The EasyHotel in Jebel Ali. The brand plans to open two more franchised hotels in Dubai next year. Duncan Chard / Bloomberg
The EasyHotel in Jebel Ali. The brand plans to open two more franchised hotels in Dubai next year. Duncan Chard / Bloomberg
The EasyHotel in Jebel Ali. The brand plans to open two more franchised hotels in Dubai next year. Duncan Chard / Bloomberg
The EasyHotel in Jebel Ali. The brand plans to open two more franchised hotels in Dubai next year. Duncan Chard / Bloomberg

Budget hotels target Mena region


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A one-night hotel stay in the UAE can cost anything from Dh100 to an astonishing Dh9,000 or more.

But the very lower end of that spectrum is where some hospitality experts believe the big bucks are to be made.

Despite its reputation for luxury and as home to a so-called “seven-star” hotel, Dubai’s Burj Al Arab, the UAE has seen a “significant shift” towards mid-market hotels, according to JLL. The consultancy found that about half the 3,600 new hotel rooms entering the Dubai market late last year had a three-star or lower rating.

Mid-market hotel brands such as Hilton Garden Inn have been growing their presence in the Arabian Gulf, while home-grown chains have emerged. These include the mid-market brands Rove Hotels, a partnership between the Dubai developers Emaar and Meraas, and Jumeirah’s Venu.

But some commentators believe that the next growth story is in economy and “super-budget” hotels, with brands such as easyHotel, which offers rooms starting at Dh110 a night, eyeing expansion across the Gulf. And the nascent Chototel brand also plans to enter the UAE market – with its business model based on rooms starting for as little as US$2 a night.

EasyHotel, which currently has one hotel in Jebel Ali, plans to open two more franchised hotels in Dubai next year. It is looking for more partners in the Middle East, eyeing expansion in the wider region above and beyond a partnership it signed last year with the UAE-based MAN Investments targeting developments in the emirates and Oman.

Guy Parsons, the chief executive of easyHotel, tells The National that the company is in talks with other potential Middle East franchisees over new hotels outside the territory covered by the MAN agreement.

“We’re in conversation with some other potential partners to work in other countries across the Middle East,” he says.

“There are a lot of countries in which we don’t currently operate in the Middle East, and we’re looking to expand into those.”

He does not give details of which parties the company is in discussions with, or where they are based, citing confidentiality. But he says he is “confident that there is going to be a market” in Qatar ahead of the Fifa 2022 World Cup tournament being played there.

EasyHotel’s current agreement with MAN Investments targets the initial opening of 600 rooms by the end of next year, and a portfolio of at least 1,600 rooms by the end of 2020.

Mr Parsons forecasts growth at both ends of the hotels market in the UAE and wider Middle East.

“If you look at what’s happened to airlines, clothing, to supermarket building, it is splitting across most markets between the top end and the budget sector, with the mid-market getting squeezed. And I think exactly the same thing will take place in hotels in the Middle East.

“I genuinely think that the super-budget and budget sector will grow more quickly than other sectors of the market in the Middle East,” he says.

“If we look across most hotel markets, four and five-star is flourishing, and budget is flourishing,” he says. “And everything in the middle gets squeezed out. And we think that will happen in the Middle East as well.

“I’d be really surprised if the mid-market in the UAE continues to expand over the medium term. I think the budget sector and then us, as ‘super budget’, will continue to expand more quickly.

“The budget sector itself is very underdeveloped in the Middle East. And that means there’s a good opportunity for us to grow our brand there. It’s just making sure that we can work with partners that want to develop our brand as quickly as we would like,” Mr Parsons says.

EasyHotel properties are typically built using low-cost construction techniques in non-prime locations, and do not have self-operated food outlets on site. As with budget airlines, the lowest rates are generally only available in advance, and rise the closer you get to the check-in date.

Mr Parsons says easyHotel – launched in 2004 by the serial entrepreneur Sir Stelios Haji-Ioannou, the founder of the UK budget airline easyJet – does not have any competitors in the Middle East or Europe.

But that could be about to change if at least one new hotel start-up has its way.

A venture called Chototel, which says it aims to provide accommodation at $2 a night, is currently building its first property in India, and has plans for the UAE. The Chototel concept includes an eco-friendly energy grid and water management system to keep costs low, while the hotels will be built using cheap construction methods in out-of-the-way locations.

Rhea Silva, the managing director and founder of Chototel, says the ultimate goal of the company is to build five million rooms worldwide, which would entail $50 billion in investment fundraising. She acknowledges, however, that this would be very much a “step-by-step” process.

Phase one of Chototel’s first property in Nagothane near Mumbai in India is ready, and currently awaiting government permissions, Ms Silva says.

