The Gulf's hospitality sector is on the cusp of a veritable revolution at its mid-market level with a number of new budget hotels scheduled to flood the market over the next few years.
A handful of major international chains, as well as regional investors, are planning to launch literally hundreds of new branded economy hotels containing thousands of affordable guest rooms in the Gulf over the next decade. There are various reasons for this. Historically, the leading international and regional chains in the Gulf have concentrated on operating luxury hotels, mostly five-star, some four-star. They used to 'look down' on properties of three-star standards and below, primarily because they earned such attractive management fees from the luxury hotels. The chains were thus happy to leave the ostensibly less lucrative middle and bottom of the market to the hundreds of small owner-operators whose unbranded properties comprise some 80 per cent of the GCC's total hotel supply of more than 2,000 hotels, and some 60 per cent of its total rooms stock of almost 200,000 rooms.
But these figures belie the received wisdom of concentrating solely on the luxury segment of the market. On the one hand, there is an obvious opportunity for the chains to bring their tried and tested systems to bear upon a huge market currently dominated by often amateurish hotels with a 'hit or miss' approach to amenities and service provision.
On the other hand, the Gulf's current record hotel development pipeline (see Gulf Business' profile in the forthcoming May issue) comprises mainly luxury properties, implying future intense competition at this level and confirming the sense of seeking opportunities in the mid-market.
Another key factor is that hotels with fewer amenities are cheaper both to build and run, with a higher profit margin in percentage terms than more elaborate properties.
Where the new mid-market chain hotels differ most from the existing owner-operated properties is in their development approach, which is effectively a matter of taking an international full-service (five or four-star) hotel model and paring away perceived non-essential amenities and services. Hence the frequent use of the phrase 'limited service hotel' to label such properties.
By contrast, aspiring owner-operators in the Gulf have historically wished to boost their prestige and income by cramming as many amenities as possible into their properties, resulting occasionally in the absurd situation of a three or even two-star hotel boasting a pool, health club and six to 10 food and beverage outlets, for example. The new approach of the chains is to match the level of amenities and services to the spending capacity of the guest, just as airlines or car manufacturers do.
IBIS
The first example in the Gulf of a European-style 'limited service' hotel was the nominally two-star (actually three-star) Ibis World Trade Centre Hotel, which opened in Dubai in late 2003. Its establishment was a logical downwards expansion of Accor's Gulf network, which had been filling up at the top end with multiple Sofitel, Novotel and Mercure properties.
Christophe Landais, Managing Director, Accor Middle East, explains: "Accor has designed a portfolio of clearly positioned concepts and products, providing a complete response to the expectations of each customer segment and generating superior returns on investment. Typically, the average room rate of an Ibis is between 30 and 40 per cent lower than the average room rate of a Novotel in the same marketplace."
With four successful years now under its belt, performance of the chic 210-room Ibis property in Dubai has been excellent, with occupancies above 90 per cent for the last two years. However, the lobby and four food and beverage outlets are much more ample than their European counterparts, a result of having been offered a vast ground floor space by the Dubai World Trade Centre, and it is no secret that the adjacent exhibition halls create a major captive market for the hotel, which has contributed to its success.
Future Ibis properties in the city and around the region will conform more closely to the original development model. "We consider that [the standard] Ibis offers the ideal mix of facilities and services available for its target segment," comments Landais, "with one restaurant, 24-hour snacking, a business corner, but no concierge or health club, as well as the ideal room size and a range of amenities in the room including Internet connection, a bathroom without a bathtub, a desk, but no mini-bar."
Rooms at future properties such as the 480-room Ibis Al Barsha in Dubai will measure 19 square metres, compared to 16-square metres at the Trade Centre, in deference to the preferences of Gulf guests for more space. Ibis development costs range from $75,000 to $90,000 per room in the GCC, excluding the land cost. The net Average Room Rate (ARR) for future Ibis hotels 'at cruise speed' is expected to be between $80 and $95.
