Dubai hotel industry experiences room crunch

Home to some of the most spectacular realty projects in the world and top grade infrastructure and shopping facilities, Dubai is fast emerging as the tourism capital of the Middle East. More than 6.5 billion visitors visited the emirate in 2007 and with scores of other infrastructure projects and attractions in the pipeline; Dubai is expected to draw some 15 million tourists yearly by 2010.

At present, over 300,000 hotel rooms are available for use in the Dubai hospitality market, 60% of which are in the 4- or 5-star category.

Hotels in Dubai have an average annual occupancy of 85% which is one of the highest room-occupancy rates in the world. It then, comes as no surprise as to why the UAE hospitality industry is held in such high regard by regional and international investors.

Research by Jones Lang LaSalle Hotels indicates that owing to the growing influx of tourists, the market could be under-supplied by some 8,000 to 10,000 rooms by 2012 while maintaining a market wide occupancy of 75%.

A study conducted for the Government of UAE also comes up with similar results. According to the report, tourism in the country along with transportation and trade would post remarkable gains in the next decade.

The increasing inflow of visitors to Dubai is sustained by following factors:

• Rising popularity of Brand Dubai in countries like China, Western and Eastern Europe, India and South Asia
• Diverse product offerings
• Entry of budget hotel groups like Travel Inn, Holiday Inn Express, Premier Inn and EasyHotels
• Increasing airline capacity; major domestic airline companies like Emirates, Etihad, Air Arabia, Jazeera and international carriers like Virgin Atlantic and Aer Lingus have reduced airfare, simultaneously introducing flights to emerging markets thereby making UAE and especially Dubai accessible to price-sensitive travelers
• Growth in cultural tourism in previously un-tapped markets of Abu Dhabi, the Northern Emirates, Fujairah in the UAE and neighbouring Oman

Recently there has been a dramatic surge in capital outflow from the GCC countries. Middle Eastern investments in the European hotel industry more than doubled between 2005 and 2006, representing 9.2% of the total transaction volume in 2007, according to Jones Lang LaSalle Hotels' research. In the Asia Pacific region, Middle Eastern investors contributed approximately 5% of total transaction volume.

Some of the main hotel acquisitions made by Middle Eastern investors during 2006 include:

• Crowne Plaza Karon Beach , Thailand acquired by Kingdom Hotel Investments ( Kingdom of Saudi Arabia)
• W Hotel Times Square New York, acquired by Istithmar ( Dubai)
• Travelodge UK Portfolio (291 hotels) acquired by Dubai International Capital ( Dubai)
• Grosvenor House Serviced Apartments, London, acquired by a undisclosed Middle Eastern buyer
• The Mandarin Oriental, New York acquired by Istithmar ( Dubai)
• Le Meridien Gallia Hotel in Milan acquired by Qatar Investment Authority ( Qatar)

Middle Eastern investors exported in excess of US$3.5 billion into the international hotel market in 2007, with additional US$2 billion during the first quarter.

To cater to the millions of visitors to Dubai every year and to resolve the problem of room shortage, the Government of Dubai launched in 2006, Bawadi, an ambitious hospitality project of entertainment and leisure zones, hotel brands, convention centres and shopping malls in Dubailand.