New budget Dubai hotel rooms expected to add to downward pressure on rates

The Citymax Hotel in the Al Barsha area in Dubai. Pawan Singh / The National

Thousands of new budget and mid-market hotel rooms opening in Dubai this year are expected to put additional pressure on declining room rates.

Of the 3,600 hotel rooms expected to come on stream in the nine months through December, 44 per cent would be rated three-star or lower.

About 31 per cent would be five-star and the rest four-star, according to a JLL report released on Monday as part of Hotel Show Dubai, the upcoming industry trade fair in September.

The average room rate in Dubai fell by 10.3 per cent to Dh694.98 in May compared with the same period last year, according to STR Global.

At the end of the first quarter, Dubai had about 64,900 hotel rooms, of which 44 per cent were five-star, and 29 per cent were rated three-star or less, according to the JLL report.

“The new statistics revealed by JLL represent a significant shift for a market near dominated by five-star or above rated hotels, including the only seven-star property in the world,” said Christine Davidson, the group event director of dmg events hospitality portfolio, which includes the Hotel Show Dubai.

Next year, a further 8,400 hotel rooms are set to enter the Dubai market and an additional 9,200 in 2017, JLL said.

With the five-star segment dealing with a glut of new rooms, developers have turned their sights on to the mid-scale hotel segment. But prices are also set to get competitive here.

“That is the nature of things going forward,” said Rohit Challapalli, the marketing manager for Citymax Hotels, an operator of mid-market hotels.

“Travellers from the usual source markets such as Russia are not travelling that much any more, occupancy levels have gone down, and many four and five-star hotels have dropped their prices close to ours,” he said.

“We have expanded our presence in India and the Chinese markets, but I do see a dip in the market here for the next year.”

Citymax Hotels, a part of the Landmark Group, started construction of its second Al Barsha property with 120 rooms and a 375-room hotel in the Business Bay area of Dubai in April.

The Al Barsha property is expected to open next year, while the Business Bay hotel opens in 2017. A 204-room property in Ras Al Khaimah is also expected to open next year.

Nakheel’s Ibn Battuta Mall would have a 372-room Premier Inn, which is expected to open next year.

The developer’s Dragon City, which is the expansion around Dragon Mart, would feature two hotels each with 250 rooms.

The first one to open would be operated by Accor and is expected to welcome its first guests this year.

Follow The National's Business section on Twitter