Hotel room supply outstrips demand in Dubai

Dubai hotel room supply increased by 6 per cent last month, according to STR Global. Pawan Singh / The National

Dubai’s hotel sector appears to be caught in a trend of declining room rates and occupancy levels this year as more properties open.

Last month, the average occupancy rate declined 1.7 per cent year on year to touch 74.2 per cent, while the average room rate declined 12.5 per cent to Dh587.50, according to the research company STR Global. The dips came as hotel room supply increased by 6 per cent, outstripping demand, which increased 4.3 per cent.

As a result, a measure of hotel profitability – revenue per available room – decreased by 13.9 per cent to Dh435.66. “The exchange rate between the euro and the UAE dirham favours outbound tourism,” according to an analyst at STR Global. The current exchange rate is the lowest since April 2003. One euro bought Dh4.1 yesterday.

“Oxford Economics projects the number of UAE arrivals in southern and eastern Europe to grow by 8 per cent for the total year,” STR Global said.

Some travel agencies, such as Sharaf Travel, acknowledge the effect of a strong US dollar on tourist arrivals from some countries, but say overall performance of the tourism sector is healthy.

“People said in 2001, 2008 and now in 2015 that the market is slowing down, but when the market slows down this is when Dubai grows,” said Salah Sharaf, the chairman of Sharaf Travel, on Monday.

“The US dollar is strong, so is the Dubai market, and hotels are doing well in general.”

Countries with currencies pegged to the US dollar, such as most Arabian Gulf states, are sending more tourists to Dubai now, he said.

Dubai added 132 rooms with the opening of the InterContinental Marina in the second quarter, bringing the total room inventory to 65,000.

Another 30,000 rooms are expected to come on stream in the next two years, according to the consultancy JLL.

Coupled with a slowdown in tourist numbers from Russia and the euro zone, room rates are also expected to drop in the short to medium term, it said in its second quarter report.

The boom in hotels has led some business heads to warn against adding more rooms without proper feasibility studies and due diligence.

During this month’s Cityscape Global exhibition, Khalaf Al Habtoor asked banks and the tourism department to be careful in approving new hotel projects. His company Al Habtoor Group, however, expects to add 2,000 rooms across three Starwood-Habtoor hotels – a St Regis, a Westin and a W hotel – on Sheikh Zayed Road by the end of next year.

The Nakheel chief executive Sanjay Manchanda dismissed the concerns, citing demand. His company expects to add nine hotels in Dubai over the next five years, including a 500-room resort at Deira Islands with Thailand’s Minor Hotel Group and a 750-room all-inclusive resort with Spain’s RIU Hotels and Resorts at the same location.

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