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Are the Middle East Hotel Markets Showing Signs of Maturity?

Release of the 2007 edition of HVS International’s report on Trends and Opportunities for Hotels in the Middle East.

The 2007 edition of HVS International’s report on Trends and Opportunities for Hotels in the Middle East highlights a tale of two regions. The majority of the hotel markets enjoyed strong performance; however, instability in some countries led to some markets recording decreases in occupancy and average rate.

Commenting on the results, co-author Hadrien Pujol, an associate director of HVS, noted that the Middle East remains the fastest growing region in terms of tourism arrivals over the last decade. However, growth in tourist arrivals slowed to 3.9% in 2006. In the meantime, public and private spending in mega projects and infrastructure-related work in an effort to diversify the region’s economy from its reliance on oil remains high. The region attracted approximately US$43.3 billion of foreign direct investment in 2006.

Bernard Forster, a director of HVS commented that while 2004 and 2005 witnessed huge growth for all tourism-related indices in the region, 2006 was as a step toward a more ‘mature’ market as the pace of growth is slowing.

“Riyadh, Abu Dhabi, Muscat and Dubai are the clear winners in terms of RevPAR growth with all markets experiencing minimum RevPAR growth of approximately 20%. On the other hand, Beirut, Damascus, Amman and Kuwait City witnessed declines in RevPAR for different reasons,” he noted.

“Regionally hotel occupancy dropped by two percentage points in 2006, to 71%. While some markets were affected by the war in Lebanon this summer, the modest decline in occupancy in the other markets surveyed is attributable to continuing increases in average rate whereby price sensitive customers are displaced to alternative accommodation,” he noted.

Hadrien Pujol added that “Average rate in the region increased by 11% to US$139. Increases in liquidity and disposable income from regional travellers and the continuing appreciation of the euro against the US dollar have had a beneficial impact, resulting in a RevPAR increase of 9% to US$98 and in GOPPAR to US$92, which reflects a very impressive 10% increase.

Hadrien Pujol noted that the development pipeline is no longer dominated by full service and luxury properties. Numerous projects have been recently announced to develop networks of branded limited service hotels in the region. In the meantime, the increased prevalence of mixed-use projects is noticeable. These are often based on a shared ownership model, such as condominiums and hotel residences, while branded serviced apartment components are being added to full service hotels.

The authors conservatively estimated some 82,000 rooms will enter the market over the next four years.

“UAE accounts for nearly 50% of the new supply with Accor and InterContinental Hotels Group being the most prolific hotel operators in terms of new developments in the region”, Hadrien Pujol said.

Such a level of new supply is likely to trigger a correction in some markets from 2008 onwards. Looking forward, the authors envisage continually rising development costs and difficulties in attracting skilled labour, which will be somewhat circumvented by those investors and developers focusing on economy and extended stay products.

Bernard Forster concluded that he remains optimistic and expects hotel performances to experience another good year in 2007, assuming no significant political upheaval in the region.

Copies of the Middle East Hotel Markets: Trends and Opportunities 2007 edition are available free of charge from HVS, 7-10 Chandos Street, Cavendish Square, London W1G 9DQ and our website: www.hvs.com.

For further information, please contact:

Bernard Forster,
Director

bforster@hvs.com

Tel: +44 20 7878 7719

Hadrien Pujol,
Associate Director

hpujol@hvs.com

Tel: +44 20 7878 7742

HVS is a full-service hospitality consultancy providing industry skill and knowledge worldwide. Since 1980, HVS has provided hospitality services to more than 15,000 hotels throughout the world for virtually every major industry participant. Principals and associates of the firm have written textbooks and thousands of articles regarding all aspects of the hospitality industry.

18 April 2007