Dubai continues to be the best-performing hotel market in the Middle East, as the emirate leverages its expanding travel and tourism infrastructure, and traditional destinations struggle to win back visitors amid ongoing political unrest.

In 2013, Dubai received more than 11 million hotel guests, an increase of 10.6 per cent on 2012, with combined revenues for operators totalling AED21.8bn ($5.9bn) for the year. The emirate was able to sustain average occupancy of 80 per cent last year, despite the entry of 12 new hotels with more than 4,000 rooms into the market. The jump in visitor numbers was largely due to increased arrivals from Saudi Arabia, China and Australia – the latter the result of the tie-up between Emirates and Qantas airlines. The strong performance has continued in 2014, with occupancy still about 80 per cent in the first quarter of the year.

Dubai’s strength

“The strength of Dubai’s hotel market can be attributed to the diverse demands it caters to, whether corporate, leisure, sports, and so on,” says Chris Hewett of the UK’s TRI Hospitality Consulting. “If there is a small reduction in one, it is made up for by an increase in another.” The fortunes of the emirate’s hotel industry contrast starkly with those of Egypt, Jordan and Lebanon, markets that have been hit by unrest since 2011. They have seen conditions in the tourism industry continue to deteriorate in the past year.

Several key regional markets have been closed due to instability, namely, Egypt, Lebanon and Syria

Chris Hewett, TRI Hospitality Consulting

Occupancy in Cairo dropped to 24 per cent in 2013, as a counter-coup in July threw Egypt into chaos once more. Hotels in the beach resort of Sharm el-Sheikh, famed the world over for its diving, also saw bookings plummet as terror attacks were mounted in the Sinai peninsula, previously unaffected by violence. In total, 9.5 million tourists stayed in Egypt’s hotels last year compared with 14.7 million in 2010, which was a record year for most tourism markets in the Middle East. Room yields in Cairo average about $20 in January, compared with $294 in Dubai, according to the UK’s EY.

Having been one of the fastest-growing tourism destinations in the world in the late 2000s, Lebanon is once again struggling to attract visitors as Syria’s civil war spills over its borders. Average room rates in Beirut were down 16 per cent last year compared with 2012. However, the discounting failed to support occupancy, which slipped to 51 per cent. Lebanon received 1.3 million visitors last year, about 50 per cent lower than the 2.2 million arrivals seen in 2010.

Regional turmoil is also deterring tourists from travelling to Jordan. Hotel occupancy in Amman fell to 61 per cent in 2013 from 69 per cent in 2012. The number of visitors to the city of Petra has halved in the past three years. 

Dubai has benefited hugely from the slump in these markets, as has Jeddah, the second-best performing hotel market in the region. The city, which is Saudi Arabia’s commercial capital and main entry point for pilgrims travelling to Mecca, has seen average occupancy of 79 per cent over the past two years, and has been able to push up average room rates by nearly 10 per cent. This is despite the outbreak of the coronavirus Mers causing the number of Hajj visas to be reduced last year. Riyadh, by contrast, achieved occupancy of 58 per cent in 2013.

The strong performance of the hotel industry in Jeddah can in part be attributed to an increase in economic activity in the kingdom on the back of the government’s major infrastructure building programme, but it is also due to the growth in the local travel market.

“In the past couple of years, several key regional markets have been closed due to instability, namely, Egypt, Lebanon and Syria, which are traditionally very strong markets for Saudi nationals,” says Hewett. “This has resulted in a very large staycation market developing within the kingdom, which has boosted hotel demand during the weekend and holiday periods.”

Morocco rallies

The other travel market to have benefited from the regional unrest is Morocco. With the memory of the 2011 terrorist attack in Marrakech fading, it was able to record a 7 per cent jump in tourist arrivals in 2013 to 10 million, earning the country MAD57.5bn ($7.1bn). But with hotel capacity rising 6 per cent a year on average since 2010, occupancy remains low, at about 37 per cent in January.

Tunisia’s tourism industry, meanwhile, is gradually recovering after declining sharply in the wake of its revolution. The political transition has been far smoother there than elsewhere, and in 2013, visitor numbers climbed to 6.3 million, up 31 per cent compared with 2011 and a year-on-year rise of 5.3 per cent.

Abu Dhabi is the other major Middle East hotel market showing significant improvement. It was able to raise average room rates by 6 per cent and achieve occupancy of 77 per cent last year, even as new properties continue to enter its market. This was made possible through an 18 per cent increase in guests over the course of the year on the back of state carrier Etihad Airways’ expanding route network. Total revenue for the hotel sector jumped 18 per cent to AED5.5bn, according to Abu Dhabi Tourism & Culture Authority.

Qatar overcapacity

Qatar’s hotel sector remains under pressure, however, with occupancy and room rates falling as new stock continues to be added in preparation for staging the Fifa World Cup in 2022. Average occupancy last year was 64 per cent. Ever since Doha won the right to host the event in December 2010, there have been growing concerns about overcapacity in the hospitality industry before and after the tournament. But the government appears to have responded to those worries by reviewing its hotel build-out plans.

Qatar’s National Tourism Sector Strategy 2030, published in February, states the optimal number of hotel rooms in the country in 2022 will be 27,600-30,500, rising to 56,100-62,000 in 2030. In its bid documents, Doha had said it would look to have more than 90,000 hotel rooms available by the time of the World Cup.

“This is substantially lower than the original amount based on Fifa requirements,” says Hewett. “They will probably still build the rooms, but in different forms of accommodation, such as apartments that can be sold after, and they are also talking about cruise ships.”

In 2012, there were 13,407 rooms available in Qatar, so the 2022 figure still represents a more than doubling of stock, but the lower target will reduce the impact on hotel performance in the short and long term and make the market more attractive to investors. Occupancy and room rates are likely to continue to erode in the interim, however. By 2030, Qatar hopes to receive 7 million tourists a year. In 2012, 1.2 million people visited the gas-rich state.

Dubai also has plans to double its hotel stock, but given the recent record-breaking performance of its business and leisure travel markets, there is no huge concern about the impact on occupancy and room rates, although in the short term, they may start to edge down slightly.

The emirate is aiming to double to number of visitors to 20 million by 2020 through the development of new tourism attractions, and estimates it will require up to 160,000 rooms to accommodate them. Dubai’s hosting of the Expo 2020 should also help it to achieve these targets. As of March, Dubai’s Department of Tourism & Commerce Marketing said there were 99 new hotels and 48 hotel apartment buildings in the development pipeline for 2014-16, which once completed will take the total supply to 751 hotel establishments and just under 114,000 rooms. In January, Dubai had 83,979 rooms.

Financial ruin

But while hoteliers in Dubai and Qatar look forward to the future with optimism, many in Egypt, Lebanon and Jordan are facing financial ruin. With visitor numbers showing no signs of recovering in 2014, some owners are choosing to shutter their properties and lay off staff rather than continue to lose money on salaries and electricity and water. In February, arrivals to Egypt were down 27 per cent year-on-year, as concerns over security remain ahead of presidential elections planned for the end of May.

With the travel and tourism industry an important provider of jobs and economic
activity, the downturn carries wider social implications for a region that desperately needs to create more jobs in order to bring down unemployment rates.

Lack of jobs was a key driver of the unrest that engulfed the Middle East in 2011. While those markets may have an interesting history and immense natural beauty that are unrivalled in the region, their appeal to visitors is lost without political stability. When it comes to the Middle East in particular, tourists want a safe haven.