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Hotels & Palaces

The Ritz-Carlton and Limestone House, DIFC, Dubai ... rising to completion.

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The Gulf’s hospitality sector seems to be shrugging off the effects of the economic downturn with 283 properties and well over 80,000 rooms to be added to the region’s tally.

01 November 2010

THE Middle East hospitality sector has jostled its way through the recession to remain reasonably busy this year, with the construction of several new hotel chains suggesting that although the region suffered some unavoidable delays and cancellations of projects, it has emerged less impacted than many other areas on the globe.

Gulf Business echoes this view. Despite taking some undeniable hits, the Gulf’s hospitality sector is in relatively good form, with this year’s pipeline of new hotel rooms confirmed as being the second largest on record, according to the magazine’s annual survey of the sector published in June.

A total of 48 new hotels with 14,178 rooms are expected to be opened by the end of this year at an estimated cost of $7.3 billion, according to a study conducted by Dubai-based research company Proleads early this year. Of this total, most of them will be located in the UAE (worth $4.4 billion) followed by Saudi Arabia ($1.2 billion), Qatar ($620 million), Bahrain ($490 million), Oman ($300 million) and Kuwait ($90 million), it says.

New hotels that are planned or under construction will add significantly to the room tally for the region. According to the August 2010 STR Global Construction Pipeline Report, a total of 449 hotels totalling 123,631 rooms are in the Middle East/Africa hotel development pipeline.

The Accor Pullman brand at Dubai’s Mall of Emirates ... welcoming guests.

Among the countries in the region the UAE has the largest number of rooms – 53,833 rooms – in the total active pipeline and 27,970 rooms in the construction phase. Saudi Arabia followed the UAE with 16,464 rooms in the total active pipeline and 7,895 rooms in the construction phase.

The Gulf Business annual survey which covers the GCC region – conducted by Dubai-based hospitality consulting specialist Viability – confirmed 283 planned hotels with 83,604 rooms as of May 2010, compared with 325 properties and 92,026 rooms at the same time last year – showing a drop of 20 and 19 per cent respectively – and 295 hotels with 82,357 rooms in 2008, which was itself an all-time record year.

According to the survey, US chain Marriott Hotels & Resorts topped the 2010 rankings for both hotels and rooms, with 29 properties and 9,572 rooms planned bearing the Marriott, JW Marriott, Courtyard by Marriott, Renaissance and Ritz-Carton brands. In second place, Accor’s pipeline comprises 23 hotels with 6,433 rooms under its 6,433 rooms under its Sofitel, Pullman, Novotel, Mercure and Ibis insignia.

Other chains in the top 10 places were, in order of their confirmed-room pipelines, Rotana, InterContinental, Millennium, Fairmont, Movenpick, Rezidor, Starwood and Golden Tulip. Each of these companies also has multiple brands, and each reported a pipeline of between 3,000 and 5,500 rooms.

The king guestroom at One & Only The Palm, Dubai ... majestic.

However, the positive trends run parallel to a somewhat subdued pace at which expansions and diversifications have been taking place within the region’s hotel sector.

Viability director Guy Wilkinson says that of some 80 hotel chains surveyed, 55 confirmed future GCC projects, with 19 chains each declaring more than 1,000 rooms under development, compared to 23 in 2009 and 20 in 2008. However, as a direct result of the current economic conditions, the number of hotel projects delayed has increased significantly since last year.

In contrast to the 83,600 confirmed hotel rooms that are going ahead, there were more than 11,000 rooms that were declared ‘on hold’ with no firm recommencement date and a further 5,400 rooms that had been cancelled altogether since the 2009 figures. Another 10,000 rooms were put on hold and 9,000 rooms cancelled outright last year, meaning that altogether, more than 35,000 potential hotel rooms have been prevented from reaching fruition since the recession set in, says Wilkinson.

The current economic conditions have caused the number of project delays to increase significantly since last year. Almost half (48 per cent) of the confirmed hotels that were also contained in the 2009 research have been delayed by between one and four years, compared to 38 per cent in 2009 and as many as 29 per cent of the 2010 projects were behind schedule by a year, explains Viability partner Barbara Wilkinson.

Some properties were less affected than others. For instance, the InterContinental Hotels Group (IHG) experienced only three cancelled projects out of almost 50 in the Middle East and North Africa over the past year.

And Starwood, which recently opened its 1,000th property worldwide, will debut in its 100th country later this year.
Local operator Hospitality Management Holdings (HMH), owner of the Coral brand, sees no reason to scale down. “The year 2010 is set to be a landmark year for our group with a hotel opening practically every three weeks across our four brands. We have 17 new openings lined up, taking our existing portfolio of 33 to 50 – thus increasing the group’s total number of rooms by more than 40 per cent,” Gulf Business quotes HMH chief executive officer Michel Noblet as saying.

Emaar Hospitality Group and Emaar Hotels & Resorts, operator of Dubai’s five upscale hotels of The Address brand is also optimistic: “We see positive trends throughout all GCC countries. In fact, The Address Hotels & Resorts launched and built its portfolio during the thick of the financial crisis,” says a spokesman for the group.

In general, the UAE remains the hotspot for hotel development in the GCC, with 163 confirmed hotel projects containing almost 52,000 rooms, equivalent to 58 per cent of the total planned GCC hotels and 62 per cent of the rooms.

According to STR Global, Dubai’s hotel pipeline as of August this year leads all cities in the Middle East by a wide margin in terms of number of rooms with a total active pipeline of 31,512 rooms and 16,307 rooms in the construction phase.

