Middle East

Having seen average occupancy rates decrease to 49 per cent in August, levels in the Middle East firmed to 70.6 per cent in November, according to the latest market report by hospitality industry tracker STR Global. This compares with 67.7 per cent in 2009. This places the region among the leading performers in terms of hotel occupancy.

The rapid rise in hotel rooms … is set to continue and will continue as an obstacle to higher growth

However, when analysed on year-to-date performance, the average occupancy of 61 per cent is marginally below that seen in November 2009 of 61.4 per cent. Judged in this manner, the Middle East has slipped behind Asia Pacific and Europe in the occupancy table, which achieved rates of 66.3 per cent and 64.8 per cent respectively for the 11 months up to November 2010.

Egypt hotel market 2010
  Occupancy (percentage) Revpar (Egyptian pounds)
January  63 293.8
February 73.6 337.56
March 78.3 366.85
April 79 407.47
May 71.7 313.62
June 62.8 251.42
July 72 329.45
August 62.7 275.67
September 70.4 321.65
October 81.7 443.12
November 83.2 458.46
Source: STR Global

Average daily rates (ADR) and revenue per available room (revpar) at hotels in the Middle East were also weaker than the same period in 2009, at $199.31 and $121.67. This compares with a 2009 ADR of $210.31 and revpar of $129.11. Analysts attribute the Middle East’s decline in year-on-year performance to the vast number of additional rooms that continue to enter the region’s hotel market.

Diluted market

In an attempt to diversify their economies away from an over-reliance on oil and gas reserves, regional governments have invested heavily in developing tourism in recent years, which has attracted an influx of global hotel brands to the region. STR Global figures show that in November 2010, 437 hotels were under construction in the Middle East and Africa, equating to 118,759 rooms.

“In terms of the region as a whole, the more general picture is that we have seen additional supply coming into the market and we have seen some of that supply come into what we call the mid-market hotel range,” says Robert O’Hanlon, tourism, hospitality and leisure partner for the Middle East, at accountancy consultant Deloitte. “In terms of the impact on revpar, we have seen some dilution by which we have additional supply, and we have got an expanding product range in the hotels are measured,” O’Hanlon adds.

Saudi Arabia hotel market 2010
  Occupancy (percentage) Revpar (SR)
January 41.4 300.56
February 57.2 405.11
March 63.3 403.83
April 60.4 394.5
May 54 340.08
June 57.8 336.39
July 59.3 350.59
August 54.7 473.27
September 43.3 413.26
October 52.4 378.93
November 62.4 730.91
Source: STR Global

Abu Dhabi experienced a difficult first half of the year. The combination of the global recession, Ramadan and the flood of new hotel rooms entering the market resulted in the emirate’s occupancy levels dropping to 48 per cent and revpar almost halving to $63.12 in August compared with 2009. But in the latter part of the year, Abu Dhabi rebounded strongly, with occupancy in November rising to 76 per cent and revpar climbing to $197.97.

Abu Dhabi’s holistic hotel plan

The long-term outlook for the emirate remains positive with hotel demand expected to pick up when a number of the proposed tourism projects are completed, including the estimated $1bn Louvre museum planned for the Saadiyat Island Cultural District.

“Abu Dhabi has a holistic plan for how it wants to position itself as a business destination and also as a quite a niche tourist destination – in terms of some of the quite iconic projects that it is working on. It has the investment ability to see these plans through, and as these projects are completed, demand will increase,” says O’Hanlon.

UAE hotel market 2010
  Occupancy (percentage) Revpar (AED)
January 67 603.75
February 63.3 671.89
March 73.6 641.08
April 70.6 611.11
May 65.3 437.96
June 58.6 330.32
July 61.5 338.99
August 50.9 265.55
September 61 368.45
October 70.5 569.96
November 78.7 708.36
Source: STR Global

Dubai had a contrast in fortunes to its neighbouring emirate in occupancy levels for the first part of 2010, achieving a 1.9 per cent year-on-year increase in August. The hub of the region’s tourism sector during the boom years, Dubai’s hotel sector was hit particularly hard in 2009.

