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Dubai hospitality sector to become more competitive

DUBAI — Occupancy rates in Dubai's hotels are likely to drop in 2008 and pricing will become more competitive as more hotel rooms, especially four and five-star, come onto the market, according to property consultant Colliers International.

In its fourth quarter 2007 review of Dubai's hospitality sector, it states: "Despite Dubai being the de facto choice for GCC tourists and an increasing number of Western travellers, the sheer volume of new hotel supply is reason to believe that hotel operators will become increasingly competitive."

Some 1,294 rooms were added to Dubai's hotel room inventory between 2006 and the third quarter of 2007 as six new four and five star hotels were completed. Another 30 hotels slated for delivery this year remain under construction. As the release of this hotel stock gets carried over into 2008, Colliers anticipates a drop in occupancy levels, as "an increase in tourism is not expected to offset this supply injection".

It also believes that in the mid-to-long term, Dubai is at risk of an oversupply of four and five-star hotel rooms. In total, the number of hotel rooms is expected to increase by a CAGR of 32.7 per cent over the period 2007-2011, with a disproportionate number planned to enter the market between the third quarter of 2008 and the second quarter of 2009.

Colliers also projects that the slight decline in occupancy seen in 2006 compared to 2005 — from about 82 per cent to 80 per cent — to continue throughout this year and into 2008. But it adds: "Performance levels across the city may yet remain within globally acceptable levels of 60 per cent plus average annual occupancy, predicated on Dubai's tourism growth targets."

In the neighbouring emirate of Abu Dhabi, hotels are expected to maintain occupancy rates at prevailing levels and increase tourist numbers. In 2006 the emirate witnessed average hotel room occupancy rates of 78.6 per cent while serviced apartments achieved approximately 80 per cent. Average room rates (ARR) rose by about 40 per cent compared to the previous year, to $167 and $235 for four and five star rooms respectively.