It has been a year of turmoil in the Middle East and North Africa, with uprisings from Bahrain to Tunisia challenging the regional status quo and inflicting significant economic damage. Yet in one state, at least, there have been significant gains. Dubai, the hardest hit market during the global financial crisis of 2008-2009, is beginning to restore its reputation as the Gulf’s hospitality powerhouse, lifting tourism in the UAE despite ongoing economic chaos abroad.

If you just walk down the street in Dubai right now, you see people thronging through the markets

Peter Goddard, TRI Hospitality

According to London-headquartered hospitality analysts STR Consulting, the hotel occupancy rate in Dubai was 71.9 per cent in September 2011, a 13.2 per cent increase from the 63.6 per cent occupancy rate recorded in September 2010. Meanwhile, the weighted average occupancy rate for the 12 months to September 2011 was an even more impressive 73.2 per cent, compared to 68.6 per cent for the same period last year.

Room rates in the UAE

Average daily rates (ADRs) – the amount hotels charge for rooms – also rose over the past year in Dubai, according to STR. In September 2010, the ADR in Dubai was AED648.59 ($176.6); a year later it was AED689.79, a 6.4 per cent rise. As a 12-month average, ADR rose 1.2 per cent in 2010-2011 to AED763.05.

“What we see in Dubai is far more than most hotel general managers had budgeted for,” says Hala Matar Choufany, managing director at the Dubai branch of the US’ HVS Global Hospitality Services.

Yet in Abu Dhabi, there is a different story to tell. Although occupancy rates rose significantly year-on-year, to 62.4 per cent in September 2011 from 57.4 per cent in the same month of 2010, they are still significantly lower than in hotels in Dubai.

Meanwhile, the rates charged for those rooms actually fell during 2011, with ADR in September 2011 at AED511.07, down 1.8 per cent from AED520.56 a year before. When calculated for the 12 months to September 2011, the drop in rates for Abu Dhabi hotels was an even more pronounced 17.1 per cent, with rooms commanding AED576.72 on average in 2010-2011, compared to AED695.36 in 2009-2010.

Abu Dhabi has been suffering from an oversupply of rooms and a shift in patterns of demand

Hala Matar Choufany, HVS Global Hospitality Services

On the positive side, overall visitor numbers rose in Abu Dhabi. According to the Abu Dhabi Tourism Authority (ADTA), the emirate’s hotels catered for 866,501 guests between January and May 2011, an increase of 10 per cent year-on year, while total revenues climbed 6 per cent to AED1.9bn. Industry analysts attribute this to high-quality service and lower room rates. By September, the number of guests for the year had increased to 1.4 million, with ADTA confident that total visitor numbers will hit 2 million for the year. Dubai’s total visitor numbers, meanwhile, could hit an impressive 10 million by the end of December.

Overall, STR data shows that hotel occupancy registered positive growth across the UAE over the past year, even though room rates were lower on average for the 12 months to September, largely because of the drag caused by Abu Dhabi. Overall occupancy was up 8 per cent, while ADR across the country was down 2.6 per cent.

It is, says STR analyst Konstanze Auernheimer, a tale of two cities, with the arrival of significant new room capacities in Abu Dhabi, and troubles in other regional service hubs, largely driving the divergence between the emirates.

“Dubai was suffering from oversupply in 2008-2009,” she says. “[The emirate] started to recover just as the hotels built on Yas Island in Abu Dhabi came online. Now, in Abu Dhabi, there is a lot of supply in the market as more [hotels] came online later and there are more to come. Both markets are trending towards a recovery, but there is a definite time lag between them.”

According to STR, a total of 13,534 rooms could be added to Abu Dhabi’s total hotel capacity in the coming years if the current project pipeline is maintained. A similar number is currently under construction in Dubai. However, in the latter emirate the onus is on economy and mid-scale offerings, while Abu Dhabi hotels are still largely focused on luxury and up-scale developments.

Brand recognition for Dubai

Peter Goddard, managing director at Dubai-headquartered consultancy TRI Hospitality, believes there are several reasons why Dubai has outperformed its neighbour.

“Dubai has benefitted from the disturbances across the region,” he says. “Abu Dhabi hasn’t got the brand recognition that Dubai has; it is a much more specialised market, while Dubai has more mass-market appeal. If you just walk down the street in Dubai right now, you see people thronging through the markets.”