Express by Holiday Inn
While Accor is growing its Ibis brand by actively seeking new management contract opportunities from developers, the InterContinental Hotels Group (IHG) is rolling out multiple units of its three-star Express by Holiday Inn brand via the Gulf's first regional hotel investment fund. A consortium of 12 regional investors have committed to finance the $150 million development by 2010 of more than 20 Express hotels across the GCC, with the exception of Saudi Arabia, by a new owning company, Ishraq.
The fund has established links with other investors regarding 23 more properties in Lebanon and Jordan, and is in discussions with a Saudi investor for a further 12 in the Kingdom. All Express properties will be built from scratch to ensure the highest consistency of the guest experience, with between 65 and 130 rooms of 23 square metres according to a strictly applied design manual.
Like Ibis, Express rooms will feature above-brand standard furniture and fittings (such as a safe, kettle and broadband Internet), as well as Arabic design touches. Common area amenities will include a business centre, meeting room and mini-gym.
Commented Michel Augier, Acting Chief Operating Officer, IHG Middle East and Africa: "We have traced the rise and profile of inbound tourists and have identified that the time is right to tap into the more price-conscious market which is flourishing around the world."
Tulip Inn
The Dutch hotel chain, Golden Tulip defines its Tulip Inn brand as offering "well-maintained, functional accommodation and friendly service, as well as exceptional value for money." The company has so far opened three Middle East Tulip Inn properties, one in Carthage, Tunisia, another in Al Khobar, Saudi Arabia, and a third at Knowledge Village in Dubai.
The latter, although a pragmatic adaptation of an educational building, is far from the pure three-star concept property it might be (some of its rooms measure up to 50 square metres, like the top five-star properties). Nevertheless, it is this very flexibility to adapt to market opportunities that has made Golden Tulip one of the most widespread operators in the region's mid-market sector, principally to date under the four-star Golden Tulip core brand.
With nine new Tulip Inns currently under development, Golden Tulip's Vice-President and Managing Director, MENA, Amine Moukarzel reports further exciting developments in the pipeline. "We have been approached by several parties who wish to develop dry [non-alcoholic] Tulip Inns on a preferred alliance relationship, whereby the aim will be to develop 20 hotels in the region in the next five years. In particular, a group of Saudi investors wishes to roll-out 20 to 30 hotels in the Kingdom and thereafter take the brand overseas - again as a dry hotel concept." With a claimed development cost of around $50,000 per room for a prototype hotel of 100 to 200 rooms (excluding land and pre-opening costs), the Tulip Inn regional package includes a new trendy restaurant/lounge concept named Branche, which is now being piloted in Holland. The target ARR in city downtown areas is $80, while in suburbs and on highways, the rate is expected to be around $65.
Centro by Rotana
"Rotana has thus far successfully operated its properties under three brands," Selim El Zyr, Rotana's President and CEO, told Gulf Business. "Whilst the Rotana Hotels, Rotana Resorts and Rotana Suites are full-service, five- or four-star products, Centro is an 'essential service' three-star plus concept."
The result of extensive market research among the expected target market of "today's young business and leisure travellers who seek both style and finesse, yet at affordable rates," a typical Centro property will be newly-built and located, as its name suggests, in the business district of a major city.
It will have distinctive, contemporary and energy-efficient architecture and 'crisp, modern interiors' by leading Dubai-based firm LWD, featuring the latest in technology. The building will feature +/-250 rooms and suites, together with a three-meal restaurant, a bar, a deli takeaway, a business centre, meeting rooms, a gym and a pool.
The 21-square metre rooms will feel larger than they are, according to El Zyr, thanks to a glass-walled bathroom. The hotels will be 'smart' with wireless Internet connections throughout. Although staffing will be limited - there will be, for example, no bell captain and no room service - the deli will deliver takeaways direct to guestrooms.
On the subject of development costs, he added: "When we launched Centro [last year], our target development cost was between $80,000 and $85,000 per key [room]. Although construction costs have gone up by 20 to 40 per cent across the region, we are working very closely with the developers in order to maintain this development cost - and we have been successful." The expected ARR of Centro hotels will vary according to their locations, but in Dubai, it will be around $100.
