Stalled hotel plans leave more guests to go around

Hotels could see rates start to pick up next year.

The days of finding bargain hotel rooms in Dubai may be numbered as tourists flock to the emirate in greater numbers while the amount of new rooms coming on stream is less than previously expected.

Official data show 10,000 additional hotel rooms are planned for this year but financing problems are preventing some in Dubai frombeing finished, said Jones Lang LaSalle, a property consultancy.

"We don't believe there will be 10,000 rooms," said Jalil Mekouar, the managing director for the Middle East and Africa at Jones Lang LaSalle Hotels.

"These are the projects that are announced. Now how many of those are going to materialise remains to be seen. We do think in 2011 hotels will be stabilising and we do think in 2012 it will start to grow and average rates will start to pick up, provided not all the supply which is announced comes on board."

The market seems to have absorbed all the new hotels opened in recent months in Dubai, despite widespread initial concerns.

With demand from tourists increasing, Dubai can take more hotels, analysts say. Occupancy levels at many hotels reached 100 per cent on a number of days last month as tourists poured into the emirate.

A combination of attractive hotel deals and more flights into Dubai have helped boost visitor flows into the emirate. Unrest in other parts of the Mena region has helped send more tourists to Dubai.

In January, data show, occupancy levels in hotels in the emirate increased to 77 from 71 per cent in the same month last year. Average room rates were down by more than 5 per cent to Dh851 (US$231.65) from Dh903. But the increase in demand more than compensated for this drop, resulting in 2 per cent growth in revenue per available room.

"As we know from other parts of the world, as we go through a recovery phase the rates typically trail a little bit behind in terms of that recovery," said Karin Sheppard, the InterContinental Hotels Group's vice president commercial for Middle East and Africa. "But with occupancy levels that are starting to get very strong, that's the opportunity to regain some of the lost rates."

Growth in occupancy levels was a positive sign for the long-term health of the destination, Ms Sheppard said.

"Dubai is a vital hub. There's lots of business-demand drivers," she said. "It's increasingly a leisure, shopping and entertainment venue that people are seeking out. That interest in Dubai is there and has returned.

"In the short term, we have also seen a positive impact from a change in travel patterns, as people choose destinations that are perceived to be safer. I think there's a combination of the short-term boosters but also, underlying that, it's a market we're certainly positive can continue to grow."

A recovery trend is also being seen in Europe. Marriott International last week told Bloomberg News it planned to lift room rates there, forecasting average rates on the continent would return to levels seen before the economic crisis within 18 months.

But the effect that unrest in other parts of the region will ultimately have on Dubai remains to be seen.

"Obviously the geopolitical situation regionally will have an impact, but we are not in a place to say what impact," Mr Mekouar said.