Arab Spring boosts Dubai hoteliers

Dubai’s debt problems have made headlines throughout the past two years, but the emirate’s political stability and heavy investment in infrastructure is seeing it gain from the uncertainty caused by the regional unrest   

The 550 hoteliers packed into Dubai’s Madinat Jumeirah Conference Centre for this week’s Arabian Hotel Investment Conference 2011 (AHIC) confirmed what many people in the emirate suspected, that Dubai, in business terms at least, has gained most from the Arab Spring. And in particular, Dubai’s hotel and tourism industry.

According to data from the US tourism tracking agency STR Global, Dubai’s hotels are experiencing occupancy rates of about 80 per cent. That is a very strong performance, especially when you consider that a high volume of new hotel capacity has come onto the emirate’s market recently.

In a conversation on the sidelines of AHIC, STR’s managing director Elizabeth Randall said there were several factors behind Dubai’s success story. Firstly, many families in the region, and particularly families from Saudi Arabia, have chosen to take holidays in Dubai, instead of traditional destinations such as Jordan, Egypt, Syria and Lebanon, where they are seeing often-violent TV images of government crackdown’s on protests.

Bahrain’s ongoing troubles are a second key factor in Dubai’s tourism boost. As a long-standing centre for business in the Gulf, and as a well-supported location for companies serving Saudi Arabia’s Eastern Province, Manama has for years been one of the region’s most important business hubs. But the social and political uncertainty in the kingdom caused by the protests, and the government’s brutal crackdown, has forced many business travellers and events companies to move their meetings to nearby Dubai. The postponement of the Formula 1 Grand Prix in March is the most high profile, but it is not the only one.  

Bahrain has, without doubt, lost most in the Gulf from the Arab Spring.

It is not only Dubai’s hotel industry that is bouncing back, capital inflows into the emirate are slowly boosting money supply, and the price of credit default swaps (CDS) for Dubai – the cost of insuring yourself against Dubai failing to repay its debt –has fallen to around 350 basis points, down from 500 basis points a year ago (although, at 260 basis points, Bahrain CDS are still cheaper).  

But while the political uncertainty may have been the catalyst for Dubai’s economic boost, perhaps the most important factor is that Dubai has been in a position to take advantage of the opportunity.

Many people have enjoyed the schadenfreude of seeing Dubai’s real estate bust over the past few years, and in particular its humiliation as it struggled to get to grips with its huge borrowings. The emirate will be carrying its heavy debt burden for many years, and oversupply will hinder the recovery of its real estate sector. So far Dubai has been able to restructure the most pressing of its debt problems, and real estate globally is in the doldrums.

Dubai is now reaping the benefits of having invested heavily to develop world-class infrastructure that supports, among other things, a multi-faceted tourism industry catering for all sectors from family package holidays through to budget business travellers.