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Dubai, UAE – As far as short-term hurdles go, the Middle East’s hospitality industry has a lot of them strewn across its path.

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Dubai, UAE – As far as short-term hurdles go, the Middle East’s hospitality industry has a lot of them strewn across its path. Occupancy levels and yields are nowhere near what they should be despite showing clear signs of improvement last year. Funding for new projects remains elusive — and if available come at a steep cost.

Add to that the recent outbreak of political and social unrest in the region coupled with the travel restrictions that many governments have imposed on their citizens, it would be a wonder if the hospitality sector sees anything but the darkest of clouds on the horizon.

But the industry and its players remain a resilient lot. The overriding sentiment they exhibit in public — and in private — is that none of this can be any worse than the previous crisis.

“We expect that the impact of the current geo-political situation won’t be as far-reaching as the impact of the global downturn,” said Joe Sita, president of IFA Hotel Investments. “Prior to recent events in the region, we expected to see a gradual recovery in the industry throughout 2011 versus the substantial recovery we saw in 2010.

“While the short-term outlook in affected countries will certainly have necessitated a change in overall strategy, we haven’t seen any need to drastically alter our strategic plans in the UAE.”

And these plans will see the company open a hotel in Jumeirah Lakes Towers this year and another on the Palm Jumeirah scheduled for 2012. The properties are to be managed by Mövenpick and Fairmont respectively.

New projects

But these are projects that were well on their way before the recent crisis erupted in the region, the full impact of which will be felt by the tourism and hospitality sectors during the second and third quarters. If the impact is deeply felt, and there is no reason to suggest it will not be so, it could be a deal breaker for new projects in the region.

This would also negate the marked turnaround in sentiments noticeable since the second-half of last year. A handful of new projects emerged from the pipeline in Abu Dhabi and Saudi Arabia, and Qatar was expected to get its share of hotels following the announcement of it hosting the 2022 Fifa World Cup.

“After the major changes in the real estate platform, hotel projects are being favoured as a more secure long-term investment option,” said a new report on the GCC hospitality sector issued by Alpen Capital. (The bulk of the report’s findings were done before the outbreak of the recent crisis in the region.)

As of now, the Gulf has 437 hotels in the process of development, which together would account for more than 165,000 rooms. These entailed investment outlays of $1.17 billion (Dh4.29 billion) as of end 2010. Even then, hotel investment activity in the region remains low compared with Europe, for instance. Hotel promoters with new projects would also have looked favourably to recent industry fundamentals such as the average daily rates (ADR) and revenue per available room (RevPAR).


“When we look at the Star Global Report we can certainly think optimistically with an increase in average rates for the Middle East and North Africa region,” said Raki Phillips, area director for sales and marketing in the UAE with Fairmont Hotels & Resorts. “ADR was up 9.4 per cent to $176.31 in the first quarter of 2011 while RevPAR experienced a slight increase, rising 0.9 per cent to $100.17.”

That may be, but project financing for hotel developments remains tight. “While debt finance is in place for projects that were announced prior to the downturn, tapping funds for new projects through the traditional lending avenues will be tough in the foreseeable future.”

Entities such as IFA Hotel Investments and Saudi Arabia’s Kingdom Hotel Investments have the track record and the expertise to make things happen even in a downbeat marketplace. But how many regional players can lay claim to that?

If they do secure funds and go ahead with new projects, there is no way they can control project-related costs. Even a “minor” cost escalation could have a strong impact on the viability of new hotel properties, said the Alpen report. And there is no way to factor in what the ongoing political crisis would cost the industry in the short and medium terms.

Wide-angle view

But Alpen Capital in its report prefers to take a wide-angle view. “Even though it is close to impossible to predict the start or end of such protests, Alpen Capital has a long term optimistic viewpoint on the region,” the report said.

For hotel operators with a global footprint there is good enough reason to pursue more opportunities here.

“It is clear that people still very much believe in this region and are committed to its growth, (and) over the course of over 100 years in hospitality Fairmont Hotels & Resorts has overcome the likes of many economic cycles,” said Phillips. “The impact of the current situation has not been significant on our outlook for the region.

“The Middle East and Asia are currently two of the fastest-growing markets for us. Collaboration is fundamental to any development strategy; therefore the support of our investors and partners within the Middle East who understand and appreciate the region’s long-term potential is invaluable to the brand.” Hotel developers in the region will be swayed by such sentiments. At the very least, they will be, by forecasts that place the GCC hotel industry to record room revenues of $27 billion in 2015, compared to the $16 billion of last year.

Hasn’t it always been said that the hospitality business is a long-term play?

UAE, Saudi Arabia lead regional surge

Dubai: The economic downturn has clearly marked out the frontrunners in the region’s hospitality sector, with Saudi Arabia and the UAE leading the way in creating new hotel room capacity. This is despite the many hotel projects that were shelved during the financial crisis.

By 2016, the UAE will lay claims to another 48,000 hotel rooms, while Saudi Arabia will have 101,000. Together they will account for 87 per cent of GCC capacity in 2015, according to Alpen Capital.

The one to watch out for is Qatar, which has yet to see a spate of new hotel project announcements that would take care of its requirements leading up to the 2022 Fifa World Cup. Developers are awaiting the cue that will set things in motion.

“While we do not yet have definitive plans to enter the state, we expect to eventually have a presence in Qatar, particularly given its role as host to the 2022 Fifa World Cup,” said Joe Sita of IFA Hotel Investments.

“The event will create significant demand for additional hotel rooms, F&B outlets and hospitality infrastructure in general. Our expansion focus right now is on the Yotel brand, for which we’re opening our first city centre hotel next month in New York City.

“It is certainly worth exploring a similar option, or even another Yotel airport location, in Qatar.”

As such, Qatar’s hotels were able to weather the recent financial crisis with relative ease compared with those in some of the other Gulf states. Business travellers represent their major clientele and that is unlikely to change for some time to come.

Qatar and Saudi Arabia are projected to record growth rates of 10 per cent and 9 per cent of business travel receipts during this decade. Saudi Arabia, for that matter, could pip the UAE and emerge as the leading Gulf destination for business travel, and by as early as 2015, according to Alpen Capital.

The GCC as a whole could pull in $40 billion from business related travel by 2020, according to the best case forecasts, up from $19.26 billion at the end of last year.

To that, if you add a bit of sports and leisure tourism, the Gulf’s hospitality sector can overcome the current inclement conditions and seek out the sun.

New hotel developments

Four Seasons plans to open six hotels over the next five years.
Marriott International’s target is 42 new hotels in the Middle East and North Africa territory.
The Asian hospitality major Dusit is eyeing “at least” 15 hotels by 2015.
Other leading chains with plans for the region include InterContinental, Rotana, Fairmont, Mövenpick, Starwood, Rezidor and Hilton.

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O autoru


Glavna urednica je Linda Hohnholz.