UAE hospitality: Get ready for a relaxed atmosphere in 2018

Following a softening in 2017, the UAE hospitality sector will see a stability in performance, driven by the leisure segment. Due to stiff competition, a number pf hotels will undergo renovations to remain attractive, according to analysts and industry executives.

With more than 80 hotels set to open doors in 2018 in the UAE, more than 25,000 keys are projected to be added during the year - hence, it could put some pressure on room rates. However, industry executives believe that the opening of new attractions will bring in more tourists to the UAE from traditional markets and will help absorb growing market supply.

Filippo Sona, director and head of hotels at Colliers International Mena, believes 2018 is expected to be a year of relatively stable hotel performance, following drops in performance in 2016 and a softening in 2017.

"The more leisure-driven sub-markets in the UAE are expected to see a more stable performance than the purely corporate ones. Similarly, newer destinations and hotels are continuing to put pressure on older hotels. We expect therefore to see several hotels starting renovations in 2018 to remain attractive in an increasingly competitive market," says Sona.

Leisure demand is expected to further increase with the introduction of new anchors such as La Mer, Dubai Safari Park, Dubai Frame, the world's longest zipline in Jebel Jais in Ras Al Khaimah and Warner Bros World Abu Dhabi.

"Leisure demand will continue to drive demand growth, with India being a mega source market. Indian visitors to the UAE are expected to increase from 2.3 million tourists in 2017 to 3.1 million in 2021. The return of key source markets - such as Russia which saw 98 per cent growth in arrivals to Dubai in 2017 compared to 2016 - is also expected to continue in 2018," forecasts Sona.

Laurent A. Voivenel, senior vice-president of operations and development for the Middle East, Africa and India at Swiss-Belhotel International, looks at 2018 with optimism and predicts that the UAE will remain a strong tourism market next year.

According to Voivenel, the market in absolute terms will continue to grow from both a supply and demand perspective.

"At the moment the market is led by the supply dynamics whereby we are witnessing a price competition to maintain occupancy levels that was previously missing from the market," he said.

As a result, the industry has RevPAR contractions in certain parts. However, the market remains robust and continues to generate higher yield than some other parts of the world.

"Going forward, we expect a healthy growth in demand but not at the same pace as supply. Therefore, operators and owners would need to tune down expectations and can expect some challenges in terms of profitability with potentially lower returns," adds Viovenel.

Russel Sharpe, COO of Citymax Hotels, says the industry is witnessing a significant growth in leisure travellers fuelled by various new developments such as expansion of airports, growth of low-cost carriers, new theme parks and shopping destinations.

The UAE, according to Sharpe, has recently taken a huge leap on to the world leisure stage with the addition of nearly 17 major leisure attractions and hence the country is expected to account for 90 per cent of the leisure tourism market in the Middle East by 2020. Therefore, experiential travel will remain the single biggest driver of growth in the hotel market in the coming years.

Glenn Nobbs, general manager of Copthorne Hotel, sees the industry's growth in 2018 will be flat compared to 2017 as hotels will have to work extremely hard to win each piece of business. "Each hotel is being more and more aggressive with rate, and being more dynamic in its offering."

Challenges

Sharpe says online travel agencies are an enormous challenge, more so now because recently they have been decreasing their commissions. Moreover, the addition of new hotels has definitely made the market extremely competitive having a huge impact on the demand and average room rates.

"Both existing and upcoming hotels are under tremendous pressure to maintain the pricing," says Sharpe.

Moussa El Hayek, COO of Al Bustan Centre and Residence, says the explosion of companies like Airbnb have also changed travellers' expectations when it comes to lodging. "Accommodation rental websites have shifted traveller mindsets from wanting a standard hotel room to wanting a homier experience."

Nobbs noted that Dubai continues to be a city to be experienced, but the emirate need to keep watch of neighbouring countries such as Egypt, Turkey and Oman, as their performance impacts directly on international visitation to the UAE.

According to Sona, hoteliers will need to shift from a revenue-focused approach to a cost-focused approach, with optimisation of operating and streamlining costs will be an important task to maintain profitability levels.

Voivenel of Swiss-Belhotel International says supply of rooms is still overshadowing demand and will take some time to balance.

"We are seeing a highly fragmented market with an explosion of brands including a lot of independent hotels that are running on OTAs. Smaller brands or independent hotels are unable to drive direct demand and therefore compromise heavily on rates, which in turn disrupts the market," says Viovenel. He noted that hotels in the UAE are heavily reliant on the strength of the economies in the source markets of their guests and market shocks or geopolitical factors can result in fluctuations in revenues from one year to the next.

New rooms, rates

According to Sona, approximately 25,000 keys are planned to enter the UAE market in 2018, with the majority being in Dubai - nearly 80 per cent. Based on historical trends, some delays and cancellations can be expected, suggesting that some of the openings will spill into 2019.

Sona states that key performance indicators - average room rates and occupancy - are expected to remain fairly stable in 2018, with slight compression in average daily rates which will mainly be seen in secondary locations and outdated properties that have avoided renovations in the past. Historically, new supply has seen rapid absorption in the market with increasing tourism demand.

Sharpe of Citymax Hotels said with supply increasing drastically, there will still be continued pressure on room rates and the market will bottom out in 2018. "It will start to pick up from 2019." According to El Hayek, approximately 34,000 more rooms will be added in Dubai.

Currently, Dubai has 100,000 keys, which means an increase of 34 per cent increase is expected. He sees an upward trend in occupancy as well as the average room rate during 2018.

Nobbs says the hotel pipeline for the UAE certainly will present a challenge.

"As we have seen in 2017 hotel rooms outpaced demand, which is expected to continue into 2018. This naturally puts downward pressure on the rates. With these new hotels comes another challenge - recruitment, and being able to find the right talent."