Unstoppable Wave In Mideast
Despite delays and assorted issues, leadership in the GCC will not stop until it becomes a tourist destination like no other.
By Jeff Weinstein, Editor In Chief -- Hotels, 1/31/2008 11:00:00 PM
When discussing the aggressive hotel development programs today across India and China, the nods of affirmation are decisive and clear. However, when talk turns to the Middle East and, more precisely, the Gulf Cooperation Council (GCC) states and most notably the UAE, the knowing looks can change to somewhat sheepish or quizzical grins.
Yes, the growth numbers are astounding for a region that was barely on anyone’s radar screen 10 to 15 years ago. According to TRI Hospitality Consulting, Dubai, 77,872 rooms are expected to enter the GCC by the end of 2010, increasing the room supply by 86%—and the total jumps to above 100,000 new rooms when non-confirmed projects are added. Numbers like this must leave one to wonder whether or not the growth plan is too aggressive, whether the infrastructure will support it and if/when the correction will come to what has been outstanding performance throughout the region.
“Dubai does things the right way,” says Joe Sita, CEO of Nakheel Hotels, Dubai. “Leaders are not afraid to build infrastructure to attract tourists. Dubai has a reputation as having limited number of attractions. That is why Atlantis, Dubailand, Bawadi and more will get visitors to continue to come back. And it is happening.”
Hoteliers are officially bullish but some are privately cautious. A consultant in Dubai reports one major chain’s internal forecast for the region is based on 65% occupancy.
On the other hand, construction delays continue to keep the supply-demand quotient in favor of existing operators, as 15 out of an expected 30 hotels actually opened in Dubai in 2007 and many of the other announced projects in the region are still one or more years away from completion.
In either case, government leaders say their plan is quite feasible, with demand predicted to grow from 6.5 million visitors in 2006 to 15 million in five to seven years. Undoubtedly, they say, there is no bubble to burst.
Still, others have a more balanced opinion of the future. “In Dubai, the supply-demand balance will shift significantly in 2009, which also happens to be the year in which pundits believe prices in the much-vaunted freehold residential property market will begin to decline,” says Guy Wilkinson, partner, Specialist Hotel & Property Development Advisers, Dubai. “I think there will then be a period of severe competition lasting between three and five years before the first of the 45 planned theme parks open in Dubailand (probably around 2012) to boost demand again.” So, perhaps there will be a blip on the radar, but the long-term prognosis is favorable.
Sita maintains the infrastructure and hotel growth can be sustained, providing other world economies continue to grow. In fact, he says it is time to focus on budget and economy hotels, and Nakheel has a strategy to roll out easyHotel in partnership with Sir Stelios Haji-Ioannou. “That is where we see great opportunity,” Sita says. “The region will open up to the mass market and all the low-cost air carriers will come, and we will need to provide all the right accommodations.”
The GCC Phenomenon
Performance was outstanding throughout the GCC in 2007, with RevPAR reportedly increasing from high single digits to more than 20%. The Bench, London, reports Dubai overtook Moscow in 2007 as the RevPAR leader at €219.
But the overwhelming story is still about the future, as what appears to be an endless supply of government money is behind infrastructure development, as well as real estate (several enormous mixed-use hotel developments across the emirates) and industrial projects. Add to the equation the meteoric growth of regional and budget airlines that will only support the growth of mid-market hotels, with rollouts planned by Express by Holiday Inn, Ibis, Centro by Rotana, Premier Travel Inn and Yotel, among others.
The UAE continues to lead the way with some 178 hotels and 57,000 rooms scheduled to come online by the end of 2010, with 67% of the projects located in Dubai, according to TRI. For example, Nakheel has announced the Dubai Promenade, a waterfront community that will create a virtual peninsula along the shoreline anchored by a 5-star, wheel-shaped hotel and retail, residential and commercial offerings spanning the entire development. Among the bigger projects still under construction is Tatweer’s Bawadi, which will bring an additional 51 hotels and 60,000 rooms to the market. This gives just a taste of the size and scope of the activity.
