Dubai is followed by Abu Dhabi with 80 projects at an estimated value of $6 billion. While the Northern Emirates region consisting of Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain has around 85 active hospitality projects valued at almost $20 billion.
"At the moment the correlation between demand and supply of rooms is not directly proportional. The slowdown is expected to continue but the demand will pick up once the market matures," Sharpe said, adding that rates are no doubt under pressure because it is demand which dictates pricing.
As per BNC project intelligence, there are over 150 five-star hospitality projects, approximately 80 four-star projects and around 35 three-star hospitality projects coming up. Over 40 hospitality projects are expected to be completed by the end of this year, while over 280 of these projects are scheduled to be completed before the start of Expo 2020, as per BNC's project intelligence.
The UAE projects, according to BNC Network, have been categorised into three types namely hotel, hotel apartments and resorts. Active projects include projects in concept, design, tender, under construction and on hold.
According to sources, the UAE has over 130,000 rooms, with approximately 40,000 rooms in the pipeline or under construction. Interestingly, based on current projections, by 2020, the UAE will have over 170,000 hotel rooms, which will be more than the number of hotel rooms in major cities such as Paris, London and Singapore, BNC Network added.
The hospitality sector constitutes 6 per cent of all active projects in the UAE's urban construction sector and in dollar terms these projects account for 14 per cent of the total estimated value, as per BNC Construction Intelligence.
Among these, three hospitality projects with a combined estimated value of $194.5 million moved to construction from other stages during August.
"The hospitality sector is on a roll as the countdown for Expo 2020 is closing in to three years within which all these projects will have to be ready for the massive influx of visitors," Avin Gidwani, chief executive Officer of BNC Network, says.
Dubai needs 40,000 rooms
According to Dubai Government's stated projections, the emirate will need to add 40,000 hotel rooms in addition to the existing inventory of slightly more than 100,000 guest rooms and hotel apartments. In order to meet the growing demand, most project owners, developers are looking at completing building their projects before October 2020 when Dubai expects to receive 20 million hotel guests as well as 25 million visitors to the Expo site, Gidwani added.
"The beauty of investment in the hospitality sector is that it offers a higher rental return than the traditional residential properties. In some cases, hotel guest rooms or hotel apartments offer 50 per cent more rental income - thus providing a total return on investment in eight years, as opposed to 12-14 years in residential asset class," Gidwani said.
Ferghal Purcell, chief operations officer of Hospitality Management Holding (HMH), said there is no doubt that the supply of hotels is growing faster than the demand in the UAE, which is equally causing pressure on the hospitality industry. However, this is also a temporary scenario.
Regionally, there is very little competition for the UAE as a leisure destination, therefore the country has an enormous potential to grow tourism. The UAE has recently taken a huge leap on to the world leisure stage with the addition of nearly 17 major leisure attractions and hence the Emirates is expected to account for 90 per cent of the leisure tourism market in the Middle East by 2020, he added.
"I think the market in absolute terms will continue to grow from both a supply and demand perspective. However operators and owners would need to be realistic about their expectations. Price in the market is dictated by the 5-star segment and with growing supply these will continue to slide. There will be challenges in terms of profitability and potentially lower returns. This could also mean getting used to lower occupancies of 70 per cent as an average rather than 80 per cent which was the norm until recently," Purcell said.
However, the scale of opportunity in the UAE for mid-market / budget hotels is unprecedented, HMH's chief operations officer said. The hotel supply pyramid is no doubt upside down. There is huge percentage of luxury offerings at the top and relatively weak mid-market supply at the bottom. Expanding airline network especially low-cost carriers, increased airport capacity, growing middle class in key source markets, addition of new tourism and family attractions and enhancement of infrastructure are all pushing the demand for mid-market hotels," he added.
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