Premier Travel Inn
Another major brand just starting its local operations is Premier Travel Inn, which will be rolled out around the Gulf by PTI Gulf Hotels LLC, a joint venture between the Emirates Group and the UK's Whitbread. With comfortable 'Gulf-enhanced' rooms of 24 square metres, a typical property will offer a restaurant, a bar, Wi-Fi and a pool, but basically no other amenities.
The target ARR is $100. All services except the room itself are considered extras and charged separately. High profitability is achieved in large part through this and in part from minimal staffing levels - as low as 0.2 per room.
According to Darroch Crawford, Managing Director of PTI Gulf Hotels LLC: "Premier Travel Inn is by far the leading limited-service hotel brand in the UK and will be equally successful in the GCC. The quality of the bedroom product provided at such a low cost represents outstanding value for money. Whitbread and Emirates are putting hard cash into this venture and are determined to establish Premier Travel Inn as the leading brand in the sector. Franchising or management contracts are not on our agenda."
Yotel
Yotel, a variation on the Japanese 'pod' hotel concept, was the brainchild of the Yo Sushi! chain's founder, Simon Woodroffe after he was upgraded to business class on a plane. Featuring ergonomic and stylish design by Airbus A380 designer Priestman Goode, the 10.5-square metre rooms feature mirrors instead of windows and do-it-yourself automated check-in/out.
However, they also cram in a variety of features from luxury bedding and designer toiletries, to on-demand movies and Flat screen TVs with surround sound systems. The first two Yotels will open at Heathrow and Gatwick airports and allow passengers to book for as little as four hours for about $50.
Woodroffe vigorously denies Yotel's windowless rooms will put off potential guests: "Ask a focus group if they would like to sleep in a 10-square metre room with no natural light and you won't get many takers - walk into the Yotel room and you want it." The majority investor in Yotel is Dubai-listed, Kuwait-based IFA Hotels and Resorts, a subsidiary of International Financial Advisors (IFA), who will also be responsible for introducing the concept in the Gulf.
Easyhotel.com
Another Dubai-based company, Istithmar Hotels, has signed a master franchise agreement to bring easyHotel to the region. While the easyHotel chain in Europe seems to be growing at the rate of one or two hotels per year, Isthithmar is investing more than $400 million to build 38 easyHotel.com properties in 17 countries over the next five years. The first property, called easyHotel.com Dubai Al Karama, opens in early 2008, with 195 rooms.
easyHotel will achieve major development cost advantages through off-site construction of modular rooms, which will be winched into a building shell, allowing construction to be completed in as little as six months (the Dubai property will in fact take eight). In line with the philosophy of easyJet founder Sir Stelios Haji-Ioannou, easyHotels have no amenities beyond those contained in the rooms (bed, bathroom, TV), and are almost entirely automated, with the staff of the first London property (with 34 rooms) totalling just four individuals. Rooms there cost around $80 per night.
Joe Sita, CEO of Istithmar Hotels, said: "In approximately 15 square metres, each room provides everything that the guest will want - a well-sprung bed, a high pressure shower unit, a work cubicle, and an activity wall that includes flat screen TV and broadband Internet. The core concept is to deliver an absolutely first class 'sleep and shower' experience at an affordable price. Our research showed that this, ahead of anything else, is what our guests want from a budget hotel room."
Sunsquare
A newcomer to Dubai's hotel sector, but a veteran owner-operator in Africa, is South Africa's Southern Sun Hotels, a chain with more than 80 hotels and nearly 13,000 rooms managed both under its own name, as well as brands such as InterContinental and Holiday Inn.
Now in the process of opening two upper four-star properties at Old Town, part of the Burj Dubai complex, the chain is at the same time planning the 2008 launch of a new three-star brand called SunSquare in the Gulf region, with a new property now under planning as part of Al Qudra's Desert Towers development in Abu Dhabi's mainland Mussafah district.
