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Dubai hotel rates to pick up in 2012

Dubai, February 21, 2010

Dubai hotel rates will not see much improvement untill the beginning of 2012 due to a slump in demand for rooms from leisure sector, said a hospitality industry expert. The emirate last year witnessed a 10.2 per cent drop in its hotel occupancy levels.

Julian Kemp associate director of CB Richard Ellis Hotels, EMEA, said amongst its peers in the GCC, Dubai has been the most affected year to date October 2009 with a 26 per cent drop in average room rate (ARR).

'In comparison Abu Dhabi increased rate by 4.7 per cent over the period,' he added.

UAE as a whole saw ARR decreased by 10.4 per cent year to date October 2009 versus the same period in 2008. 

'Compared to the global market some cities in the Middle East have out performed other key global cities, but as a region UAE (skewed by Dubai) has probably faired the worst,' he opined.

However, Kemp pointed out that 'some of this decline was due to the continuing development and opening of new rooms through the year within the emirate.'

According to him, the continuing development of five star deluxe hotels within the emirate will place pressure on occupancy levels 'and thus the ability for hotels to charge high rates with many offering significant discounts.'

'Hotels that occupy a prime location, i.e. on the beach or attached to a significant tourist attraction or mall should be able to improve rate better than those properties that are considered to have a secondary location,' Kemp said.

On the emerging trends, Kemp said one of the typical characteristics of downturns in the hotel sector was that occupancy tends to decline first with a subsequent negative impact on average room rate as hoteliers yield manage or discount to shore up the occupancy decline.

According to him, the rate improvement generally follows a recovery in demand levels. 'With positive outlooks in respect of economic performance, it is expected that corporate demand will improve towards the latter part of 2010.'

'As demand increases it allows hotels to start increasing negotiated rates. Leisure travel may take longer to improve and therefore leisure sector rates may remain depressed,' he said.

Together with declining occupancy levels due to the economic crisis there is a requirement by hoteliers to discount rates to secure demand, Kemp stated.

The current economic environment is global and as such this has had an impact on hotel performances virtually across the world. Most cities experienced a decline in ARR during 2009 compared to 2008.  In Dubai, ARR decreased by 23.7 per cent to $235.48.

'In respect of 2010, the general consensus amongst the industry is that trading will be tough.  Economies are showing growth albeit minimal in some areas and as such corporate travel is still likely to be restricted and leisure travel may decrease as disposable income is reduced,' he explained.

UK, Kemp said, was one of the prime sources of demand for Dubai and with a high degree of uncertainty in respect of the economy for this year, travel for both leisure and business is likely to remain depressed.

'As such, the immediate impact to hotels will be a loss in occupancy levels which in turn leads to a drop in room rates.  As a result, in our opinion ARR is likely to decrease further or at best remain in line with results achieved in 2009.'

Cities within the wider Middle East region, based on STR Global data have had a mixed reaction to the current global economic environment. Not all cities have a global profile and a considerable amount of demand is generated amongst the GCC countries, Kemp added.

According to him, the Dubai room rates were high before the downturn. 'But with a high proportion of five star deluxe rooms the achieved rates were not surprising, due to the fact that there are little mid-market or budget properties to dilute the ARR compared to other global cities.'

In downturn periods hotels tend to discount heavily in order to maintain occupancy, however recovery takes several years and may not get back to rates achieved previously.

In our opinion it is unlikely that Dubai hotels’ will be able to achieve rates experienced pre the current downturn. This will be compounded by the future pipeline in Dubai and the ability of people to negotiate better rates on both a corporate and leisure basis,' he added.-TradeArabia News Service

Tags: Dubai | Rates | CBRE | improve |

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