Within the space of the past few weeks, two luxury hotels have opened for business in Doha. Between them, St Regis Doha and Hilton Doha have added 645 rooms to the city’s hotel supply.

About 11 hotels are expected to open in Qatar this year and they follow the addition of 25 new hotels and 10 hotel apartments in the third quarter of last year alone. This spate of new openings is contributing to a fall in occupancy rates in Qatar and putting pressure on other key sector indicators.

Demand is there and it is growing, but in the short-term, we are seeing supply growing faster

Konstanze Auernheimer, STR Global

According to hospitality industry tracker STR Global, for 2011 as a whole, occupancy rates were flat in Qatar at 60.6 per cent, despite the flood of new capacity towards the end of the year. The average daily room rate (ADR) actually climbed last year to $231, from $229 in 2010 and revenue per room (Revpar) also rose 0.8 per cent. But since the start of 2012, performance has been deteriorating. Average occupancy in the first quarter was 63.5 per cent, some 10 per cent lower than in the first quarter of 2011. ADR, meanwhile, was down 4.2 per cent year-on-year and Revpar fell 14 per cent.

Overcapacity threat

As more hotels enter the market throughout this year and next, the hospitality industry will come under further pressure and the possibility of severe overcapacity looms. At the end of 2011, Qatar had 74 hotels with a total of 15,312 beds. By the end of 2013, the total number of rooms is expected to have doubled to reach about 30,000. At present, there are 77  hotels planned or under construction in Qatar, which will deliver more than 17,000 rooms.

The massive build-up in hotel capacity follows Qatar’s successful bid in December 2010 to host the 2022 football World Cup. In its proposal, the country committed to supplying 90,000 hotel rooms for the tournament. From 2014 onwards, 5,000 new rooms are expected to enter the Qatari hotel market each year.

Despite the clear impact that the flood of new hotel supply is having on the sector’s performance, owners and operators say they are unconcerned by the prospect of overcapacity in the short term as the long-term outlook for Qatar’s tourism industry is so positive.

“Supply comes in chunks, whereas demand is a more linear function,” says Simon Turner, president of global development for Starwood Hotels & Resorts Worldwide. “Instead of looking at occupancy, if you look at the total number of occupied room nights coming into the market, I am sure it would show some very meaningful growth.” 

STR Global’s research support this. “Over the past couple of months, we have seen demand rising, it is 4.9 per cent up in terms of the number of occupied rooms in the first quarter and that compares with a 17 per cent increase in the available rooms, so that leads to a smaller occupancy decline of 10 per cent,” says Konstanze Auernheimer, director of marketing and analysis, STR Global. “There are more people coming, but there are more rooms too, which is creating this pressure. Demand is there and it is growing, but in the short-term, we are seeing supply growing faster.”

Starwood currently operates three hotels in Qatar. It plans to open a Le Meridien hotel in Doha in 2014 and is considering opportunities for its other brands. Starwood says its Sheraton Doha and W Doha hotels outperformed the market average in 2011, with a 7.2 per cent rise in Revpar and a 2.9 per cent increase in occupancy, compared with 2010.

Turner says his faith in the Qatari market stems from the ambitious vision for national development drawn up by the Qatari government. “It’s impressive when you have people looking at a multi-generational plan,” he says.

“It’s not a three-year or even 10-year plan, it is a 50-year plan. When you look at the investment they are making in infrastructure and culture, education, the World Cup, the Olympics, they are using capital that is available privately and publically to build tourism infrastructure to induce demand into a new destination. It is visionary what they are doing.”

Diversification efforts

Developing a tourism industry is a key part of Doha’s diversification strategy. Although the government has not set out concrete targets for the sector, its growth is seen as a important area for expanding non-hydrocarbons revenues. 

According to the World Travel & Tourism Council, the travel and tourism industry directly and indirectly contributed 3.2 per cent of Qatar’s gross domestic product in 2011, or $5.8bn. This compares with 13.5 per cent in the UAE and 35.2 per cent in Lebanon. Meanwhile, the sector accounted for 3 per cent of total employment, or 36,300 jobs.