But she is considering expansion into the emirates, she says.

“We are still evaluating the pricing feasibility for the UAE,” Ms Silva says.

Yet others cast doubt over whether an operation offering rooms at such low rates can make money.

“We couldn’t make profit at $2 a night. I don’t think we’d cover our costs. So maybe it’s just a marketing ploy. I genuinely don’t know,” Mr Parsons says.

Matthew Green, the head of research at the consultancy CBRE in the Middle East, says the branded super-budget hotels sector has “not been widely explored” in the UAE.

“Low-cost options have more typically been flagged by local and independent brands, most prominently in Dubai’s historical business locations such as Deira and Bur Dubai, and more recently in Al Barsha,” he says.

Mr Green adds that, in Dubai, the market remains dominated by luxury hotels, with more than 62 per cent of rooms categorised as four or five-star, and less than 20 per cent being unbranded one or two-star properties.

Building more affordable hotels marks “a key challenge for Dubai”, particularly given the emirate’s shift towards theme-park tourism, and the potential “barrier” of high-cost hotel accommodation, Mr Green says.

“This is currently a very pertinent point for the industry, after a sustained period of US dollar strength, which has effectively made the local market a far more expensive holiday destination for many of key source markets in Europe and beyond,” he says.

But Mr Green points to a decision by the Dubai Government in 2013 to remove a 10 per cent municipality fee for qualifying mid-range hotels, something he says has spurred activity in the sector.

“As a result, the future pipeline includes an increasing number of affordable properties, including a new easyHotel in Bur Dubai and an Ibis Styles in Business Bay,” he says.

“Although in a market where five-star properties are widely cited to be over exposed, it is perhaps surprising that we still await the entry of many international budget brands such as Chototel, Motel One, Travelodge, and even other economy brands such as HotelF1.”

John Podaras, a UAE-based partner at the hospitality consultancy Hotel Development Resources, agrees that there is room for growth in the sector.

“Guests looking for sub-$100 rates in cities like Dubai have to mainly rely on local or unbranded properties,” he says.

“There’s clearly a shortage of economy [or] budget brands in the region and the unbranded sector tends to be somewhat of an unknown entity in terms of quality.

“I feel there is considerable room for growth.”

Q&A: Guy Parsons

EasyHotel recently raised £38 million in London – what was the purpose of that?

The £38m [Dh173.4m] is focused on our owned-hotel development, predominately in the UK, and then in selected European cities. Our focus in the Middle East is going to be on a franchise basis. And that’s for a couple of reasons, but predominately around making sure that we work with partners who understand their markets, frankly, better than we do. We’re not arrogant enough to think that we could manage a hotel in the Middle East better than a company actually based in the Middle East. So our focus in the Middle East will remain working with franchisees.

Tell us about the progress of your hotels being developed under last year’s agreement with the UAE-based MAN Investments.

There’s a lot going on behind the scenes. The site [of the first hotel] is identified; the construction pre-works have started. And we’re still confident that the hotel will open by the end of next year. It’s a 300-bedroom hotel, a new build in the Bur Dubai area. In terms of the second hotel … I’m actually coming out to Dubai probably in the first quarter of next year, to look at some potential sites with MAN. And the second hotel is likely to be a conversion of an existing office building. Whereas a new-build could take 18 months to build, you can get a converted building open as a hotel in a six- to nine-month period. [If] we approve the site in the first quarter of next year, they should have that open by the end of the year.

Another target under the MAN deal was 1,600 rooms by the end of 2020. Is that still part of the plan?

They’re still working to that plan. To be honest, until we’ve got the first two hotels open in Dubai, the rest is a medium-term project and target. But absolutely, the intention is to get to the 1,600 rooms by the end of 2020. I haven’t seen anything yet to suggest that they’re not going to meet that.

What’s your wider vision in the Middle East region, in say the next five years. Do you see easyHotel having a handful of properties, or a dozen or more?

We haven’t set an absolute target in the Middle East. But I’d like to have as many hotels as we possibly can. I think the Middle East represents a huge market opportunity for us.

How important are events such as the Dubai Expo 2020 and the Qatar Fifa World Cup 2022 in your plans?

Of course events like the World Cup present opportunities. But the really important thing is, when you are building a hotel, you are building something that’s going be there for sort of 20 years. And while the World Cup, of course, will be really important to Qatar, and room rates in hotels are bound to go up during that period, it is for a short amount of time. Over a 20-year cycle for a hotel it’s, what, a couple of months. And so [it’s about] making sure that demand is going to be there over the medium- to long-term. And we’re confident that there is going to be a market there over that period, and things like the World Cup are just icing on the cake.

business@thenational.ae

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