Less rooms, more PDA? Dubai faces major hotel challenge

Published November 25th, 2014 - 01:46 GMT
Al Bawaba
Al Bawaba

Dubai is facing a serious challenge posed by the need for 283 new hotels to be delivered between 2014 and 2020 to accommodate its target of 20 million visitors by the end of the decade, a report said.

Dubai’s, part of its Tourism Vision 2020, is comfortably on track to materialise if recent increases in visitor growth continue to be matched or exceeded, added the fall 2014 issue of Deloitte’s quarterly publication, the Middle East Point of View (ME PoV).

Taking into account 56 hotels currently under construction or in the final stages of planning, as per the data provided by STR Global, a leading source of global hotel information, this means that approximately 227 additional hotels are required to meet the projected supply by 2020.

Factoring in the typical hotel development cycle of between 36-48 months, the majority of the planning for the remaining 227 hotels would need to be completed prior to 2017 for delivery by 2020, the report said.

A Deloitte simulation demonstrates how the supply of these new hotels could be delivered in order to meet the requisite room supply target, but not without a challenge.

“Historically Dubai has managed to deliver an average of 14 hotels per year over the last eight years up to a maximum of 26 hotels in a single calendar year,” said Grant Salter, director, and Martin Cooper, director, Deloitte Corporate Finance Ltd (regulated by the Dubai International Financial Center) in Hotel economics.

“In order to meet the target of doubling the hotel room stock by 2020, this remarkable achievement needs to double to around 60 per year for at least three years, which is likely to be quite challenging,” he added.

Other looming challenges are the impact of this high demand on construction materials, labour and, more importantly, funding, which is likely to drive overall development costs higher, and also the high demand for quality sites that will drive land prices ever higher and, in so doing, reduce investor returns.

Technology is also in the spotlight for governments in the region, Salter highlighted.

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