Challenges for Dubai with hundreds of new hotels needed by 2020

Dubai requires between 140,000 and 160,000 rooms by 2020, up from 80,000 in 2012. Jaime Puebla / The National

Dubai would need to build as many as 283 new hotels to meet its 2020 tourism targets, a Deloitte report claims.

But building on such a scale could prove challenging as well as creating risks of oversupply post-2020, the consultant said.

Currently, there are 86 hotels accounting for about 25,000 rooms under various stages of construction in the emirate, covering budget and luxury properties, according to STR Global this month. There are some 351 existing hotels with 70,440 rooms.

It means that 197 additional hotels could be needed, or at least 32 a year.

“Most industry players have raised concerns over the ability of the market to absorb such a high rate of increase in room supply,” said the Deloitte report, released yesterday. “But it is not only the quantum of rooms that is the issue as much as delivering this high number in the targeted time frame.”

The emirate requires between 140,000 and 160,000 rooms by 2020, up from 80,000 in 2012, the Dubai Department of Tourism and Commerce Marketing said in May last year.

"At its peak, the highest number of hotels delivered in a single calendar year was 26, in 2011," according to the report.

It is quite likely that the correlation between demand and the need for rooms is not directly proportional, said John Podaras, a partner at the Dubai-based consultancy Hotel Development Resources.

He said Dubai could meet its ambitious room targets by looking at utilising other accommodation such as holiday homes and hotel apartments.

“The increasing presence of online and social media booking channels for these types of accommodation are likely to drive demand towards the stock of residential property, especially in cases where investors, rather than owners, are looking to maximise yield on their property,” Mr Podaras added.

Moreover, “spreading the load provides for a more sustainable model post-2020, especially since that kind of accommodation can turn to longer term or even residential use if the demand markets soften”.

A lack of liquidity available to fund the level of development required is a greater concern, according to Mr Podaras.

“Unless there is considerable government easement, sources of traditional financing are being sensibly cautious and focusing their lending conservatively on projects that have little risk, and more importantly, developers and stakeholders that can securitise these loans within the emirates,” he said.

Next year, Starwood is expected to open three luxury hotels in Business Bay adding 1,675 rooms to the market. In February, Abu Dhabi-based Jannah Hotels and Resorts expects to open its 115-apartment Marina Bay Suites.

Under new rules, Dubai’s holiday home operators are required to be licensed. Such accommodation caters to families and is an alternative to expensive luxury hotel rooms.

Follow The National's Business section on Twitter