Undersupplied” is how Action Hotels CEO Alain Debare describes the Middle East. “There is massive potential for midmarket.”
Economy and midscale brands comprise only 19% of branded supply in the Middle East, according to STR data from December. Other factors support a move into midscale: a decrease in global oil prices that’s prompting Gulf Cooperation Council countries to diversify their economies; the predominance of unbranded and privately owned hotels in that sector; growth in intra-regional travel; and a pipeline until 2018 bulging with luxury hotels.
The majority of hotel markets in the region saw a downturn during 2015. Based on its database of about 150,000 rooms operating in the region, HVS predicts that leading hotel operators are expecting to release a further 100,000 rooms between 2016 and 2020, with over 18,000 new rooms in 2016 alone.
The current target for Dubai is 140,000 rooms by 2020. Even with that increase, Guy Hutchinson, chief operating officer of Rotana Hotel Management, predicts that the city will be in the top five for RevPAR in the world.
“There was no middle class 20 years ago, and a lot of people that live and work in the region are looking for affordable solutions,” Debare said. Action Hotels partners with companies like AccorHotels and IHG, and owns, develops and manages assets of 3- and 4-star hotels in the Middle East and Australia. Dubai’s decision in 2013 to waive a 10% “municipality fee” for developers of 3- and 4-star hotels is helping. Other countries are opening up for other reasons. Saudi Arabia announced plans in June to loosen strict visa requirements to investors, according to news reports. While long-term religious tourism is expected to increase, hotel performance is mixed across that country due to lower oil prices curtailing corporate demand.
Another company seeing opportunity is luxury operator GHM of Singapore, which announced a partnership in August with van de Bunt Partners on a lifestyle brand called Tin Hotels, aimed at millennials and middle-class travelers. The first locations will open in Dubai and Oman. It’s aiming for 35 properties by 2022.
Theme parks
“We are in no doubt that Dubai needs more affordable rooms if it is to grow tourist numbers from 13.2 million in 2014 to 20 million by 2020,” said Chris Newman, COO of Dubai-based Emaar Hospitality Group, whose Rove Hotels, a joint venture with Meraas Holding, is aimed squarely at that market. He cites research that says 40% of leisure travelers from the region seek budget hotels. The company’s flagship hotel, Rove Downtown Dubai, opened in May. The lobby showcases art that reflects “the memorabilia of a rover,” contrasting, say, traditional burqa masks displayed over modern fabric.
A strong play for the middle market, however, might be theme parks. They have “a huge potential to benefit the economy,” Newman said. “There are 3 billion people that live within a four-hour flight of the UAE, and there is a significant gap in this market.” Dubai Parks and Resorts, scheduled to open in October, anticipates 6.7 million ticketed visits in 2017, Newman says, and a recent report suggested that the leisure and entertainment market potential in the UAE could reach 45 million visitors by 2021.
Middle East pipeline Q2 2016 (Source: Lodging Econometrics)
TOP MARKETS, YOY
Dubai: 110 projects/31,155 rooms (+24%)
Riyadh, Saudi Arabia: 56 projects/11,866 rooms (+6%)
Doha, Qatar: 44 projects/9,554 rooms (+19%)
Jeddah, Saudi Arabia: 42 projects/9,284 rooms (+8%)
Makkah, Saudi Arabia: 26 projects/29,296 rooms (+13%)
TOP FRANCHISE COMPANIES
The top five global franchise companies account for 44% of the region’s pipeline rooms.
Hilton Worldwide: 75 projects/22,708 rooms
Starwood Hotels & Resorts: 49 projects/14,249 rooms
Marriott International: 43 projects/10,513 rooms
Carlson Hospitality: 32 projects/7,562 rooms
InterContinental Hotels Group: 27 projects/7,842 rooms
TOP BRANDS
Hilton Hotel & Resort: 30 projects/11,452 rooms
Doubletree by Hilton: 21 projects/5,444 rooms
Radisson Blu by Carlson Hospitality: 14 projects/3,593 rooms
Rotana by Rotana Hotels Inns & Suites: 10 projects/3,125 rooms
Aloft by Starwood: 15 projects/3,180 rooms
CONSTRUCTION BY PROJECT STAGE, YOY
Under construction: 282 projects/88,545 rooms (26%/19%)
Start next 12 months: 103 projects/24,211 rooms (8%/7%)
Early planning: 110 projects/30,190 rooms (3%/-4%)
Total pipeline : 495 projects/142,946 rooms (16%/11%)
CONSTRUCTION BY COUNTRY, YOY
Saudi Arabia: 183 projects/61,373 rooms (14%/9%)
UAE: 157 projects/44,989 rooms (20%/14%)
Qatar: 48 projects/11,181 rooms (23%/23%)
Egypt: 30 projects/8,960 rooms (11%/11%)
Other ME countries: 77 projects/16,443 rooms (12%/7%)
Total: 495 projects/142,946 rooms (16%/11%)