Hotel room rates fall in UAE. Why?

Revenues of hotels in the UAE are still slowing down as operators slash their rates to withstand pressure of rising competition brought on by an oversupply of rooms.

According to hoteliers contacted by Gulf News, the UAE continues to attract a good number of tourists, but demand growth is simply not keeping pace with the “rapid” expansion in inventory.

The hospitality sector has recently seen new hotels opening up, with at least 5,500 rooms entering the Dubai market since the beginning of 2016.  Budget accommodations, as well as other properties advertised on AirBNB, are also pushing some hoteliers to offer competitive prices.

Continued fall in visitor numbers from key markets, coupled with increasing competition from neighbouring destinations, is also putting pressure on hotel performance.

“[There is] more supply in the market. This leads to buyers dictating rates as opposed to the buoyant markets that were prevalent a couple of years ago,” Greg D’Souza, director of sales and marketing of Millennium Plaza Hotel, told Gulf News.

“The hotels are generating revenue but not at the same pace or rate as they did in the past. It’s all about more supply [entering] the market [such as] various lodging availability [and] budget accommodation, [among others],” D’Souza added.

The latest data from STR, a US-based data provider, showed that average daily rates (ADR) at hotels in Dubai dropped 9.9 per cent to Dh711.41 in 2016 compared to a year earlier, while occupancy increased slightly by 0.5 per cent to 77. 3 per cent.  In Abu Dhabi, room prices fell by 9.9 per cent to Dh467.49, while occupancy also declined by 3.6 per cent to 71.7 per cent.

Overall, hotel room demand in UAE grew 5 per cent, the highest since 2013, but the rapid growth in supply, up 4.8 per cent, has put a damper on earnings. The revenue per available room (RevPAR) for UAE hotels, a key hotel performance indicator, fell 9 per cent to Dh473.70.

Ahmed Margoushy, general manager of Danat Al Ain Resort, said the influx of tourists from key source markets is still on a downtrend. “Chinese markets has shown a major decline over the past few years, followed by a marginal decline in visitors coming from the GCC. The Russian market is still recovering, with an expectation to grow in the coming years,” Margoushy said.

“Due to oversupply against demand, hotels are forced to capitalise at lower rates on every business opportunity.”

Besides, many hotels have to deal with increasing competition from budget accommodation providers. According to Mohammed Khoori, general manager of Golden Sands Hotel Apartments, there has been a “change of mindset” among travellers, especially those who visit the UAE for business reasons.

“[Business] travellers have started choosing affordable business-oriented hotel apartments or short-term lease apartments over staying at high-end resorts. Hence, it has resulted in generating lower ADR with high number of room nights.”

He said they are indeed seeing a continued decline in guest numbers from key markets like Russia and Germany, as many travellers now prefer cheaper destinations.

“Even the progress of competing destinations such as Egypt and Lebanon has also contributed in creating additional challenges for Dubai,” Khoori added.

Al Bustan Centre and Residence said it is also seeing lower demand from European and Gulf visitors. “The competition is very steep,” said Moussa El Hayek, COO of Al Bustan Centre and Residence, adding that travellers, whose purchasing power has been eroded due to the strengthening of the US dollar, has been quite “conservative” when choosing holiday destinations.

However, El Hayek said there is renewed interest from the Chinese and Russian visitors, so the hotel operator is bullish that 2017 will see some “positive improvements.”

According to JLL’s Q3 2016 report, a total of 5,500 hotel rooms have entered the Dubai market since the beginning of 2016. Among the projects completed in Q3 were Westin Al Habtoor with around 1,000 rooms and Atana Hotel in Tecom with 830 rooms. More projects were expected by the end of the year, including the Jumeirah Al Naseem (430 rooms) and Dukes Dubai on Palm Jumeirah (279 hotel rooms and 227 serviced apartments).

JLL noted that while room rates and yields were expected to decline further over the short term, the medium-term outlook for the market remains positive due to the heavy government investment in expanding the city’s tourism infrastructure.


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