MAY 2010 US$250 Middle East Hotel Survey 2010 Reshuffling the Deck HALA MATAR CHOUFANY, Managing Director HVS – Dubai Offi ce Dubai Silicon Oasis Headquarters 4th Floor, PO Box 341041 Dubai, UAE Tel: +971-4-50157-86 Fax: +971-4-50155-77 INTRODUCTION FIGURE 1 Performance of the First Class Hotels in the Middle East 1994-09 HVS’s Middle East Hotel Survey for 2010 covers 259 hotels totalling 68,888 rooms. 80 % Occupancy(%) AverageRate(US$) RevPAR(US$) US$ 250 The number of participating hotels has 70 increased 85% on last year’s survey (or 200 a 74% increase in the total number of 60 rooms). Our sample this year includes 50 branded four-star and five-star hotels, but 150 we have excluded super-luxury hotels as 40 these could skew the results of this survey. 100 This year, we have included for the first 30 time some additional submarkets, notably 20 in the UAE, Kingdom of Saudi Arabia and 50 Egypt. These submarkets are analysed 10 Research under the relevant market area. HVS Using HVS’s extensive database of hotel 0 0 operating results for the Middle East, 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: developed with continuous support from all the major hotel companies present in the region, we report occupancy, average disposable income when compared to most diversified and least reliant on oil; it rate and RevPAR (revenue per available other parts in the world and liquidity serves as a major financial centre for the room) for each market. generated by high oil prices are primary Gulf region and much of the Arab world. drivers for visitation. Tourist arrivals from The main source market for Bahrain is OVERALL TRENDS the Americas and Europe are dominated the Arab world, which accounts for more by corporate travellers who increasingly than 70% of the total number of arrivals. With the exception of Beirut, all markets Asia is the next most important source experienced a decline in occupancy. look at the opportunities arising in the market: it accounts for approximately Occupancy among quality hotels region from the diversification and 19% of the total visitation. decreased by six percentage points to 69% privatisation programmes, albeit that European and American visitation in 2009. This can be attributed largely to foreign companies have adopted a ‘step the global economic conditions as well as back’ attitude throughout 2009. to Bahrain is minimal, which clearly the opening of a number of new hotels in Our general outlook for the hotel reflects an opportunity to target and various cities in 2009. Some 14,000 hotel industry in 2010 and 2011 remains grow these markets once a solid tourism rooms entered the region during 2009, of conservative, especially in light of the infrastructure has been established within which 43% was in the UAE market: 27% 50,000 hotel rooms that will enter the the country. in Dubai, 15% in Abu Dhabi and 1% in the market over the next two to three years and Five-star hotels account for other emirates. all the signs pointing to a slow recovery in approximately 27% of the rooms in the Beirut’s hotel market had a different the key source markets for certain cities. market; this category is largely defined story to tell; occupancy levels increased by The global economic downturn is a cause by renowned international operators. 13 percentage points from 57% in 2008 of much uncertainty; the immediate effect Four-star hotels account for 35% of the to 70% in 2009, primarily on account of on hotel activity is a shrinkage in booking market; however, these hotels tend to be political stability, a relatively low number windows (much less business on the locally branded and their quality may vary of hotel rooms and a growing number of books, making it difficult to forecast results significantly from one property to another. visitors. even in the short term) and a shortening of Tourism currently contributes Despite the drop in occupancy, average the length of stay in all segments. between 12% and 15% of the country’s daily room rate (or average rate) for the In previous editions of this publication gross domestic product; however, the region increased by 3%, from US$185 we have warned that a market correction government’s objective is that in ten years in 2008 to US$191 in 2009. The markets is likely to happen in most of the cities, this will not be less than 30%. that were worst hit were Dubai (-29%), specifically those in the GCC, resulting in Following a two percentage point drop Bahrain (-21%), Doha (-14%), Amman lower occupancy levels and decreases in in marketwide occupancy in Manama in (-13%) and Hurghada (-10%). average rate. As these markets recover and 2008, a more significant drop of seven The resultant RevPAR for the region new supply is absorbed into the respective percentage points was witnessed in 2009. Occupancy at the quality hotels in