Middle East hotels boom: When will the investment bubble burst?

Published May 7th, 2015 - 10:24 GMT
The Oman Saraya Bandar Jissar Hotel (File photo)
The Oman Saraya Bandar Jissar Hotel (File photo)

Asia, the Middle East and Africa are going through a boom in hotel construction at the moment. This is where the hotel industry expects the travelers of the future to come from in vast numbers and it is preparing accommodation for them accordingly. But is this not just another massive investment bubble fueled by a wave of cheap finance in the wake of the global financial crisis?

‘Yes, I am sure that is right,’ said Viability consultancy founder Guy Wilkinson on the fringes of the Arabian Hotel Investment Conference today. ‘The next couple of years could be very challenging for the sector as demand is falling as the global economy slows down and supply is coming up fast.’

Dubai different?

Hilton Worldwide Middle East & Africa president Rudi Jagersbacher, who’s recognized as the most powerful man in regional hospitality, was not so convinced and told us: ‘I can’t speak about the situation in China but certainly in the Middle East the new supply will be absorbed.

‘Anybody who has been around in Dubai for as long as I have knows that anything is possible in the hotel industry here.’

Data released by STR Global at the AHIC cited a 15,000 room development pipeline to add to Dubai’s existing 75,000 key inventory. Analyst Elizabeth Winkle noted that excess supply over demand was a prime reason for the fall in revenues per available room seen in the first quarter.

That said Dubai is coming off the highest revenue per available room in the world of $230 versus $145 for Greater London last year, and occupancy levels in excess of 80 per cent. Its hospitality sector therefore has a greater capacity to absorb a downturn than any other global city. But will this be true for rival markets?

New travelers

‘The new middle class from the emerging markets will release hundreds of millions of new travelers onto the market who will want to see the same sites that everybody else wants to see,’ pointed out Marriott President and CEO Arne Sorenson in his speech today.

‘They don’t all want the new lifestyle hotel brands either, there’s a lot who just want a traditional Paris hotel… ‘We have 240,000 hotel rooms in the pipeline that will take us to over a million rooms and 50 hotels under construction in India alone.’

It was the same story from many of the major hotel chains that ArabianMoney talked to this week at the Arabian Travel Market. For example, relatively new luxury chain Rosewood has eight properties due to open in Asia in the next few years and possibly one in Dubai too, while Paris and the Bahamas are the only hotels it is opening outside this region.

‘We are very happy with the performance of our 189-key Abu Dhabi hotel that has been open for around 18 months,’ said Symon Bridle COO. ‘But we are focusing on the markets that we think will be the most profitable for our shareholders over the next few years, though we did open in London last summer. Every chain still wants to have a property in London and Paris.’

Dubai a world apart

Are the hotel chains right to put all all their emphasis on Asia and the Middle East? Is it not possible that the Chinese economy takes a tumble while the rest of the world unexpectedly pulls back up? Still it is hard to disagree with Hilton boss Rudi Jagersbacher about the UAE ‘always being a world apart’.

Separately we met Hatem Gasmi, founder of the Auris Group who told us he would have four new hotels open in Dubai with 1,472 keys before he has finished the negotiations for his Paris debut, while Dusit International signed off a management and rebranding deal for more than a thousand rooms in the city where Al Haboor City will add 1,700 rooms over the next 18 months.

Rosewood is also on the look out for another couple of hotels in the UAE. And Jannat Hotels cornered us to announce the imminent opening of a high-end apartment hotel tower in Abu Dhabi.

Cairo and Luxor have also bounced back strongly in the first quarter, along with Beirut, according to STR Global, though geopolitics continues to dog Iraq, Yemen and of course Syria.

Copyright 2022 Peter John Cooper All rights reserved

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