7 May, 2007
Middle East Hotel Survey Says “Market Correction” Awaits
DUBAI: With about 82,000 rooms projected to open across the Middle East and North Africa region over the next four years, “a market correction is likely to happen with lower occupancy levels and declines in average rate,” according to the latest Middle East Hotel Survey for 2007 by the HVS consultancy company.
The report says the UAE and Qatar are primary targets of this correction as the new supply is absorbed. The long term outlook for the region as a whole, however, remains positive.
Last week’s Arabian Travel Market in Dubai saw another bonanza of projects being announced. Major Thai and Asian groups like the Mandarin Oriental, Shangri-La, Dusit, Six Senses and Banyan Tree are growing their presence in the Middle East.
The HVS Middle East Hotel Survey covered 150 hotels totalling 45,000 rooms in branded four-star and five-star hotels, with more than three years of operating history.
It identified approximately 253 hotels with an estimated capital investment of US$16 billion as being likely to enter the market regionwide in the next four years. Of these, nearly half will be in the UAE, followed by Qatar, Saudi Arabia and Jordan. Approximately 23,000 rooms are set to enter the market in 2007, 27,000 in 2008, 18,000 in 2009 and 13,000 in 2010.
However, the report said, “A growing threat to investors’ return in the region is rising construction costs. With the skyline of the Gulf dominated by cranes, costs have risen significantly in the last three years and are likely to impact projected investment returns in the future.”
The search for labour is also on bit-time.
“ If we assume an employee to room ratio of 1.5 to 2.0 (due to the more significant food and beverage operations at Middle Eastern full service hotels), 123,000 to 166,000 additional employees will be required,” the report said. “This should be seen as an opportunity for the local labour pool, where currently only Morocco, Saudi Arabia, Egypt and Oman rely to a certain extent on nationals.”
After the boom years of 2004 and 2005 for all tourism-related indices in the region, the report said, 2006 is considered to be a further step toward a more ‘mature’ market. “Some markets are still experiencing significant growth but, in general, growth is slowing down. Occupancy among quality hotels decreased by two percentage points to 71% in 2006.
Average rate for the region from US$125 in 2005 to US$139 in 2006. The resultant RevPAR (rooms revenue per available room) posted a further 9% increase to US$98 in 2006 when compared to significant rises experienced in 2005 and 2004, of 23% and 16%, respectively.
Hotel gross operating profits grew on average by 9%. GOPPAR (gross operating profit per available room) improved from US$85 in 2005 to an average of US$92 in 2006. The growth in GOPPAR is largely attributable to the growth in RevPAR (both at around 9%).
According to the report, with the exception of Jeddah, Riyadh and Dubai, most markets experienced a modest decline in occupancy, as room rates were increased, which displaced price sensitive to alternative accommodation.
“ Other reasons for this modest downturn in occupancy have been the conflict in Lebanon, instability in Iraq and tension over the energy programme in Iran, resulting in tourist arrivals for the region growing below the world average, in 2006.”
In terms of average room rate the increased liquidity and disposable income from regional travellers and the continuing appreciation of the euro (Europe being the largest feeder market after regional travellers) against the US dollar (the currency to which most currencies in the region are pegged) have had a beneficial impact, the report said.
In terms of GOPPAR, Abu Dhabi is the clear winner in 2006 with a 50% increase over 2005, to US$130. Riyadh was up by 42%, Dubai 32% and Muscat 28%, respectively. On the other hand, Beirut and Damascus experienced sharp declines of 37% and 15%, respectively.
The highest GOPPAR recorded was at quality hotels in Doha at US$267 and the lowest was for the Cairo – Pyramids hotel market at US$30.
Growth of tourism in the region is mainly driven by intra-regional visitation. With the exception of Dubai, Arab visitors account for the majority of tourists in the region. The increase in disposable income and liquidity generated by high oil prices is a primary driver of visitation.
Tourist arrivals from the Americas and Europe are dominated by corporate travellers who increasingly look at the opportunities arising in the region from the diversification and privatisation programmes.
About US$25 billion is estimated to be in airport construction projects (airport expansion, building of dedicated terminals for low-cost airlines and so forth) in the region with the UAE accounting for nearly 3/4ths of that.
The report concluded, “ Despite the continuing tension in the region, we remain optimistic and expect
hotel operating performances in general to experience another good year in 2007, assuming no significant political upheaval in the region.”
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