Hotel operators in the region will rebrand and renovate existing properties rather than taking on new ones as investment plans are reassessed in tough market conditions this year.
The Arabian Gulf region’s hotel sector suffered last year from the strength of the US dollar, to which most Gulf currencies are pegged, making destinations expensive. Occupancy also fell amid an increasing supply of hotels and the regional economic malaise sparked by low oil prices.
Already there are more than 158,000 rooms and 555 projects under contract in the Middle East, according to data provider STR Global.
“Projects that are in conceptual stages are undergoing reviews and rigorous stress-testing to ensure feasibility,” said Marko Vucinic, JLL’s senior vice president for Middle East and Africa hotels division. “Developers and investors are increasingly looking at alternative forms of financing as traditional banks are scrutinising the viability of future development projects.”
In Ras Al Khaimah, RAK Hospitality Holding, which owns four hotels, does not have any new projects in the pipeline. Instead it will target upmarket and extended-stay Saudi Arabian and Gulf tourists with the emirate’s first Ritz-Carlton opening in the third quarter – a rebranding of its Banyan Tree Al Wadi property, said Alison Grinnell, its chief financial officer. To diversify its market, it is also renovating and rebranding the mid-market Hilton City to a Hilton Garden Inn next quarter.
The group expects to push up room rates as the average occupancy rates remain steady and the Russian tourists make a comeback. It is also targeting new markets, with the number of guests from Kazakhstan, India, China, Finland and Poland growing.
“We are looking to achieve higher average daily rates this year, though there has been a weakening last year,” she said. “There is new supply coming on board but that is coming on board at a measured pace and it is being exceeded by the growth in tourism arrival numbers.”
The group expects to increase its gross operating profit at its portfolio hotels by 15 per cent this year compared to last year, Ms Grinnell said.
Qatar’s Katara Hospitality is ploughing ahead with its existing projects without stepping into new ones.
“While there is no doubt that 2016 was a challenging year for hotel developers and operators alike, we believe the fundamentals of the Gulf region’s hospitality investment industry remain strong,” said Hamad Abdulla Al Mulla, Katara Hospitality’s chief executive. “To shield us from any short-term pressure, we have a healthy diversification strategy aimed at creating a network of five and four-star business hotels and leisure resorts in key tourist destinations.”
This year is likely to be one of cost management with average room rates and average occupancy rates showing little change from last year, said Filippo Sona, the head of hotels for the Middle East and North Africa region at Colliers International.
“The start of an uplift will come towards year-end of 2017,” he said. “Hotel asset prices are likely to remain static for the first three quarters of 2017 and they will start rising by end of 2017 as this is the time we forecast to see an improvement on hotel trading and the beginning of a new five-year period.”
Investor sentiment is likely to improve closer to Dubai’s Expo 2020, said Mr Vucinic.
“As we come closer to the 2020 Expo, there will be a marked increase in investment sentiment in development projects as well as income-producing assets as opportunistic investors look to capitalise on the compressed demand over the six-month period,” he said.
ssahoo@thenational.ae
Follow The National's Business section on Twitter