posted a 7% decrease to US$130 in 2009, markets, we consider that reasonable the market area decreased from 75% in compared to an 18% increase in 2008. occupancy levels will hover around the 2008 to 68% in 2009. This drop was due Despite the above market corrections, 68% to 73% bracket for most of the cities. the Middle East remains the fastest- to the fact that Manama solely relies on On the other hand, the current growing region in terms of tourism business-related demand which, given the economic downturn has benefits for arrivals. We note that while the pace of current conditions, hampered the market those developers with liquidity reserves: growth has slowed, the region continues performance. construction materials are cheaper, to account for less than 5% of the total Although there is a cartel agreement qualified labour is plentiful, and the number of global tourist arrivals, which operating between the five-star hotels promise of finalising new developments reflects strong potential for likely future (which historically resulted in positive just in time to take advantage of the growth in this area. growth), marketwide average rate economic recovery is very appealing. Growth in tourism in the region decreased in Manama for the very first is mainly driven by intra-regional time since 1994 (by 21% from US$259 in visitation. With the exception of Dubai, KINGDOM OF BAHRAIN 2008 to US$205 in 2009). As neighbouring Arab visitors account for the majority of One of the most liberal counties in the Gulf, cities have had to discount rates heavily tourist travellers in the region. The higher Bahrain’s economy is one of the region’s to attract business, Manama came under 2 Middle East Hotel Survey 2010 HVS – Dubai Offi ce pressure to reconsider its average rate Neither meeting and conference and accounts directly and indirectly for structure in order to become more demand nor leisure demand can develop 11.3% of Egypt’s GDP. competitive. in the desired direction without the The compound annual rate of growth in We are not aware of any branded hotels development of vital infrastructure and the number of visitor arrivals has averaged opening in 2009. upscale facilities. 16% over the last 20 years and 8% over the There are a significant number of hotel Partly in recognition that European last ten years, despite regional and global rooms under construction (approximately and US leisure demand would only be events that have had a negative impact 2,200). The majority of this new supply is attracted by numerous and diverse on travel patterns. Furthermore, tourism classified as five-star and luxury hotels in upscale leisure facilities, many of the demand in Egypt has proven resilient to resort destinations. Approximately 40% current developments are positioned as force majeure and, despite setbacks, the is scheduled to come into the market in luxury products. However, we point to an recovery in demand has remained strong 2010, which is expected to put further inconsistency and a challenge: Bahrain over the last ten years. pressure on both occupancy and average is not a luxury destination and even its Cairo, Egypt’s capital, is the country’s rate, especially in the absence of serious current GCC visitors are not representative main commercial centre and it has signs of recovery in the region. of high-income-bracket classes – the grown rapidly over the last decade. With We recommend the development of a transition from a budget, local weekend a population estimated to be around 17 midscale and limited service hotel offer to destination to an international luxury million, it is by far the largest city in the cater to the regional market. We are also destination may be challenging. Arab world. Cairo is broken down into cautious in regards to the development of Even in the context of the economic three hotel markets: Cairo City Centre, alternative hotel asset classes (timeshare downturn, tourism in Bahrain continues to Cairo Heliopolis and Cairo Pyramids. and condominium products) owing to face strong competition from established Some 1,500 rooms are expected to enter the absence of specific legislation in the Gulf destinations such as Dubai, which the Cairo market in the next three years. Kingdom at the moment. offers a similar mix of sun, sand and a In 2009, marketwide occupancy for Once completed, the Durrat al Bahrain, liberal atmosphere. More recently, the Cairo City Centre hotels experienced Amwaj Islands and Al Areen projects will aggressive rate war in Dubai has resulted a five-percentage-point drop to 70%, potentially enable the government to in Bahrain’s losing a number of groups largely caused by reduced commercial position Bahrain as an attractive leisure to the more established destination, and and leisure travel as well as the opening destination for regional visitors.