely see a spike in RevPAR, much like Milan and Shanghai saw during their expositions. However, if Dubai continues pace with the historic growth in demand, Dubai should exceed 20 million visitors by 2020. Coupling this with the projected population of the UAE rising above 10 million residents, it is clear to see how the target number of 25 million visitors to Expo 2020 can be achieved.
Considering everything that could have impacted the market such as devaluation of the Russian rouble, Brexit, oil price decline and a continued increase in supply, it is a testament to the market that further declines have not been apparent. We are still seeing plenty of investor demand for hospitality assets, with Dubai being among the best performing hospitality markets in the world.
The writer is associate partner in the hotels, hospitality and leisure department at Cavendish Maxwell. Views expressed are his own and do not reflect the newspaper's policy.
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