Dubai hotel performance suffers as mid-scale supply surges

Rixos Premium Dubai in JBR just entered the hotel market with 414 guestrooms. (Despite the additional 1,800 guestrooms, Dubai hotels reported RevPAR plummeted in Q3 2017.)

Although 1,800 guestrooms were added to Dubai’s hotel stock in Q3 2017, additional mid-scale hotel projects could lead to drops in average financial returns in the future. According to JLL’s most recent Dubai Real Estate Market Overview report, the total Dubai hotel supply increased to about 82,200 guestrooms during the third quarter of the year.

As of last year, the mid-scale hotel segment has been booming. In 2016, several hotel projects in the four and five-star sectors entered Dubai’s market. These include the 414-guestroom Rixos Premium Dubai in JBR and the 238-guestroom DoubleTree by Hilton in Business Bay. 

JLL’s report also highlighted another growing trend in Dubai’s hotel market: the refurbishment of existing guestrooms. For example, Palm Jumeirah’s Atlantis underwent an extensive renovation of its1,539 guestrooms. Those guestroom overhauls were completed this past quarter. 

Even more guestrooms are expected to enter the market. A potential 4,100 guestrooms will be completed over the final quarter of the year, while several others are nearing completion in Business Bay. Early next year, additional set of guestrooms will be completed. 

Despite Dubai’s booming guestroom pipeline, hotel performance remains low. JLL reported that YT August RevPAR came in at AED503, its lowest level in the last decade. However, occupancy has remained at 75 percent since early 2017. “Although the strategy of many hotels across the city is currently focused on maintaining high occupancy levels at the expense of daily rates, it is important to note that Dubai remains one of the strongest performing hotel markets globally in terms of RevPAR and other financial indicators,” JLL claimed in the report. 

JLL sees this decline in Dubai’s hotel industry performance simply as a market adjustment. “The outlook for Dubai remains positive, especially as the city continues to invest heavily in tourism infrastructure and diversify towards new source markets, such as Southeast Asia,” the group added.