Report: Budget hotels a smart investment in the Middle East

Dubai

Hoteliers in the Middle East may be in for a challenging 2016 if a downturn last month is any indication of the rest of the year.  

Ernst & Young’s Hotel Benchmark Survey found that all Middle East and North Africa markets recorded a decrease in RevPAR last month compared to January 2015, with the exception of Manama, Cairo and Mecca, Gulf Business is reporting. Even more worrisome, MENA head of transaction real estate Yousef Wahbah said that hotel markets across the region saw decreases in performance last year compared to 2014, although occupancy rates increased in Cairo, Madina, Muscat and Ras Al Khaimah.

Hotels in Dubai and Abu Dhabi had the highest occupancy rates in the region at 80 percent, followed by Ras Al Khaimah at 75 percent. Performance in Riyadh and Jeddah was steady last year but could be affected by the country’s growing budget deficit.

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The report suggested that hotels in the region would have a difficult time reaching 2015-level numbers this year, with a minimal RevPAR decline expected for 2016. Mitigating factors may include reduced economic growth due to lower oil prices; reduced visitors from Europe, