Outlook, Market Trends and Opportunities for Hotels in the Middle East

The 2008 edition highlights strong and positive growth for almost all markets. The majority of the hotel markets enjoyed a strong performance, with the exception of a few cities.

2007 – A Step Towards Maturity?

The 2008 edition of HVS’s report on the Outlook, Market Trends and Opportunities for hotels in the Middle East highlights strong and positive growth for almost all markets. The majority of the hotel markets enjoyed a strong performance, with the exception of a few cities.

Commenting on the results, author Hala Matar Choufany, a director of HVS, noted that despite speculation among industry experts that 2007 would see a further step towards a more ‘mature’ market, occupancy among quality hotels recovered to reach levels higher than they were in 2005. With the exception of Beirut, Kuwait City, Cairo (City Centre) and Abu Dhabi, most markets saw occupancy increase by at least five percentage points. The author added that “it is worth noting that after the drop in occupancy in Damascus and Bahrain in 2006, a fall due largely to political instability in the region, both markets registered a significant recovery, with occupancy averaging 80% and 77%, respectively”.

Mrs Choufany noted that, “while the number of tourist arrivals worldwide grew by 6.1% between 2006 and 2007, in the Middle East, growth was 13.2%, which clearly reflects the tourism industry’s potential and its resilience to political shocks in the region and that it remains the fastest-growing region in terms of tourism arrivals, ahead of Asia and the Pacific region”.

“Most cities in the survey saw an increase in average rate of more than 20% in 2007; Cairo (City Centre) and Cairo (Heliopolis) registered an increase of 38% and 39%, respectively. Despite the drop in occupancy in the city of Abu Dhabi, average rate increased from US$167 to US$238, almost catching up with the Dubai market rate of US$258 in 2007.”

“Regionally hotel occupancy increased by three percentage points in 2007, to 74%.” The author added that, “average rate across the region increased by approximately 15%, from US$139 in 2006 to US$160 in 2007. The resultant RevPAR (rooms revenue per available room) of US$118 was up 20% on 2006 and compares to growth of 9% in 2006 and 23% in 2005”.

The author commented that hotels’ gross operating profit (GOP) grew by 21% on average. GOPPAR (GOP per available room) rose from US$92 in 2006 to US$111 in 2007.  “The growth in GOPPAR is attributable largely to the growth in RevPAR. This highlights the effect that rooms’ department profit has on a hotel’s profitability”, she added.

The author noted that even though full service and luxury hotels still account for a significant portion of the new supply, hotel companies have recently started announcing the development of serviced apartments and limited service hotels under brands such as Express by Holiday Inn, Ibis, Tulip Inn, Centro, Premier Inn, Yotel, easyHotel, Courtyard by Marriott, and Park Inn. An increased level of development in hotel derivatives is noticeable.

“Opportunities exist for investment in condominiums, timeshare, serviced apartments and limited service hotels in some parts of the region”, she added, and recommended that investors fully understand the market opportunities and investment characteristics of each type of asset class before setting their investment strategies.

It is estimated that the authorities are investing approximately US$30 billion in airport construction projects in the region, with the UAE accounting for nearly three-quarters of that. The author considers that the ambitious development of the region’s international airports will have a considerable positive impact on the level of visitation to the region.

“Our general outlook for the hotel industry in 2008 and 2009 is positive, although with approximately 120,000 new rooms entering the different countries in the region, a market correction is likely to happen, with lower occupancy and a decline in average rate, especially in the UAE and Qatar, as the new supply is absorbed. The long-term outlook for the region as a whole remains positive, however, and the annual growth rate in certain markets is likely to slow over the next decade”, she concluded.

She also considered that the limited option of branding a property with a ‘new’ internationally recognised brand, continually rising development costs and difficulties in attracting skilled labour will be somewhat circumvented by those investors and developers focusing on economy, extended stay and boutique products.

Copies of the Middle East Hotel Survey – Outlook, Market Trends and Opportunities 2008 edition are available free of charge from HVS, Dubai Silicon Oasis Headquarters Building, 4th Floor, PO Box 341041, Dubai, UAE or via our website: www.hvs.com.

Note to Editors:  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.

For further information please contact:

Hala Matar Choufany, Director                     Tel: +971 4501 5586


1 May 2008