Is the worst over for Dubai hotels?

The financial downturn has wreaked havoc on the hotel industry in major cities across the world, and Dubai has been no exception.

In the first half of 2009 hotels in the emirate saw the biggest drop in revenue of any city in the Middle East, according to a report by US hospitality research firm STR Global.

The report said occupancy rates in Dubai fell 12.9% compared to the year-earlier period, while revenue per available room (RevPAR) dived 35%.

However, recent data from STR shows that RevPAR in the emirate rose by 0.44% from June to July, compared to a fall of 12.23% during the same period in 2008, offering hope of a rebound for hoteliers.

Cautious optimism

Experts agree that positive signs are emerging in Dubai's hotel sector, but they remain cautious when predicting how the industry will fare over the coming months.

'I have been pleasantly surprised by Dubai's performance over the past couple of months,' said Rob O'Hanlon, Tourism, Hospitality and Leisure Partner, Deloitte Middle East. 'Occupancies are stabilizing and RevPAR is picking up. One gets the sense that things are improving.'

He says the data may even be doing a slight disservice to the industry because it doesn't take into account the large number of new hotels that have entered the market. 'I think the numbers are being hard on them (hotels) because they are absorbing that supply and not going backwards,' he told AME Info.

Analyzing hotel performance at the moment is challenging because it is the end of summer and Ramadan at the same time, which makes it an unusual period and difficult to compare to previous years, said John Podaras, associate director, TRI consulting.

However, RevPAR numbers for June were promising, he noted, as they were comparable to what hotels in the emirate were reporting during the same period last year, and it appears that a number of hotels are hiring again.

Still, despite the positive signs, it remains difficult to get a clear picture of where the sector stands and where it is headed. 'We are getting a lot of mixed signals. What will happen after Ramadan is anyone's guess,' he said.

Cloudy forecast

O'Hanlon believes that the hotel sector in Dubai is well positioned to thrive if the worst of the downturn is over. 'If the world economy starts to free up, then suddenly Dubai is sitting in a little bit of a sweet spot, because its hotel rates have come down, it has built its infrastructure, and it has developed a reputation as being able to manage large events and act as a hub,' he said.

He credits the efforts that the Dubai government, and Emirates Airline, have made in working with hotels to help boost occupancy in the emirate. 'They are seeing more passenger traffic growth in the Middle East than anywhere else in the world, so they have focused on finding ways to get passengers out of the airport and into the hotels. Clearly they are having some success with that,' he said.

The lowering of hotel rates also means that Dubai has become more affordable for more people. 'And I'm going to be careful, I don't want to be too bullish because there is still a lot of uncertainty, but one gets a sense they have recognized the challenges and put checks in place to ensure they don't go backwards too far. I think one thing that everyone in the industry understands is rate increases don't come easy,' he said.

Podaras says that the hotel industry in Dubai has been doing a 'magnificent' job of attracting new segments and sustaining demand. Still, looking at the long term, he believes the sector is not likely to see a significant recovery before the end of 2010. But with so many conflicting reports floating about, 'it's really hard to make a guess', he added.