Dubai well-equipped to absorb new hotel supply, analysts say (page 1 of 2)

Benefitting from the unrest that has embroiled traditional tourism spots in the region such as Cairo and Damascus, Dubai hotels have enjoyed buoyant occupancy and RevPAR (revenue per available room) levels this year. Recent data from TRI Hospitality show that hotels in the emirate have recorded a year-to-date occupancy of 80%, with an average rate of $280.58 which is 0.9% and 8.4% higher than the same period last year.

The market's strong performance has prompted companies to restart stalled projects and launch new ones, as evidenced by Emaar's recent announcement that it will open a new Address hotel in Dubai's Downtown area. With 4,500 additional hotel rooms expected to be completed in 2012, and a total 11,000 units in supply pipeline until 2014, Dubai's total capacity will witness a big jump from 54,300 rooms currently available, Jones Lang Lasalle said in a recent report.

While Dubai's robust pipeline clearly reflects the confidence that hotel companies have in emirate, it also raises the specter of oversupply. Dubai only has to look down the road to Abu Dhabi to see firsthand the risks posed by overexpansion, as the capital has seen room rates tumble following a large influx of hotels over the past three to four years.

But analysts are quick to point out that Dubai is in a much stronger position to absorb new stock than Abu Dhabi. "Although the supply is expected to grow in the near future, the Dubai hotel market benefits from a deep and diverse range of demand generators which are attracting an increasing number of visitors to the emirate," said Peter Goddard, managing director of TRI Hospitality.

He cites rising investment confidence, a well-established MICE segment, and the widening of Emirates' route network as key factors that are helping to bring more visitors to Dubai.

Chiheb Ben Mahmoud, the senior vice president at Jones Lang LaSalle Hotels Middle East and Africa, also credits the city's tourism marketing efforts as being a key catalyst of Dubai's thriving hospitality market, but he warns that hotels cannot simply adopt a 'build it and they will come' philosophy in the emirate.

"Dubai has put in place, piece by piece, an efficient 'tourist supply chain', which is one of the most difficult things to do," he said. "A wide series of players contribute to the attraction of guests and travellers for leisure, business as well as other motives, but all this is transient demand and hotel rooms have to be 'resold' every day. So there is no guarantee of excess demand and every destination can find itself in a situation of excess supply and 100% excess supply any time."

Still, he believes that barring any geo-political risks that might arise, other risks in the emirate's hospitality sector have been mitigated. "The hotel room capacity in Dubai has reached a certain critical mass, therefore supply shock risks are low (sudden increase of supply). On the other hand the tourist supply chain and the destination marketing mechanisms work," he noted.

Competition will be greater

Goddard said the new supply will lead to greater competition for visitors in certain parts of Dubai, notably Sheikh Zayed Road, which will see the opening of the Conrad, JW Marriott Marquis and the Oberoi hotels over the next six months. "These hotels will compete heavily for the corporate and MICE demand and as a result we anticipate room rates to soften slightly," he noted.

An additional factor that will weigh on the market is the fact that 18 new luxury hotels are expected to open in the next three years, of which 14 will be new luxury brands.