Jumeirah Group, owner of Dubai’s famous Burj Al Arab hotel, plans to double its portfolio outside the UAE over the next 18 months as it expands overseas, with Asia and Europe the primary focus, its chief executive said.
"Right now, we have 19 hotels outside the UAE and we're growing to 27 or 28 quite rapidly over the next 18 months," José Silva told The National in an exclusive interview. "Expansion is easy, but the right expansion is sometimes challenging and we're happy to be reproducing what Jumeirah has done in Dubai internationally."
The hospitality group, which is owned by the Ruler of Dubai’s investment vehicle Dubai Holding, owns a portfolio of 16 hotels and suites across the GCC, in Dubai, Abu Dhabi, Oman, Bahrain and Kuwait, as well as one in Shanghai and three in London – one of which is undergoing a $100 million refurbishment.
It will open two further hotels in China – in Guangzhou by the end of 2019 and Hangzhou next year, after opening in Nanjing last September – and one in Bali.
It also expects to sign deals this year to open in two western European cities, most likely in France and Italy, according to the chief executive, and intends to expand in southern Europe from 2020. Jumeirah Group has a hotel in Frankfurt and Mallorca, but Mr Silva said there is space for a second in the German business city and for the group’s first in mainland Spain and other European resort destinations.
“To do four substantial, quality projects in Asia in 18 months is quite an accomplishment and we’re looking forward to delivering our expansion in Europe,” Mr Silva said.
Having started with a strong local footprint, today more than 50 per cent of Jumeirah’s portfolio, including pipeline schemes, is international. However, Mr Silva said overseas expansion will not come at the expense of the group’s UAE presence and every five years it will start planning another major new project.
Its latest Dubai project is Marsa Al Arab, a 4 million square-foot leisure and hotel scheme on two man-made islands under construction near the Burj Al Arab and set to complete in three years. The next is likely to be “another beachfront location” in Dubai where there remains solid tourism demand, Mr Silva said.
Hotels in the emirates – and across the Middle East – have suffered steep declines in revenues and room rates in recent years due to low oil prices denting consumer purchasing power, and rising supply of hotel keys as the market matures.
Average daily rates for Middle East hotels dropped 8.9 per cent year-on-year in January, while revenue per available room slid 9.6 per cent over the same period, according to hotel data firm STR. Average occupancy stood at 68.2 per cent.
“This is a normal cycle of supply and demand,” Mr Silva noted. “We are still growing [in Dubai], but the supply of new hotels is growing faster than demand due to a five-to-seven-year delivery delay – but this will swing back in a couple of years.”
Jumeirah is seeing average growth in room rates of three to five per cent across its portfolio, but flat revenue per available room and occupancy rates in the mid-70s, in line with regional trends.
“We could, by not introducing rate growth, increase our occupancy, but that’s not our strategy because your costs increase,” the chief executive said. “We realise we lead the market and if we don’t show growth nobody else will. But that growth will no longer be 5-10 per cent. A mild rate increase is where we see the future.”
Over the longer term, he wants to build an ultra-luxury Jumeirah sub-brand called ‘The Burj Collection’, which would be a small collection of assets worldwide, similar in vein to the Burj Al Arab.
The company aims to partner with property owners for this – “it won’t be a forced expansion”, Mr Silva said. No advanced talks are taking place at present.
UK's plans to cut net migration
Under the UK government’s proposals, migrants will have to spend 10 years in the UK before being able to apply for citizenship.
Skilled worker visas will require a university degree, and there will be tighter restrictions on recruitment for jobs with skills shortages.
But what are described as "high-contributing" individuals such as doctors and nurses could be fast-tracked through the system.
Language requirements will be increased for all immigration routes to ensure a higher level of English.
Rules will also be laid out for adult dependants, meaning they will have to demonstrate a basic understanding of the language.
The plans also call for stricter tests for colleges and universities offering places to foreign students and a reduction in the time graduates can remain in the UK after their studies from two years to 18 months.
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