Another juicy tidbit of the excitement can be found in Abu Dhabi, where Aldar Properties has 35-plus hotel projects to be operated by several global brands with some 12,000 to 14,000 rooms under development over the next six to eight years. These are huge, master-planned, mixed-use developments with substantial infrastructure undertakings. The project mix includes 30% mid-market and extended-stay hotels, with deals in place with Accor for its Ibis and Novotel brands, IHG for its Express by Holiday Inn brand and Rotana for its Centro brand. In fact, Aldar just announced a strategic partnership with IHG, which includes plans to develop a number of IHG-branded hotels that will start to open in 2009. Aldar also has strategic operating agreements with, among others, Oberoi and Mövenpick. Paul Bell, managing director of Aldar Hotels & Hospitality, says he signed 16 management agreements last year and expects to sign as many this year.
To give an idea of the scope and scale of Aldar’s plans, its Yas Island project should have seven or eight hotels open by 2009 for the inaugural Formula 1 Grand Prix there. The 2,500-ha (6,178-acre) island will feature attractions such as a Ferrari theme park, a waterpark, 300,000 sq. m (3.2 million sq. ft.) of retail area, links and parkland golf courses, marinas, polo clubs, apartments, villas and numerous restaurants. Sustainability is an Abu Dhabi focal point throughout its development scheme, and Aldar is buying in with plans to build two or three cutting-edge carbon-neutral hotels.
“Abu Dhabi seems keen to learn from Dubai’s mistakes and to take things at a somewhat more considered pace,” Wilkinson says. “It is bringing its financial might to bear on the challenge of creating a business and leisure tourist destination to compete with Dubai, and in my view has every chance of succeeding if initiatives like that of bringing branches of the Louvre, Guggenheim and British museums to Sa’adiyat Island are anything to judge by.”
In addition to Dubai and Abu Dhabi, Kuwait is supposed to add 19 hotels by 2010, and key Saudi cities are growing steadily but more cautiously. Oman is creating a Riviera-like atmosphere along its coast to the south with new master-planned 5-star resorts coming up by Sama Dubai/Jumeirah, Yenkit Tourism Development with Majid Al Futtaim at Yenkit Heights, and Egypt’s Orascom at the old As Sifah village. “Oman’s outstanding natural beauty and unique heritage, with attractions ranging from mountain wadis to nesting turtles and more than 500 forts, is arguably the sleeping giant of GCC tourism,” Wilkinson says.
Ras Al Khaimah, in the northern part of the UAE bordering Oman, is another market worth watching. Again, Wilkinson points to a series of master-planned resort communities, including RAK Investments’ 2.7-sq. km (1-sq. mi.) Al Marjan Island project; Rakeen’s 35-sq. km (13.5-sq. mi.) desert city project, The Gateway; the Mina Al Arab or Port of Arabia, by RAK Properties, a 2.8-sq. km (1-sq. mi.) mixed-use leisure and holiday beach resort development situated along 13 km (8 mi.) of Ras Al Khaimah’s beachfront; and Saraya Islands, a 1.1-sq. km (0.4-sq. mi.) tourism development project along a 7 km (4.3 mi.) beach by the Saraya Islands Real Estate Development Co., a joint venture between the government of Ras Al Khaimah, Saraya Emirates (part of the Saudi Oger company, which is involved in Beirut’s famous Solidere urban regeneration project) and the Arab Bank. Together, these projects can be expected to contain up to 30 hotels or more.
The other hot market is Qatar, where TRI predicts supply will increase 30% a year over the next three years and 39 new hotels are supposed to be added by 2010. For Doha, future demand is even more difficult to predict. “There is currently no tourism to speak of and little reason to expect much growth in leisure visitation, although the Qatar Tourism and Exhibitions Authority aims to increase MICE demand and develop specialist niche tourism markets like medical tourism,” Wilkinson says. While he thinks the road is somewhat rocky over the next few years in Qatar, hoteliers Wilkinson has spoken to are optimistic that in the medium term demand can be sustained despite the massive supply growth.
