RAS AL KHAIMAH, UNITED ARAB EMIRATES — Prior to the COVID-19 pandemic, the focus of the United Arab Emirates hotel industry for years had been on growing the midscale segment. As travel and hotel demand recovers, however, luxury is leading the way, forcing hoteliers in the country to reconsider whether that midmarket strategy was misguided.
During a panel discussion at the Gulf & Indian Ocean Hotel Investors’ Summit, Gerard Byrne, managing director of Archipelago International, said “the midmarket strategy the Dubai government had was the right step at that time as that was where the volume was."
Mohamed Awadalla, CEO of Dubai-based Time Hotels, said government tax rebates fueled oversupply of midscale hotels, but there still is opportunity for the segment.
“We’re still here as a local player, and we are here because we know how to compete. It is about the extra things, as well as service, and we feel some of the competition ignores this side of things," he said. "And we have no alcohol, but our occupancy is approximately 80% today."
Broadly, the most notable hotel performance improvements during the recovery so far have been at the higher end.
Philip Wooller, area director for the Middle East at CoStar hospitality analytics firm STR, said luxury hotels in the UAE are already considerably exceeding 2019 performance levels.
Across all hotel segments in Dubai, between Oct. 1 and Nov. 12, occupancy was 83%, 52% higher than 2020 and 5% higher than 2019. Average daily rate was 812 Emirati dirhams ($221.10), an increase of 377% over the same period of 2020 and 35.11% higher than 2019, while revenue per available room was 676 dirhams, 196% above 2020 and 42.6% above 2019.
Dubai luxury hotels, over the same period, achieved occupancy of 87%, 58% higher than 2019; ADR of 1,648 dirhams, 108% higher than 2019; and RevPAR of 1,247 dirhams, 189% above 2019.
Archipelago’s Byrne said he is confident that midscale hotel performance "will come back in scale" once all restrictions have been lifted, largely due to travel demand from Asia.
Pent-up demand and savings, and good weather, have helped the recovery of travel in the United Arab Emirates so far, said James Riley, group CEO at Mandarin Oriental Hotel Group.
"The honest answer is that [the past few months have] been extremely good. … We took over the Emirates Palace [from Kempinski Hotels & Resorts] during COVID-19," Riley said. "It is going through a renovation, and business levels are obviously constrained, but we have confidence going into the festive season and into 2022."
Mandarin Oriental plans to open a second hotel in Dubai in 2024.
“Luxury is doing very well. I am not going to make too much of a statement from a couple of hotels, but there is an increasing attraction of both Dubai and the United Arab Emirates,” Riley said.
Differentiation
Byrne said differentiation remains key for all hotels, regardless of their segmentation.
“Dubai still has a midmarket opportunity, but we’re doing a hedge play with short-term residential apartments on The Palm and Downtown,” he said.
Awadalla said feasibility studies are critical.
“There are more needed if you want to see returns come in faster,” he said.
The pandemic has been a game-changer for hotels, even at the highest end, Riley said.
"Our next hotel in Dubai will be downtown, but it will have a boutique sensitivity rather than a mass-market corporate one,” he said.
Byrne said in some cases connections with guests will be more important than a hotel’s location.
Diversifying hotel portfolios will also remain critical.
“We are old school and prefer one asset in each segment,” Awadalla said.
Riley added “bleisure” travel, which combines both business and leisure purposes, will grow in demand in the UAE, and that is leading to a mindset change for hotel designers, developers and operators.
“We have already included some elements of that, but going forward, there will be more. Hotels will need a differentiating point, but people still will remember the level of service that goes with that,” he said.