Dropping rates narrow Dubai hotel profit margins


Dubai's upscale and luxury hotel scene just keeps rolling along, with regular announcements about new projects and new developments—all part of the emirate's plan to attract 20 million visitors per year by 2020. 

Two new renovations of existing properties have been announced in the past few days alone: Corinthia Hotels signed a deal with the UAE-based Meydan Group to manage a luxury beachfront resort currently under construction on the site of the former Meydan Beach Club. The completed hotel is expected to have 300 guestrooms and 60 serviced apartments when it opens in 2019.  

And the Middle East's first Avani Hotel is set to open in Dubai’s Deira district next month when the 216-room Movenpick Deira is rebranded Avani Deira Dubai Hotel. The Avani brand is set to complement Minor Hotel Group's Anantara hotels. 

Dubai-based real estate-developer Nakheel announced last year that it would develop a 500-room Avani beachfront resort at Deira Islands in September last year. At the time, Minor Hotels said it has 10 hotels earmarked for locations across Dubai.

The owner of the hotel, Bin Sulayem Investments general manager Abdulla bin Sulayem, said that switching the brand to Avani marked “an important step in the evolution of our owned assets.”

Declining Rates

But maybe these new developments are premature. A new report from research firm HotStats suggests that while visitor numbers to the emirate are rising, revenue at Dubai hotels is on a decline. 

Profit per room at Dubai hotels dropped 22.7 percent in the first four months of 2016 on a rolling 12-month basis, the figures showed. While occupancy for the period reached an estimated 87 percent, average room rate fell 9.6 percent to $298.68. This caused revenue per available room for Dubai hotels to drop 10.5 percent in the same period to $258.04.

Conference and banqueting RevPAR, meanwhile, rose 17.2 percent year-on-year to $20.39 from $17.40 in 2015. Ancillary revenues helped to balance the decline in total revenue per available room (somewhat) to -6.6 percent over the period, but despite savings in both labor (1 percent) and overheads (2.9 percent) on a per-available-room basis, profit per room at Dubai hotels dropped 11.4 percent year-to-date.

These numbers were in spite of solid growth in visitor numbers. A full 4.1 million overnight visitors came to Dubai in the first three months of the year, a 5.1-percent increase over the same period last year, according to official figures. 

These numbers raise some questions: If existing hotels are not pulling in the kinds of profits they used to, will developers and investors still want to put their money into upscale properties? Will they look to other markets, or will they promote other segments instead? Dubai will soon have three St. Regis hotels and a new W—will all these luxury properties competing with one another drive rates down until profit margins are just too narrow to be worthwhile?

We'll have to wait and see.

Sources: Gulf News, Arabian Business, Gulf Business

Photo © Mövenpick Hotels & Resorts