Dubai hotel room rates register biggest decline in over four years

Industry is being hit by a double whammy of weakening occupancy and tumbling food and beverage sales as it enters a tough summer period.

Dubai’s Burj Al-Arab hotel. Food and beverage sales in Dubai hotels plummeted by 19.8 and 26.7 per cent respectively last month. Patrick Baz / AFP

Dubai hotels are braced for a long hot summer after room rates fell by almost 13 per cent last month – the biggest decline in more than four years.

The industry is being hit by a double whammy of weakening occupancy and tumbling food and beverage sales as the city’s increasing supply of restaurants tempt guests away from hotel dining.

Egypt’s rebounding tourism sector is also attracting more tourists from the euro zone, where their purchasing power is stronger.

“This is primarily due to the falling values of the Russian rouble and euro that has lowered the spending power of visitors from these key source markets,” said Chris Hewett, a senior consultant at TRI Consulting, which published the Hotstats data.

Room rates in April fell 12.8 per cent year-on-year across four and five-star properties to touch US$373.78, according to Hotstats data.

By contrast room rates in the Egyptian resort of Sharm El Sheikh surged by almost 20 per cent in the same month – but even with that increase still averaged less than $49.

Food and beverage sales in Dubai hotels plummeted last month by 19.8 and 26.7 per cent, respectively, while the gross operating profit per available room declined 19.5 per cent to $273.13 in April, compared to the same period last year.

Samir Arora, the general manager of the four-star Ramada Downtown Dubai, expects tough trading conditions through the summer as the depletion of the Russian market and a strong supply of new hotel rooms puts pressure on margins.

“Everybody wants to undercut the rates,” he said. “Moreover, Egypt is taking a lot of business from us.”

Dubai added 7,799 rooms over last year to reach 92,333 rooms at the end of December, up by 9.2 per cent over 2013, according to the Department of Tourism and Commerce Marketing. In January alone, Dubai added 697 rooms. “We are yet to see the effect of the Schengen visa on arrival for UAE citizens,” Mr Arora said.

“But with the fall in room rates, we see new markets opening up such as India, China and east Europe that are price-sensitive.” The leading source markets for his property include Saudi Arabia, Kuwait, Qatar, the UAE and the UK. The boom in the city’s retail sector is adding hundreds of new dining options for tourists each year, which is starting to take a toll on hotel food and beverage revenues.

“Because of the increase in inventory, the corporate clients are price-sensitive,” Mr Arora said. “They have also cut down on spending.”

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