According to the website, 'SunSquare is a contemporary new hotel concept for the upper tier of economy guests. From the funky design of its square bedrooms to the informal, fresh approach... SunSquare hotels will revolve around a fun outlook to life, recognising that today's 'new caf society' desires a healthy balance between business and lifestyle.'
Southern Sun Hotels Offshore's Keith Randall commented: "With SunSquare, we will offer more in comfort and work space than our competitors, whilst retaining the economy/value price point."
Ironically, the creation of this new stratum of Middle Eastern 'not so limited-service,' nominally three-star branded hotels adapted to Gulf preferences, is causing the chains to look more carefully at the precise definition and scope of what their four-star brands offer.
New, quality four-star brands, such as Four Points by Sheraton and Courtyard by Marriott, Rezidor SAS' Park Inn and Hilton Garden Inn, as well as the new generation of Novotels, reflect a redefinition of brand standards and differentiating factors across the five, four and three-star sectors in a region reluctant to fully embrace the concepts of western-style, do-it-yourself service and no-frills amenities.
Easy does it
Based on a model already launched in Europe, easyHotel.com is set to target short-stay customers, and is always built in an international city centre. The concept promises safe, clean and private rooms, and assumes customers will accept less space for a better price. Room payment is only be possible via credit card, and to encourage advance bookings, early bird discounts are standard, as are savings for off-peak periods.
Dubai Al Karama is the latest initiative of easyGroup Chairman and Founder Sir Stelios Haji-Ionnaou. The six-storey budget hotel, which will be ready in 2008, is part of the easyGroup brand. Through sales of shares, licensing, and franchising arrangements, the group today operates in 17 industries, including travel, leisure, telecoms and personal finance. Sir Stelios, who was knighted in 2006 for services to entrepreneurship, is to date best known for easyJet, a low-cost carrier he launched in Europe in 1995.
Dubai's first easyHotel.com property is one of six planned for the emirate. Developer Istithmar Hotels, which has the master franchise for easyHotel.com in the Middle East, North Africa, India and Pakistan, is set to build 38 easyHotel.com properties over the next five years. Located in 17 countries, the value of the portfolio will exceed $400 million.
Istithmar Hotels CEO, Joe Sita, who currently overseas a portfolio worth $3 billion, says the rooms are unique because they are low in cost but high in quality. "The rooms are budget in terms of room size and service, but the quality of the bed and bathroom finishes is comparable with a five star hotel," he says. "We've spent more than $2.5 million researching the core room concept and in approximately 15 square metres, we will be able to provide everything a guest will want, including a well-sprung bed, high pressure shower unit, work cubicle and activity wall that includes a flat screen TV and broadband unit."
Sir Stelios considers the star system redundant, and says tourists today prefer to check content from user-driven sites for best travel information. At 40 years of age, Sir Stelios, who at 28 created easyJet before it was partially floated on the London Stock Exchange in 2000, is a proud risk taker. "I work on the rule of thumb that a third of businesses will be doing well... and a third will be in need of serious attention," he says. "EasyHotel is one of the better ones but if you don't want to run the risk of losing money, this is not the right business."
Each of the rooms will be pre-fabricated at a single manufacturing site as self-contained units, before being constructed into a hotel using a "stack, connect and stick" concept. The units will then be connected via a pre-fabricated corridor and lift units and founded on a concrete platform. International architects Harper Downie will assemble the entire rooms at a single manufacturing plant before they are taken to site with all internal elements, including sheets and pillows. This method will allow a 200-room hotel to be established in just five months.
The model will offer guests a basic room to which extras can be added for a fee. Sita predicts that at today's rates the rooms will cost between Dhs250 ($68) and Dhs300 ($82) a night. He is confident the model will work because of what he says is a lack of diversity in the marketplace. "Last year, Dubai enjoyed 85 per cent occupancy for rooms over $200 a night. You'd struggle to find a brand not already represented and this demonstrates that there is not enough diversity in product. This is why we have a great opportunity."
By Guy Wilkinson
Gulf Business 2007
