New hotels put squeeze on occupancy and rates

New hotels in Abu Dhabi have put severe pressure on occupancy levels and room prices.

The several new hotels that opened in Abu Dhabi in time for the Formula One Grand Prix have put severe pressure on occupancy levels and room prices in the capital. Abu Dhabi had long been one of the most profitable places to have a hotel, but the supply of new rooms appears to have outpaced the growth in visitor numbers. "Abu Dhabi had too few hotel rooms earlier and now it all came at the same point," said Torbjorn Bodin, the general manager of the Radisson Blu Hotel on Yas Island.

In November, revenue per available room (REVPAR), the benchmark indicator for the industry, declined 53 per cent in Abu Dhabi from the year earlier to US$171.97 (Dh631.65) from $367.24. REVPAR includes both occupancy and room rates. Occupancy was down to 58.9 per cent in November from 89.3 per cent in the same month in the previous year, according to the data from STR Global, a London-based consultancy.

Average daily rates, meanwhile, fell 29 per cent to $291.91 from $411.39, still high by global standards. More than 4,000 hotel rooms opened in the capital last year, adding to the 13,000 rooms there. The majority of these opened in October in time for the Formula One Grand Prix, including seven hotels with a total of 2,250 rooms on Yas Island, as well as a Holiday Inn hotel, the Fairmont Bab al Bahr, and the Aloft.

The event managed to fill rooms at the end of October, but the hotels on Yas Island in particular saw business slow dramatically after that. "[New hotels] create a lot of competition for existing hotels, so that is likely to have caused some softening of occupancy, so consequently there has probably been a reduction in rates to try and attract new business," said Max Cooper, the executive vice president at Jones Lang LaSalle Hotels Middle East and North Africa.

Also, a number of the new hotels are mid-market lodgings, with the Park Inn on Yas Island charging Dh500 per night. Another 5,000 rooms are expected to open in the emirate this year, said the Abu Dhabi Tourism Authority (ADTA). Abu Dhabi is developing its tourism infrastructure as it seeks to diversify its economy. Projects under development include Yas Island, which will see the Ferrari World theme park opening this year, and Saadiyat Island, which will eventually host the Guggenheim and Louvre museums.

"It's a bit of a chicken and egg situation: if you don't have any hotel capacity, you cannot market the city," said Mr Bodin. "The emirate is really building a solid foundation to increase the number of visitors to Abu Dhabi, so this is just one part of the puzzle. "I think this is a very healthy thing that we now have so many hotel rooms of really good quality in Abu Dhabi to really use when all the development ongoing in Abu Dhabi is ready. We will suffer a year but then it will be healthy again."

The ADTA announced on Sunday that it was unlikely that it would need to cap hotel rates during major events this year. Previously, visitors sometimes had difficulty securing accommodation in Abu Dhabi during popular events and conferences. "ADTA expects demand and supply conditions to change throughout the course of 2010 and this will lead to further reductions in room rates," said Nasser al Reyami, the ADTA director of tourism standards. The ADTA expects a 10 per cent increase in hotel guests this year, up from about 1.5 million last year. It aims to attract 2.3 million guests by 2012, by which time it expects the capital to have about 27,000 rooms.

"As happened in Dubai, given the right rate structure and the right promotions, that gives you the opportunity to then grow demand and get a rebound in occupancy," said Mr Cooper. Dubai, which experienced sharp drops in its hotel sector's performance throughout the year, saw a 19.4 per cent drop in REVPAR to $241.2 in November from $300.17 the year earlier. Average daily rates fell to $294.80 from $365.40, but occupancy was flat at 82 per cent.