Dubai's hospitality sector is a sound investment

Dubai's hospitality sector is a sound investment
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Published April 9th, 2015 - 05:56 GMT via

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Visitors are attracted by the region’s legendary climate — an average of over nine hours’ sunshine per day (Image: file/ photo)
Visitors are attracted by the region’s legendary climate — an average of over nine hours’ sunshine per day (Image: file/ photo)

Dubai’s status as a world-class holiday, business and leisure destination shows no sign of diminishing, and actually looks to be on the increase in the run-up to Expo 2020. The event is expected to attract around 17.5 million overseas visitors during the six months of the show.

This is in addition to the double-digit growth in the tourism sector, which Dubai has experienced over recent years — an estimated 11.95 million overnight visitors were welcomed in 2014.

Visitors are attracted by the region’s legendary climate — an average of over nine hours’ sunshine per day — combined with its white, sandy beaches and the clear, turquoise waters of the Gulf. Shopping is another major draw.

Many of these visitors would have arrived through Dubai Airport. It’s now officially the world’s busiest in terms of international passenger traffic, having moved ahead of London, and handled 69.5 million people during 2014, a 6.7 per cent increase on the previous year.

According to Dubai’s Department of Tourism and Commerce Marketing, approximately 11.6 million guests stayed in the emirate’s 634 hotels and hotel apartments during 2014. This is a 5.6 per cent year-on-year increase.

Tourism is expected to increase between 7—9 per cent over the next five years and account for almost 30 per cent of Dubai’s GDP. It’s estimated that Dubai now has around 88,680 hotel rooms available, with up to 160,000 in the pipeline over the next five years. Many of these will be in response to the expected Expo 2020 demand, but also reflect Dubai’s booming tourism industry which is growing on the back of developments such as the Mall of the World and the much-anticipated Bluewaters Island complex which will house the world’s largest Ferris wheel.

It’s no surprise then that astute investors are looking to Dubai’s hotel sector for new and lucrative opportunities. Over recent years, a new concept in has been growing in popularity — the serviced apartment. It’s a very simple and attractive idea: fully-fitted, serviced apartments which offer the comforts of home in luxurious settings.

They are ideal for business travellers who find conventional hotels too impersonal, or for families with children who need more amenities than hotel rooms presently offer.

Investors seeking up to 8 per cent return on investment, therefore, are turning their sights on developments which offer such opportunities, particularly those on The Palm Jumeirah. Three developments in particular are worthy of further investigation and are the subject of intense interest at the moment — The Kempinski Emerald Palace Hotel, Anantara Residences and The 8, all on The Crescent.

The three exemplify the concept of luxury, managed hotel accommodation and are set to take this idea to the next level. While being totally different in design and appearance, what they all offer is opulent accommodation, either a stylish hotel room in the case of The Kempinski Emerald, a fully-furnished serviced apartment at the Anantara or The 8, a contemporary development.

As befits its exclusivity, The Kempinski Emerald Palace Hotel features bespoke furnishings which have been handmade by Italian traditional furniture craftsman, Francesco Molon, and which offer a European flavour to its interior design schemes. Anantara Residences have been designed with a relaxed, chic, contemporary feel, guaranteed to appeal to a wide variety of investors. The 8 takes its inspiration from waterside Miami-style living, with sophistication and sleek lines at the forefront of both the interiors and the facade.

In terms of what these developments (one which is available now and two of which are due for completion in 2016) present to potential investors, we must consider that The Palm has continued to lead the Dubai market in both rental yield and property value retention. With only 1,800 (4 per cent of Dubai’s 45,000 new residential units) being constructed on the island by the end of 2015, exclusivity is a significant factor.

Investors also have the reassurance of knowing that if they decide to opt for the rental, rather than the primary residence route, a ‘rental pool’ option is available. This means that all administration, management, bookings and maintenance is taken care of by the hotel itself.

In this equitable arrangement, all monies accumulated under this kind of scheme are put into a communal ‘pot’, from which investors are paid per the square footage of their apartment. This simple and hassle free method of recouping investment is growing in popularity, particularly with overseas investors who may not have the time or inclination to deal with the minutiae of personal involvement. Investors should also note that with all the properties mentioned above, a successful referral fee is also available.

With Dubai’s property market holding steady so far in 2015 and the anticipated demand for hotel rooms increasing yearly, now is an excellent time to consider investing in these new and lucrative opportunities which have the potential to be both less volatile than residential properties and offer a greater yield.

The writer is head of Dubai residential sales at Knight Frank.

© Al Nisr Publishing LLC 2015. All rights reserved.

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