Visitors to Abu Dhabi know that trying to secure one of the emirate’s 12,000 hotel rooms at a reasonable price can
be far from easy. During the peak conference months of October, November, February and March, Abu Dhabi’s 97 hotels are frequently fully occupied.
Average annual occupancy levels exceeded 80 per cent in 2006 and 2007, hitting 85 per cent in 2008. Finding a hotel room has become so tough that many frustrated visitors have been forced to stay in neighbouring Dubai and commute the 120 kilometres between the two cities.
Given this high demand, many hotel owners have also been increasing their rates. Room prices in the emirate – which averaged AED1,057 ($288) a night in the first six months of 2009 – have more than doubled since 2004 despite the market being dominated by properties that are more than 15 years old.
While the market remains under-supplied, a series of hotel developments planned for the next five years are intended to bridge the gap and keep pace with a strong increase in demand. Up to 60 new hotels will be built in Abu Dhabi by 2015, with new investment hitting AED11bn ($3bn), according to the latest tourism strategy laid out by the Abu Dhabi Executive Council.
The investment appears well justified. Abu Dhabi Airports Company recorded a 26 per cent increase in passenger numbers in 2008 compared with the previous year, with 8.8 million people passing through its airport.
The government has set a target of attracting 2.3 million tourists by 2013, compared with 1.5 million in 2008. The emirate’s hotel stock will need to nearly double to 21,000 rooms to meet this projected demand. By 2020, Abu Dhabi’s Vision 2030 report predicts about 50,000 hotel rooms will be available to tourists. That number will increase again to just short of 75,000 rooms by 2030 to meet projected demand of 7.9 million tourists who will visit the emirate each year.
These predictions for visitor growth mean the potential for profits among hotel developers and contractors is also strong. Abu Dhabi’s government expects income from the hotel sector to increase fourfold from AED1bn in 2005 to AED4bn in 2015, with about 21,000 jobs to be created over the same period. For the wider tourism industry beyond hotels, the state has forecast AED26bn worth of investment opportunities and the creation of an estimated 43,000 new jobs.
Despite the impressive numbers, Abu Dhabi has not been immune to the global economic crisis. In May 2009, the Abu Dhabi Tourism Authority (Adta) downgraded its hotel guest target for 2012 to 2.3 million people from its original 2.7 million forecast.
However, Adta is proceeding with its plan to increase the number of hotel rooms in the emirate. Lawrence Franklin, director of strategy at the authority, says a series of projects due to come on line in the next few years are well overdue.
“There has been very strong growth over the past four to five years in terms of arrivals that just hasn’t been matched by growth in room capacity,” says Franklin. “The result has been good operating conditions for investors and owners, but it has also created some challenges at the same time, in terms of our prices and the development of events and business tourism.”
While the yearly increase in hotel rooms for 2009 is a modest 2 per cent, according to Dubai-based TRI Hospitality Consulting, 2010 will deliver 45 per cent growth, taking the number of rooms to 17,688 by the end of the year. For 2011, Abu Dhabi is poised for another 45 per cent jump, with the total number of rooms expected to top 25,000, assuming planned hotel projects are completed on time.
Adta has similar targets. Franklin expects 10,000 rooms to be delivered by the end of 2010, with a further 7,000 due in 2011. The authority remains confident it can hit its target of 24,000 rooms by 2012.
Much of the emirate’s hotel plans are centred on major developments including Yas Island, Saadiyat Island, Reem Island, Lulu Island, the capital district and Al-Raha Beach.
These mixed-use projects are projected to collectively add 97 hotels and 34,500 rooms over the next 10 years as the emirate looks to develop the leisure side of its tourism business.
“There are big opportunities for us in terms of building the leisure tourism sector,” says Franklin. “We want to aggressively tap into stopover traffic and showcase our new range of facilities.”
In the short term, much of the focus has been on the simultaneous launch of seven hotels on Yas Island by 1 November. The deadline had to be met as all hotels were fully booked as part of the first Formula One Grand Prix at the island’s new racetrack.
The hotel companies involved in the project are IHG, Rotana and Belgium’s Rezidor Hotel Group, which operates the Radisson SAS and Park Inn hotels. Between them, they will provide an extra 2,298 rooms in four five-star, one four-star and two three-star hotels.
