Hotel operators could soon be required to invest in the developments they will be managing as the global economic downturn takes its toll. "Soon there will be a shift in the way business is done in the hospitality sector, because investors are finding it hard to put up the cash for the projects now," said Rod Taylor, the head of hospitality and tourism at the UK-based Europe Arab Bank.
"Operators will soon have to dig into their piggy banks and bring out the cash." Mr Taylor was speaking at the Hotel and Tourism Investment and Development Conference, which is being held on the sidelines of Cityscape Dubai. Currently, hotel operators sign management contracts with developers that do not require them to share the responsibility of financing. "But now the only way any of these hotel operators can make sure that the projects are on time is to take part in the investment," Jalil Mekouar, the executive vice president of Jones Lang LaSalle in the MENA region, told the conference. "It's a sign of being serious."
Mr Mekouar said chain operators could not afford to slow their growth, which would result in a loss of shareholder confidence. "If the operators take the risk, they will also get the benefit of reaping the fruit of the good times as well as maximising the profits for their shareholders when times are good in the market." Mr Taylor further predicted that many of the construction projects planned for the Middle East would be delayed. "At this point, it's really a fact of life. Projects will not be delivered on time and they will cost more than what the feasibility studies suggest," he said. "I've been in the business for so long and never seen a project on time, but no one will admit to this."
He also expected hotel occupancy rates in Dubai to soften from the current average of 90 per cent to 80 per cent in the coming years. "Hospitality in Dubai is moving from the developing stage to a mature stage, like the markets in London and Paris; that's why I think these very high occupancy rates cannot be sustained," Mr Taylor said. And as the global economic climate remains cloudy, the disposable incomes of tourists are shrinking. "That's why developers here in the UAE have to look more towards developing three-star hotels for the families that want to come here on vacation and cannot afford the five-star prices," he said.
In April, Gerald Lawless, the executive chairman of Jumeirah Group, said Dubai was leading global hotel statistics with an average room rate this year of US$283 (Dh1,039), while other Gulf cities also topped the $200 mark. Mr Lawless said then he did not anticipate any drop in rates as the number of hotel rooms increased across the region. "The average rates we are now enjoying may level off, but I don't see them decreasing."
abakr@thenational.ae
