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Hotels in 2017: Challenges and opportunities

The total value of 1,153 hospitality projects in the six members of the Gulf Cooperation Council (GCC) exceeded $148.4 billion in the first quarter of 2017, according to a report released by project research and intelligence provider BNC Network in March.

A major influx in hospitality projects in the GCC is not without reason. It is because of a growing focus on developing the tourism sector by GCC governments, which are gradually trying to diversify their revenue base and reduce dependence on hydrocarbon.

Dubai alone plans to double the number of hotel and serviced apartments leading to revenue of $10bn, according to a report by Alpen Capital.

Avin Gidwani, CEO of BNC Network says: “With upcoming mega events such as Expo 2020 in Dubai, the GCC governments are obviously preparing themselves for major global events that require additional hotel and tourism facilities that also will help them diversify revenue sources.”

However, an increase in accommodation supply put pressure on hoteliers as average prices of hotel rooms across Dubai fell by nearly ten per cent in March 2017, according to the latest figures released by hotel industry research firm STR.

New trends and developments in the hospitality industry include a marked decrease in room rates and a rapid increase in the mid-market and family travel. Most heavyweights of the industry also agree that Saudi Arabia would be a huge source market.

Oil prices a challenge for hoteliers

TRI Consulting associate director Christoper Hewett confirmed that 2016 saw all major markets experience a decline in key performance levels making it a very challenging year for the hospitality sector.

The main issues faced by the hotel industry were based in the geopolitical situation of the region such as lower oil prices, currency exchange fluctuations, regional unrest and weak European performance. 2017 will see a continuation of this trend while certain markets will hit its lowest point as demand and wider economic activity increases.

The competition amid new hotels and existing ones will be challenging to say the least as a number of markets in the region will see a major increase in supply and weaker market conditions in 2017.

Asia presents major opportunities

Naturally the new entrants in the hotel industry will adopt aggressive pricing strategies to claim their own market share whilst the existing hotels will defend their market share.

Kevork Deldelian, Chief Operating Officer, Middle East & Africa, told AMEinfo: “Increased competition with the opening of several properties in the last few months and pressure on companies’ travel budgets are among the factors driving down average hotel rates across the country.”

While Saudi Arabia continues to be a major source market for the region’s hospitality industry, China is another upcoming, significant source market.

Within the UAE Chinese visitors will get visa on arrival making it convenient for hotel customers to visit the country.

A similar plan is in the works for the Qatari market as well. This trend is plainly visible in the fact that in 2015, Dubai alone recorded 450,000 Chinese tourists, an increase of 29 per cent from the previous year.

Abu Dhabi Tourism and Culture Authority looks forward to welcoming 600,000 Chinese visitors to the emirate by 2021.

There is a significant increase in Chinese travellers across the world as illustrated by the Future of Chinese Travel Report which says that by 2023, annual Chinese arrivals globally will total nearly 97 million constituting an increase of five per cent per year.

Chinese visitors to Dubai alone are expected to rise to triple their numbers between 2013 and 2023.

Growth prospects on the horizon

There are a number of growth opportunities on the horizon in addition to the Chinese market. The challenge and the opportunity which presents itself to hotel operators is to use their creativity and find new and innovative ways of attracting guests whilst keeping their operations cost effective.

Instead of an individualistic attitude it would serve the hospitality industry better for hotel operators to join hands and promote their location collectively thereby raising the overall demand instead of competing for existing demand.

Swiss-Belhotel’s Massoud said that another area of growth in the increasing Pan –Arab tourism as well as India becoming a larger feeder market. A higher number of family leisure holidays will prove to be excellent opportunities for the industry.

The region has seen a rise in improved infrastructure, affordable choices and multiple options in amusement parks established recently as well as the ones under construction. The family segment will steadily grow in accordance with these factors.

Millennial travellers changing the hospitality landscape

According to the key factor in the rise of Mid-market hotels is the increase in emerging millennial travellers. While the GCC hospitality industry is dominated by luxury, up-market hotels the global traveller trends are fast changing.

Olivier Harnisch, Chief Executive Officer of Emaar Hospitality Group, says: “Our focus is not only on serving the luxury hospitality market of the city but also to create distinctive brand experiences that appeal to the new millennials and next generation of travellers.”

An increasing number of travellers are choosing to stay in affordable establishments despite having the financial ability to opt for more luxurious options.

This shift can be directly attributed to the rise of the affluent middle class, especially in Asia which has presented a great opportunity to the GCC hospitality industry.

Another important factor is the mega events like the Expo 2020 in Dubai as well as FIFA World Cup in Qatar which present a never before opportunity to the hotel operators to offer an increase in mid-market hotels.

Mass markets such as China and India offer an opportunity for the development of large scale tourism projects, the decrease in corporate travel budgets during tough economic periods and most importantly the consumer behavior of the millennial traveller.

It has now become crucial for the region’s hotel industry to address open its doors to welcome more budget friendly mid-market hotels.

Taking a closer look at the millennial traveller, it becomes obvious that their priority is quality which doesn’t necessarily translate into luxury. Instead of a preference for traditional luxury hotels with large impersonal rooms, the millennial traveller increasingly prefers the trendy and technology friendly hotels.

The key trends to look out for in 2017 include an increase in the source market including not only Saudi Arabia but also China and India.

Another trend to watch out for is the rise in demand for the mid market designer hotels instead of traditional luxury hotels. With the Expo 2020 around the corner the hotel industry will look to make the most of these opportunities.