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Trader profile: Gravitational shift in Dubai’s tourism

 

Where are you based?

Dubai.

What is the asset class and geography you are focused on?

Hospitality real estate.

What is the outlook for the month ahead in your opinion?

The hotel real estate sector in Dubai proved to be a relatively safe bet over the past few years and we foresee a continuation of improved revenue per available room (revpar) levels over the next months. As average occupancy levels are already in excess of 80 per cent for most hotels, revpar growth will be primarily driven by higher rates. In the mid to long term, Dubai’s tourism centre of gravity will experience a major shift towards Abu Dhabi. As such, we expect the number of hotels south of Dubai Marina to grow over-proportionately compared to the rest of Dubai. The new airport, the Expo 2020 site and the new theme park district will all contribute to more demand for rooms in that part of Dubai, both in the leisure and business segments.

What are the main risks (either upside or downside) to the outlook?

To fill the additional hotel rooms, Dubai will have to deliver on its promise to build more attractions. Apart from bringing more guests to the city, where Emirates Airline fulfils a key role, existing and repeat guests will have to stay longer. Dubai managed to almost double the average length of stay of a hotel guest from about two nights in 2002 to almost four last year. However, to absorb the future supply of hotel rooms and sustain or increase revpar, the average length of stay will have to increase further. Major delays in the completion of planned attractions such as the theme park district, opera house or the largest Ferris wheel could pose a risk to Dubai’s hospitality real estate sector.

What is the best investment at the moment in your opinion?

As a new classification guide will be introduced for hostels, certain infill plots in the older parts of Dubai could become attractive for this lodging type. At present, the number of backpacker facilities is negligible. This together with Emirates’ tie-up with Qantas from Australia, a country that attracts vast numbers of backpackers, pent-up demand is likely. Moreover, less stringent development requirements compared to budget hotels are expected for this lodging type – no parking and fewer facilities are required – driving development costs lower.

What was the best investment you were ever involved in?

Overall, clients we have assisted in hotel real estate developments in Dubai and Jeddah have seen generous returns on their investments. Given that our development consultancy teams are mostly involved during the pre-design stage of projects, some projects never came to fruition, especially the ones that were conceived in 2008 before the crisis.

What was the worst?

We have been involved in a luxury hotel and serviced apartment project in Dubai in which the architects were commissioned before any consultation from advisers such as Knight Frank. The result was that the designers pleased the owner by conceiving a beautiful and highly inefficient structure without any restrictions to protect the business case. After doing the necessary due diligence and market research, we concluded that the project as it was conceived by the architects would never yield a financially feasible project.

lbarnard@thenational.ae

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