Tourism officials in Dubai do not see the influx of new rooms into the market as a source of concern, but rather an opportunity for the emirate to attract more guests in the wake of the recession.

Khalid bin Sulayem, director general of Dubai Tourism and Commerce Marketing Department, said recently that new supply will lead to lower room rates, which will help make the emirate more competitive as a tourist destination.
“There are between 16,000 and 20,000 hotel rooms to enter the Dubai market by the end of the year, which will contribute to producing lower room rates and attracting more visitors to Dubai,” he said.

By comparison, Abu Dhabi, the next most active market in the UAE, has 14,749 rooms in the total active pipeline and 7,884 rooms in the construction phase. Tourism Development & Investment Company (TDIC), the master-developer of cultural, residential, and tourism destinations in Abu Dhabi, is spearheading the development of a large number of these hotels and indicates that it is set to deliver over 1,800 hotel rooms by 2012 along with its joint venture partners.

“Along with our joint venture partners, TDIC successfully delivered over 1,200 new hotel rooms to Abu Dhabi in 2009. These developments support Abu Dhabi’s ambition to become a distinctive destination for international tourists, and provide much needed quantity and a variety of accommodation in the capital. There is no doubt that 2010 and 2011 will prove to be just as exciting as we continue to be one of the leaders in shaping Abu Dhabi’s tourism offering,” says TDIC chief executive officer Lee Tabler.

By 2012, TDIC will have delivered a total of 3,000 hotels rooms thereby supporting Abu Dhabi Tourism Authority’s (ADTA) aim to attract 2.3 million guests to Abu Dhabi by the same date. This includes the 1,200 delivered in 2009 and the 1,800 to be delivered in 2010 and 2011.

Trends
While Dubai currently has the largest number of hotels in the pipeline, a shift in this trend is becoming evident for many reasons: A dangerously oversupplied Dubai market has encouraged regional tour operators to look in the direction of Saudi Arabia, which they believe holds tremendous potential due to its growing economic prowess and population and self-contained domestic travel and tourism market.

According to Wilkinson, no less than 20 of HMH’s 33 hotels are in the kingdom, while Golden Tulip plans to increase its Saudi portfolio from 15 to 30 hotels in the next few years.

Another reason why Saudi Arabia has emerged the lead choice of operators is its mid-market potency. Return-focused investors in the GCC have, in general, started looking at mid-scale hotels as against five-star palaces. “Most operators in fact perceive mid-market and economy brands to represent the next great opportunity for hotel development in the GCC,” says Wilkinson, substantiating his stand with numerous examples. “Starwood, which had some years ago been active solely in the luxury segment, is this year pushing its so-called ‘select service’ brands – Aloft, Element and Four Points by Sheraton. Louvre Hotels, owned by Starwood Hotels & Resorts offshoot Starwood Capital, will soon be rolling out its economy brands Campanile and Premiere Classe via an alliance with Flamingo Hotel Management, the Middle East representatives of Golden Tulip, which was recently purchased by Louvre.

“Even Marriott is making its mid-scale Residence Inn brand available for the first time in the region, and already reports strong interest from investors.

“In Dubai, the first of a new midscale called Citymax, part of the successful Landmark Gulf Group retail empire, is opening imminently beside the Mall of the Emirates with two more properties coming up soon in Bur Dubai and Sharjah.”

Commenting on other trends in the market, Wilkinson believes that “more amazing projects” still to come.

“Whether projects left over from the glory days of the boom, or others newly conceived since times got tough, expect to see some extraordinary hotels coming up between now and 2015,” he says.

“Counter-intuitive though it may seem, but there are more confirmed ‘mega hotels’ than ever. No less than 35 or 12 per cent of the 283 projects (which for the purposes of our survey includes project phases) comprise more than 500 letting units each,” he says.

The biggest of them is Fairmont’s upcoming 2,775-unit combined property next to the Haram (Grand Mosque) in Makkah, comprising the Makkah Royal Clock Tower, the Raffles Makkah (205 rooms, 2010) and the Swissötel Makkah (no less than 1,570 rooms, opening next year). Other large Fairmonts will open on The Palm in Dubai (877 units), in Bahrain (Sofitel Bahrain Zallaq Beach with 750), and Abu Dhabi (746), Wilkinson says.

Marriott’s Ritz-Carlton brand, meanwhile, is mainly known for its small, exclusive properties, but in the case of Riyadh, will open a large and exclusive hotel by 2014, with 1,350 units. The upcoming JW Marriott in Abu Dhabi will have 669 units (2011).

Millennium is consolidating its presence in its home town of Abu Dhabi with no less than four towering, upscale properties: the 850-room Grand Millennium Al Wahda Tower (see separate report), the 725-room Grand Millennium Capital Centre, the 638-room Bab Al Qasr and the 773-unit Grand Millennium Corniche.

Also joining the “mega” hotels bandwagon will be the JW Marriott Marquis, which will open in Dubai in two phases in 2011 and 2013 respectively, with 807 units in each phase; and the former Bavaria Suites in Dubai, now rebranded as the Gloria Hotel Media City, which will finally open the first of its two buildings later this year, with 1,010 units. The second, 1,090-unit building is scheduled to debut in 2011.

Link for the graph:

Link for the Upcoming hotels in the UAE (graph):

Link for the Upcoming hotel chains in Saudi Arabia (graph):