Falling hotel rates likely next year as dollar strengthens and competition increases

A strengthening US dollar will put pressure on hotel room rates in the UAE, especially as the market is already flooded with capacity and competition.

Hotel demand in the UAE is likely to fall because of the strengthening US dollar compared to tourists' currencies, along with a generous supply of rooms and competition. Lee Hoagland / The National

Hotels in the UAE will brace themselves for further drops in their room rates next year due to the stronger US dollar, analysts said yesterday.

A steady stream of new hotels across the mid-market, luxury segments and holiday homes, coupled with a weak business climate on the back of lower oil prices, have led hotels to slash room rates this year across the UAE. In Dubai, they have fallen by 10.5 per cent in the first 10 months of this year, compared with same period last year, according to the consultancy JLL. In Abu Dhabi, the average rate decline was 9.9 per cent.

Room rates are expected to plunge next year, according to hotel analysts.

The British pound fell yesterday against the dollar and the euro plummeted in afternoon trading to a 14-year low against the greenback. The UK and the Europe as a whole are some of the major source markets for UAE hotels.

“In a market where there is considerable competition due to additions to the hotel inventory, coupled with poor financial performance across most of the UAE’s source markets, it is unlikely that demand markets would stomach this apparent increase in cost and therefore hotels and other suppliers would have to absorb this increase in dollar value,” said John Podaras, a partner at the hospitality consultancy Hotel Development Resources in Dubai.

To remain competitive, hoteliers need to target different, high-volume segments that would imply lower wholesaler rates and packaging items such as breakfast, airport transfers and possibly excursions, he said.

“In general the strategy for 2017 will have to be cost-led in the face of reduced room rates, by increasing efficiency to achieve reduction in costs and maintain profitability,” Mr Podaras said.

Emerging Asian markets are expected to be worst-hit with a stronger US dollar.

As long as Dubai’s hotels achieve a healthy revenue per available room and bottom lines, the hotel investment landscape is expected to remain encouraging despite a stronger dollar, said Gaurav Shivpuri, the head of real estate investment transactions at JLL in Middle East and North Africa.

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