As for the rest of the region: Egypt is relatively mature; Israel and Lebanon are facing political turmoil; Syria is not an easy place to develop; and Jordan is seeing some growth. But in a story like this, the news from the rest of the region just does not compare at this time.
Players To Watch
With so much development, there is ample opportunity for both regional and global hotel companies in the Middle East to work with the major developers in the UAE such as Dubai World, Emaar Hospitality Group, IFA Hotels & Resorts, Tatweer and Aldar, among others.
All of these developers have significant and multiple projects in the works and just one such example comes from Dubai World, which recently consolidated its hotel business to create a fully integrated investment company called Nakheel Hotels. Its iconic local projects include The Palm Jumeirah and The World, playing a major role in driving Dubai’s tourism growth, increasing the number of hotels in the emirate by more than 50%. Nakheel projects also include the Trump International Hotel & Tower, which is under development on The Palm Jumeirah, and QE2 Enterprises, which has acquired the QE2 and will become part of the expanded Nakheel Hotels. The QE2 is to form the centerpiece of a luxury hotel, residential, retail and entertainment destination to be developed on The Palm Jumeirah. Nakheel’s first hotel to open in Dubai during the third quarter of this year will be Kerzner International’s Atlantis—also on The Palm Jumeirah.
IFA Hotels & Resorts is another major developer with a huge interest in The Palm Jumeirahand is in the process of delivering its first residential properties at the Palm Residence project, which is managed by Fairmont Hotels & Resorts. In fact, IFA is partnering with Fairmont on several hotel and resort projects in Dubai, South Africa, Kenya and Tanzania. In addition, IFA is a major shareholder in the Yotel brand and wants to bring the Yotel formula to the Dubai airport.
Among the top regional hotel operators is Rotana, which signed 16 new management contracts around the emirates in 2007 and aims to have a property in every key Middle Eastern city. Currently, 25 Rotana hotels are operational, seven are scheduled to open in 2008 and another 28 are in various stages of development. In addition, Rotana has committed to have 25 mid-market Centro hotels within five years.
Among the global players, Marriott International has 22 properties open, while its Ritz-Carlton brand has an additional five. By the end of 2010, Marriott expects to reach 41 hotels with 10,646 rooms (excluding Ritz-Carlton), representing a 31% increase in hotels and a 28% increase in rooms.
IHG has a strong presence in the region, with 73 hotels and 18,105 rooms open, and Kirk Kinsell, IHG’s new president in the region, is charged with delivering a pipeline that includes 37 hotels and 9,371 rooms. The pipeline is spread out among its brands, including InterContinental (10 hotels in the pipeline, with Kuwait just announced), Holiday Inn (14 in the pipeline), Express by Holiday Inn (14 in the pipeline) Crowne Plaza (five in the pipeline) and Staybridge Suites (first hotel set to open in 2008).
While IHG does a lot of franchising, it is a business model not yet effective in the Middle East. In response, Kinsell is using a hybrid that he refers to as a “manchise.” IHG sets up operations, staff and operational systems, staying on as a manager through the pre-opening and reverting to a franchise operation based on performance criteria or a time-specific schedule. “With multiple sites in the region, we can put a sales organization in the market and then turn over properties to the franchisee,” Kinsell says.
With GDP growing in the Middle East and Africa at 5.4% in 2007, faster than the global rate of 3.4%, Hilton Hotels Corp. decided to create a new Middle East & Africa group to accommodate its activity, which includes doubling its portfolio within five years. With 15 hotels currently in the pipeline, the company expects to add another 20 management agreements in five years with the goal of a Hilton in every capital city
While Hilton has yet to sign a deal for its mid-market brands, including Hilton Garden Inn, MEA President Jean-Paul Herzog says there is a lot of noise and a lot of need for such a product. He says Hilton wants to sign with an owner looking to develop more than just one mid-market hotel and fully expects to sign about 15 such hotels in GCC states in the near-term, with even greater expectations for Saudi Arabia. l
Direct comments to: jweinstein@reedbusiness.com
|
No related content found.