Choufany agrees that Dubai’s status as a leisure market has allowed it to capture huge numbers of visitors who would otherwise have travelled to Egypt, Syria or even Lebanon. “The leisure market has effectively been rerouted to Dubai,” she says.

“It is a much more well-developed market and has a lot of the infrastructure in place, so it was more a matter of welcoming growth back after the crisis.”

The recent uptick in hotel trade also has a lot to do with unrest in nearby Bahrain, traditionally a competitor for the crown of regional services hub, Choufany says. “It is hard to put a figure on it, although I think it is definitely significant,” Goddard adds.

Certainly, Bahrain’s hospitality sector has had the worst year of all the Gulf states, with occupancy falling to about 43 per cent in September 2011, compared to 60 per cent a year earlier.

Another factor may be the explosion of the East Asian tourism market, Goddard says. “The Chinese market in particular has been driving things over the past year,” he says, adding that Russian travellers have also had a major impact on visitor numbers.

Nationalities visiting the UAE

The most recent statistics on the nationality of Dubai’s hotel visitors are for January to June 2010. They show that most visitors to the emirate are European, with 1.25 million Europeans staying in Dubai hotels during the first six months of that year.

The most significant growth in the number of visitors was attributed to guests from China and Russia.

While European visitors grew just 3 per cent during the six-month period, the number of East Asians visiting the emirate’s hotels jumped 17 per cent to 1.1 million, topping the million mark for the first time.

The number of Chinese visitors increased an enormous 57 per cent during this period, with 81,932 Chinese hotel guests staying in Dubai compared to 52,168 a year earlier.

Visitors from Russia, the Baltic and the Commonwealth of Independent States rose some 17 per cent year-on-year during the first six months of 2010, with Azerbaijani visitors rising 149 per cent to 25,167.

Growth in visitors to Abu Dhabi, meanwhile, was primarily driven by arrivals from the GCC, which were up 56 per cent year-on-year in September 2011, along with European guests. The number of visitors from the UK, France and Germany rose 24, 18 and 17 per cent respectively, according to ADTA.

A contributing factor to the influx of visitors to Dubai is the large numbers of passengers flown through the city by state-owned airline Emirates, Choufany adds. Dubai airport is the busiest in the region, catering for 47.2 million passengers in 2010, a 14 per cent increase on the 40.1 million passengers who passed through in 2009. This figure is set to top 50 million in 2011, according to industry analysts. The nearest terminal in terms of passenger numbers is Riyadh airport, which dealt with 13.9 passengers in 2010, less than a third of the total for Dubai. Abu Dhabi trailed both, with 10.5 million travellers passing through its international airport in 2010.

In 2010, Emirates added flights to Prague, Tokyo and Amsterdam. In the same year, the airline announced that it was operating more daily flights and carrying more passengers to and from China than the US, largely because of the number of businessmen on board.

Changing fortunes for UAE hotels market

While Dubai has been in the ascendant, Abu Dhabi has been suffering from a combination of oversupply of rooms and a shift in patterns of demand, Choufany says.

“[During] 2008-2009, the room rates in Abu Dhabi were well above those in Dubai,” she explains. “But that wasn’t because of tourism, it was because of employees and people coming to Abu Dhabi for work. But the residential housing market wasn’t there to meet the demand. Now, those same people have either found homes or have been affected by the slowdown in business in Abu Dhabi itself.”

Dubai, she adds, is ahead of the curve, with developers now focusing on mid-scale and economy accommodation as the city repositions itself for the mass tourism and commercial markets, rather than trying to sell an image of opulence and luxury. In Abu Dhabi, many hotel projects were planned before the financial crisis and are targeted at high-end customers.

Regardless, visitor numbers are likely to continue to rise in 2012, according to all the analysts interviewed for this piece, despite the ill economic winds that are spreading once more over Europe and North America.

Corporate travellers are likely to see Dubai as a far more attractive destination while tensions continue in Bahrain and elsewhere, and Arab tourists, especially wealthy Gulf travellers, are likely to replace any lost custom from the US and Europe. For Dubai in particular, that can only be good news.