The performance of Dubai’s hotel properties will be mixed during the first quarter of this year, according to forecasts by US property consultant Colliers International.

“For the period ending March 2015 we see demand holding in areas such as Palm Jumeirah, Marina/JBR, with RevPar [revenue-per-available room] forecasted to increase by 1 per cent and 2 per cent respectively,” says Filippo Sona, director, head of hotels at Colliers International.

“In areas such as Sheikh Zayed Road/DIFC and Dubai Creek/Festival City, the first quarter of 2015 will present some challenges due to new supply that came in 2014 and now aggressively seeking to capture demand. RevPar is forecast to decline by 3 per cent in Sheikh Zayed Road/DIFC and 4 per cent in Dubai creek and Festival City.”

There have been growing concerns in Dubai that the hotel market is becoming oversupplied, and in some areas where large properties have been completed over the past year the competition is fierce.

“In some areas of Dubai, and in particular Sheikh Zayed Road/Business Bay) we see that the impact of new supply on the existing hotels is higher, because new hotels, in order to capture market share fast, tend to offer promotional rates during the first three to six months of opening. Particularly where we have hotels with a total room count over 500, there is even more pressure to generate revenues to sustain the operating expenses,” says Sona. 

Another major challenge facing Dubai’s hotels is the strengthening US dollar and the collapse of the Russian rouble. A stronger dollar and, therefore, a more expensive dirham makes Dubai a more expensive destination for European foreign travellers, particularly those from Russia, where the rouble halved in value during the last six months of 2014.

“Foreign currencies instability has affected primarily the Russian market, which has declined 19-21 per cent for some hotels,” says Sona. “This combined with the overall European economic instability has led some hotels to drop rates to make the overall holiday package attractive.”

Looking forward, the market segments that offer the best opportunities for developers in the future are the mid-market properties and developments that offer something new.

“The mid-market, three-star hotel segment offers the most profitable and less volatile hotel development opportunity in Dubai together with hotel serviced apartments,” says Sona. “An all-serviced apartment beachfront resort may constitute a new offering to attract demand, particularly from the GCC. Artisanal or experiential hotels concepts have not been introduced to the Dubai market and with population growth, memorable, different hotel experiences are needed for the long term sustainability of the Dubai tourism.”  

The Colliers’ forecast, which is the first of its kind for the industry in the region, provides a three-month rolling and year-end hotel performance forecasts for key performance indicators

Outside Dubai, Colliers sees significant opportunities for the hospitality market in Cairo and Sharm al-Sheikh, with an anticipated 35 per cent and 97 per cent growth in RevPar in Cairo and Sharm al-Sheikh respectively.