Revenues of Dubai hotels to be 35% down this year

Dubai hotels are likely to witness a revenue fall of about 35 per cent in 2009, according to the top executive of Jones Lang LaSalle Hotels.

"Markets such as Dubai are going to see a fairly significant RevPar (revenue per available room) fall in 2009. Just in the first quarter of this year, Dubai hotels RevPar was down 30 per cent, primarily driven by the decline in average room rates rather than occupancy, which is down a little bit but not significantly. For the whole year, overall revenue could be down a little bit more, maybe about 35 per cent," Arthur de Haast, Global Chief Executive Officer of Jones Lang LaSalle, told Emirates Business.

"This is also because the feeder markets for Dubai are going through some serious economic problems at the moment. However, Dubai has come together to market itself strongly to international markets. This is going to be a challenging year for Dubai hotels and this summer is going to be quite hard as feeder markets like Europe suffer," he said.

The other Middle East markets, however, are still showing good growth, according to de Haast. "Abu Dhabi is still going to show some growth this year, as will Qatar. We are also going to see some pretty good growth in Saudi as religious tourism is less impacted by the economic crisis," he said.

Falling transactions

At the same time, there is going to be a slowdown in demand in markets, which have got the most significant supply coming in the short term, such as Dubai and to a little degree, Abu Dhabi, according to de Haast.

Volumes of transaction in the hospitality market fell sharply in the first quarter of 2009, at under $2 billion (Dh7.3bn) globally, and now is close to an 80-per cent decline on the same quarter of 2008, according to de Haast.

"It is way down now than the 60 per cent decline in the transaction volumes recorded in 2008 compared to a year earlier," he said.

"The transaction market continues to be very illiquid. And the only slightly good news was at around just under $2bn it was about what the fourth quarter in 2008 was. If you look at 2008, each quarter got worse. The last quarter was really bad. So the first quarter of 2009 is flat-lining a little bit compared to the last quarter," de Haast said.

He further said the transaction market will remain subdued for several months. "And that is going to be driven by the continuing lack of availability of credit in the market, and the real uncertainly about where the hotels' net income is going, which has been declining every month," de Haast said.

Lower tariffs

The lowering of tariffs is not a sustainable phenomenon, according to de Haast. "The challenge comes when demand starts to recover. For instance, if someone who is used to paying $300 a night is suddenly asked to pay $600, there will be resistance to that," he said.

"So generally the advice to hotels in a downturn is to try and hold rates because it takes much longer to build rates back. So it's better to go for an occupancy dip for a period of time," he added.

De Haast further said he does not see room rates going down any further in Dubai. "I think the biggest impact has been already felt. Maybe they will go down a little bit more as summer has the potential to be quite tough. But then there will be a period of stabilisation towards end-2009 and 2010."

"However, I do not see any significant growth or recovery in rates until 2011 partly because there is still quite a bit of new supply coming into the market. New hotels are still opening.

"So even though demand is likely to recover by 2010, supply will still be outpacing the recovery in the demand, which will continue to hold the rates down," he added.

Regional investment

The market is currently seeing a great diversification of investment, which has so far been focused on Dubai, according to de Haast.

"Clearly now, markets like Abu Dhabi and Saudi Arabia are picking up. There is also diversification in the product. Right now, the hotel market is heavily skewed towards the luxury end – the four- and five-star hotels. But it is encouraging to see more mid-market limited service hotels being built in Dubai, which is good for the long term of Dubai hotel market" he said. 

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