During the year 2017, hoteliers were focused on the increase in supply of hotel rooms in the region and the Kingdom of Saudi Arabia being the biggest domestic tourism market. Additionally, the prediction was that the growth of the mid-scale sector will continue, along with an increased focus on experiential travel and further adoption of new technology. All of this came true, with added unexpected bumps on the way.
The Brexit saga continues, as does the uncertainty in global political relations due to American president Donald Trump, along with geo-political crises that have affected intra-regional tourism and travel. Even so, experts are sharing opinions that appear to belie all negative predictions. There’s certainly an increased level of hotel construction in the region, along with an interest to further invest in the Middle East’s hospitality industry.
Infrastructure on Point
The Middle East/Africa pipeline data for October 2017 by STR, for example, showed that the Middle East region reported an 18.1% year-over-year increase in the number of rooms in construction in October. It shows that there are 166,774 rooms in 580 hotel projects under contract in the Middle East. Under contract data includes projects in the in construction, final planning and planning stages but does not include projects in the unconfirmed stage. Specifically in the ‘in construction’ phase, the Middle East reported 99,790 rooms in 314 projects.
At the time, Dubai reported 29,226 rooms in 95 projects in construction, Makkah was next with 23,791 rooms in 18 projects. Riyadh, Saudi Arabia had 6,349 rooms in 29 projects in construction, with Abu Dhabi showing 4,124 rooms in 12 projects in construction.
And this isn’t going to stop there. The Arabian Hotel Investment Conference 2018 (AHIC) is forecasting significant opportunities for hotel investors targeting the Middle East in light of new data from MEED Projects, which predicts that more than US$14bn worth of hotel construction contracts will be awarded in 2018.
MEED Projects director of content and analysis Ed James said in a statement: “After a relatively subdued 2017 up to end of November which has seen $5.45bn worth of new hotel construction contracts awarded, the value of hotels due to be awarded next year is more than $14bn. This total would comfortably exceed the $8.5bn awarded in 2016 and the previous record of $11.9bn awarded in 2015.”
James added: “On the back of its forecasted performance, investment in hotels will comprise about 7% of the total $200bn scheduled projects spending in the MENA region next year, making it one of the most important construction subsectors. On a country basis, the UAE will be by far the largest market, with an expected $8.4bn worth of contracts, followed by Saudi Arabia at $1.9bn.”
AHIC co-founder and Bench Events chairman Jonathan Worsley noted: “These new figures are exciting for the Middle East hospitality investment community, which gathers annually at AHIC. With oil prices now trading significantly higher than the January 2016 lows, we expect to see signs of recovery and stability in most regional economies.”
TRI Consulting associate director Chris Hewett, while at the Hotelier Middle East: Great GM Debate, commented that Dubai, specifically, is “well on its way to reaching the 20 million visitors by 2020”. And while, from September 2016 to August 2017, it had a 2% demand increase to 79%, the room rates have continued to drop. There are a significant number of rooms coming into Dubai over the next couple of years, reported Hewett, with predictions of about 40,000 rooms coming in from now until 2020. “What’s disconcerting is that about 40% of that is going to be in the upscale sector. This will put pressure on the existing five-star hotels on how to maintain market share and also how you’re going to try and combat the new supply and new products and new facilities. We think rates will continue to drop from this year and drop further in 2018 with the new supply that’s coming in,” Hewett noted.
And while the “tourism machine that is Dubai” will continue to bring visitors in, he said, RevPAR, unfortunately, is going to see more decline — about 6-7% — in the next 12 months. The mid-market sector will grow, he said, and while it’s about 10% of the new supply, it will drive demand.
This was also seen through a market insight presentation by STR client relationships director Sarah Duignan at the Hotelier Express Summit 2017 held on November 22. According to Duignan’s presentation, STR analysis showed that Dubai budget and mid-scale roared ahead of the overall hotel sector, with high compression nights (occupancies over 90%) for the budget category showing a 203% YOY increase in September 2017 and a 186% YOY increase for the mid-scale category during the same period. Overall the Dubai hotel sector reported a 23% YOY in high compression nights.
Jalil Mekouar, chief executive officer — hotels, Majid Al Futtaim — Properties, comments: “Given how saturated the Middle East markets are with luxury developments, there is great potential for mid-tier hotels to grow and thrive, especially as they tend to be more resilient to economic ups and downs.”