The council expects Qatar’s travel and tourism industry to be the fastest growing in the region over the next decade as it gears up to host the World Cup.

“[When developing a tourism industry] the question that always comes up is do you introduce plane seats so people can get there and then hotels rooms follow, or the other way round?” says Turner. “What Dubai and Qatar have in common is that the airlines, Emirates and Qatar Airways are able to make that investment in getting the seats in first and that gives hotel developers and owners the confidence. Dubai has done a fabulous job having Emirates and the hotel business working hand in glove. And the same thing will happen in Doha.”

Airline support

Qatar Airways currently serves 114 destinations, with the newest route being a daily flight to the Croatian capital Zagreb, launched on 9 May. In 2011, the airline added 15 destinations and is targeting 13 this year, as well as increasing frequencies on many routes.

Qatar Airways has a fleet of 108 aircraft and has orders worth over $50bn for more than 250 aircraft. In the 2010/11 financial year, the airline carried about 16 million passengers. By 2015, it aims to fly to 170 destinations.

One of the major challenges that Doha faces in building up its tourism industry is that the country has few sites of natural beauty aside from its inland sea, Khor al-Adaid, and surrounding sand dunes.

Qatar has just a handful of museums with the Museum of Islamic Art, which opened to much acclaim in November 2008, by far the most popular, welcoming 193,000 visitors in 2011. Doha Zoo, which houses about 1,500 animals and birds, saw just over 500,000 visitors last year.

Investments are being made to increase the attraction of Doha as a tourist destination. The centrally located Souk Waqif has been renovated and a massive regeneration scheme, the Msheireb project, is under way to transform 75,000 square metres of the Downtown area. But this alone will not be enough to draw in visitors. Qatar needs to learn from the success of Dubai’s tourism industry. The emirate also lacked sites of natural beauty, but has built iconic hotels and attractions and developed itself into a global brand through association with celebrity and leading sporting events.

In January, Dubai had the highest hotel occupancy rates in the world. Qatar is making good head way, having won the right to host the World Cup in 2022. Its day in the limelight, however, is still a decade off and in the interim, it will have to continue to rely on business travellers to fill its hotel rooms.

Business travellers

“The Qatar government is focused on hosting events, exhibitions, conferences and sports activities,” says Hamad Abdulla al-Mulla, chief executive of Katara Hospitality, (formerly Qatar National Hotels Company). “The government holds more than 40 conferences a year, that’s an average of three a month. It is still early for us to be a tourism city, but we are not in a hurry, we are building the foundations for that.”

Katara Hospitality currently owns five internationally branded hotels in Qatar, including the Ritz Carlton, Sheraton Doha, Doha Marriott and Movenpick Hotel Doha. It is developing a hotel in the marina district of Lusail City, which is scheduled to open in 2016 and is intended to be a new iconic landmark.

The company owns another plot of land in the Fox Hills district and has five more hotels already in the pipeline in Qatar. It also operates the Merwebhotel brand. The Merwebhotel City Centre Doha is due to open later next year, with 265 rooms.

Katara Hospitality, which is owned by Qatar Investment Authority, says it currently has a 15 per cent market share of the hotel sector in Qatar and is aiming for 20 per cent of the five-star market by 2022.

Qatar is many years behind Dubai in transforming itself into a favoured tourist destination. As more rooms enter the market, competition will continue to increase and hoteliers will have to accept lower revenues and occupancy rates. The danger is that overcapacity could trigger a price war. With this in mind, the Qatar Hotels Committee was launched earlier this year to encourage hotels to work together.

“There is lots of competition, the hotels need state support, they need Qatar Airways’ support, Al-Jazeera support, but at the end of the day we have to work together,” says Al-Mulla.

Despite the short-term challenges, Qatar’s hotel industry is confident about the future. “Qatar has a lot of the same traits as Dubai, the government and private sector are working as a team,” says Turner. “It is going to be a success because that formula works really well. Ten years from now, Qatar will be a showcase.”