Local developer Rotana is embarking on an expansion in the emirate to build on its four existing Abu Dhabi hotels: Al-Maha Arjaan (228 rooms), Al-Rawda Arjaan (109 rooms), Beach Rotana (565 rooms) and Al-Ain Rotana (200 rooms).
Rotana has two hotels opening on Yas Island, with a further four to be launched elsewhere in Abu Dhabi by the end of 2009.
Much more growth is planned, with five hotels due to open in 2010 and two further hotels to come on line in 2012. Selim el-Zyr, chief executive officer of Rotana, says its two hotels on Yas Island – Centro Yas Island and Yas Island Rotana – are on schedule to open by 15 October.
“We are looking forward to the launch and see the [Yas Island] development as having a lot of potential to become a prime player in the Abu Dhabi and UAE market” he says.
Elsewhere in the emirate, Abu Dhabi National Exhibition Company (Adnec) also has an important role to play in the growth of the hotel sector.
The government-run developer is master planner of Capital Centre, a 23-tower micro city adjacent to the exhibition centre.
In its role as chief regulator of exhibitions and conferences in Abu Dhabi, Adnec has commissioned US hospitality company Starwood to operate several of its hotels including Aloft Abu Dhabi, which is aimed at business and leisure travellers, and Element Abu Dhabi, which caters for business travellers on extended stays.
Sanjay Tanna, business development director at Adnec, says the main idea behind hotel developments on-site is to dissuade customers from making an unnecessary commute from the city to the conference centre during peak traffic hours.
“The cost of exhibiting internationally can be daunting,” says Tanna. “Most of our clients are demanding a wider range of accommodation options, from affordable and convenient to extremely luxurious, and our on-site hotel developments will serve [that need].”
The Aloft was due to be completed by the end of October, with the Hyatt at Capital Centre due to open its doors in the fourth quarter of 2010.
Consultants who spoke to MEED maintain that almost all of the ongoing developments tied to government-run companies, such as Yas Island, are likely to go ahead.
“Places like Saadiyat, Yas Island and the Capital Centre will essentially create their own demand,” says John Podaras, associate director at TRI Hospitality Consulting. “Because of these developments, we see a very sharp increase in supply, and estimate that if all projects go ahead, we will actually be in an over-supply situation in 2012.”
Podaras expects several private developers to delay their hotel projects over the coming years. “We are seeing a degree of slippage on those [private] projects,” he says.
“We phone developers on a daily basis and the dates we are getting back vary quite sharply. That may mean the sharp peak is delayed until 2013.”
One Dubai-based hotel consultant estimates that at least a fifth of current developments may never be completed. “Eighty per cent of hotels will get built but some of it will fall by the wayside because it always does,” says the consultant. “A lot of the 400 or 500-bed hotels may actually come in at 300 or 350 beds. There will be changes in the next few years on those official targets.”
While some developments seem certain to be delayed, in the interim Adta is determined to make sure the hotel sector is regulated and supervised proactively. Over the past year, it has undertaken an extensive review of the emirate’s classification criteria to match hotels in the sector with international standards.
Franklin says Adta is doing more to meet the changing needs of the hotel sector.
“We actually do have an approval role in some stages of the development of accommodation as well as licensing and classification,” he says. “It means people staying at hotels get more surety in terms of what they are getting for they dollar or dirham.”
The classification system is separate from Dubai’s, however. “This is exactly what you don’t want: one system for Dubai and one for Abu Dhabi,” says the hotel consultant. “There really ought to be one across the GCC, or at the very least the UAE, but we are not at that stage of thinking yet.”
Rotana’s El-Zyr says he is glad to see Adta take a more proactive role in capping hotel rates during large conferences and -exhibitions.
“Adta has put in a ceiling for hotel rates during the Grand Prix,” says El-Zyr. “Some people who have stayed at hotels have been abused in certain situations in the past so it is good to see that situation changed.”
For Franklin, the current focus is on meeting the immediate demand for more rooms in the emirate and continuing to drive tourism growth.
“There is a lot of capacity coming down the line and the reality is that will change the demand and supply dynamics in the market,” says Franklin. “Meeting our targets will require some strong effort in terms of growth rates, but we think it is achievable.”