Although Dubai’s revpar continues to decline in 2010, the emirate’s hotel sector is beginning to stabilise. Successful marketing and promotion efforts undertaken by the city’s hotels are contributing to increased occupancy in Dubai’s hotels, and the improved affordability is making the city more attractive to visitors. For the UAE as a whole, average occupancy stood at 78.7 per cent in November, much improved from the 50.9 per cent recorded in August, and the 70.5 per cent seen in October.

In Beirut, one of the region’s strongest markets in 2009, occupancy levels have been weak in 2010. Average occupancy was 47.1 per cent in August. This strengthened to 67.4 per cent in October and held almost steady at 67.3 per cent in November, but is still 10.3 per cent off levels seen in 2009.

Despite the drop in occupancy levels, Beirut was able to register a 10.6 per cent year-on-year increase in ADR to $255.74. Analysts put this down to improved hotel management procedures and growing profits for the hospitality and tourism sector in Lebanon.

Strong hotel performance in Saudi Arabia

Saudi Arabia has bucked the regional trend, mostly witnessing improved occupancy rates from 2009. In November, average occupancy was 62.4 per cent, some 2.8 per cent above the level during the same month a year earlier. Jeddah in particular has performed well, recording year-on-year rises in ADR and revpar in November, to $197.76 and $136.67.

Analysts attribute the strong performance of Jeddah to a continued growth in business activities and the limited supply of hotel rooms in the city.

The proximity of Jeddah to the holy sites of Mecca and Medina has made the city’s hotel sector less affected by the effects of the global recession. The flow of Muslim pilgrims has proved more resilient to the economic downturn than the general travel market.

Experts also point to two other factors that have enabled the kingdom’s hotel sector to achieve steady growth throughout the recession.

“There are two really important aspects in terms of Saudi Arabia’s hotel market. One is that you have got the wider strong economic performance in terms of the development of business and economic cities, so significant investment going in from government – which is obviously driving the business side of hotel demand or hotel requirements,” says O’Hanlon.

“But you also have alongside that a clear indication from the Tourism Ministry that Saudi Arabia is encouraging domestic tourism – encouraging Saudi nationals to further explore the opportunities within their own country. And this encouragement of domestic tourism creates a lot more demand for hotel rooms,” he adds.

Egypt, meanwhile, has continued to see some of the highest occupancy rates in the region, reaching 83.2 per cent in November. However, the December bomb attack in Alexandria could impact on visitor numbers in the months ahead.

As the effects of the global economic recession still impact on international travel, the developing hotel sector in the Middle East has not escaped the drop in numbers of tourists or revenue. The additional hotel stock that has entered the market over the past year has magnified the problem for the regions hoteliers.

The rapid rise in hotel rooms in the region is set to continue and will continue as an obstacle to higher growth. Earlier this year, UAE-based Rotana Hotel Management Corporation announced plans to increase its portfolio in the Middle East and North Africa region to more than 70 properties by the end of 2014.

Positive outlook for hotels in the Middle East

International hotel groups are also pressing ahead with plans to expand into the region. The Belgium-based Rezidor Hotel Group, which owns brands such as Radisson Blu, has said it expects to open 15 new hotels by the end of 2014, adding a further 4,225 rooms to the region’s market. Hilton Worldwide is planning to open 19 more hotels in the next five years.

Despite the weaker year-on-year performance for most regional hotels in the Middle East, there is much for the sector to be positive about in 2011. Results improved as the year drew to a close and the region still commands the highest returns worldwide on rooms booked. In November, the average revpar in the Middle East was $174.17 compared with $99.70 in Asia Pacific, $53.20 in the Americas and $84.58 in Europe.

Arabian Hotel Investment Conference 2011

30 April-2 May, Madinat Jumeirah, Dubai, UAE

The Arabian Hotel Investment Conference (AHIC) is the region’s leading business platform for the Middle East’s hotel investment market; a meeting place for the industry’s investors, owners and operators to discuss and explore the investment opportunities in the region.

For more information and to register, visit www.arabianconference.com