Dubai is known for taking hospitality to excess: the world’s tallest hotel, rooms costing $24,000 a night, replicas of Arabian and Russian palaces. But developers in the emirate are turning their attention to travellers on more modest budgets in an attempt to lure the growing middle classes of China and Africa to shop, trade and take holidays.
“We are expecting an increase in that market, a need for more three- and four-star hotels and resorts,” says Ali Rashid Lootah, chairman of Nakheel, a state-owned property company. “Our focus now is on the more affordable bracket,” he adds.
His company opened the first of 10 planned hotels and resorts in February, a three-star Ibis Styles hotel linked to Dragon Mart — a shopping and wholesale centre which claims to be the largest Chinese trading hub outside China. Dragon Mart has proved so popular that it was extended last year to more than double its space, and Mr Lootah plans another hotel there.
Many nationalities visit Dragon Mart, but the expansion is founded partly on hopes for a steep increase in numbers of Chinese visitors, of whom 450,000 passed through Dubai in 2015. This was 29 per cent up on the previous year but far below the million-plus people who visited from India, Saudi Arabia and the UK, according to government statistics. “We expect Europeans, Russians and locals from the GCC [Gulf Cooperation Council] to continue coming, but we expect many more Chinese and Africans to come,” Mr Lootah says.
There are ambitious forecasts for the rise of China’s middle class: a report from the Boston Consulting Group and AliResearch last year said China’s emerging-middle and middle classes would grow by 5 per cent a year between 2015 and 2020, while the upper-middle and “affluent” classes would increase by 17 per cent a year over the same period. Meanwhile, according to Goldman Sachs, only 3 per cent of Chinese people have passports.
Some 4.1m Nigerians — 11 per cent of the population — can now be described as middle class, according to Standard Bank, a South African bank, although the country’s economic downturn casts doubt on the report’s prediction that 11.7m people will be in the middle class by 2030.
Nakheel’s plans play into a broader government strategy of increasing mid-market hotel availability to help boost total visitor numbers to 20m a year by 2020. Two years ago Dubai offered a series of incentives to developers of three- and four-star hotels, such as waiving nightly municipal charges on hotel stays for a set period and allocating government land for the projects.
They also tally with attempts by the ruling al-Maktoum family to forge closer links with China and sub-Saharan Africa, and expansion of flights by the state airline Emirates to these regions. Sheikh Mohammed bin Zayed al-Nahyan, crown prince of Abu Dhabi, visited Beijing in late 2015, while a string of African heads of state including the leaders of South Africa and Nigeria have visited the emirate this year.
However, the new tourism push comes as growth in the supply of hotels is outstripping demand: despite a 7.8 per cent year-on-year increase in visitor numbers in 2015, occupancy declined by 1.4 per cent to an average 77.5 per cent, according to Deloitte. Revenues per available room, a commonly used metric, dropped 8.7 per cent.
The professional services firm says another 31 hotels due for completion this year mean that the gap between supply and demand will widen further in 2016 and 2017. But it expects visitor numbers to increase again in the run-up to Dubai’s hosting of Expo 2020, a world’s fair last held in Milan in 2015.
Murray Strang, head of Dubai at Cluttons, the property advisers, echoes these concerns. “At most levels the hospitality market is pretty well supplied, and there are three years to go until the expo,” he says.
Dubai — which is a seven to eight hour flight from Beijing and about the same from Lagos — is working to increase awareness in target markets. Its tourism bureau this year carried out a roadshow in three Nigerian cities, seeking to raise its profile in its biggest African source of customers.
Hotels have focused on adapting to the Chinese market in particular. InterContinental Hotels Group (IHG) last year introduced a “China Ready” status, a certification it gives to its hotels that fulfil criteria including Mandarin-speaking staff, acceptance of Chinese bank cards and Chinese tea for guests. Six of its Dubai hotels have the status. IHG says Chinese visitors have spent 70 per cent more nights in its Dubai hotels in 2016 than in the same period last year, but “guests from Africa seem to have marginally reduced their bookings”.
Andrew Sangster, editor of industry publication Hotel Analyst, says that Dubai has so far defied fears that it might suffer from hotel oversupply, partly thanks to tourists travelling there instead of to destinations such as Egypt and Tunisia, where they feared further terror attacks. But he says he is concerned that the preparations for Expo 2020 could lead to “unviable projects getting the green light”.
“All of history shows that when you have a one-off event such as the Olympics, people get bamboozled by the prospect of a short-term blip. You get classic overbuilding.”
Mr Sangster says Dubai will also face a delicate balancing act in attracting middle-class guests alongside the existing stream of wealthy visitors who like the city’s sense of exclusivity.
Mr Lootah brushes off concerns that the hotel market could find itself in oversupply. He says that if even a small additional fraction of those who already pass through Dubai en route to elsewhere can be persuaded to spend time in the emirate, that will support growth in visitor numbers. Last year 78m people passed through Dubai International, the airport’s operator says, the highest number in the world for the second year running.
“Even after the end of the expo, there will be more visitors. It will raise our profile, raise people’s knowledge of Dubai,” says Mr Lootah. “The growth of Dubai will continue — and we will still have a shortage of hotel rooms.”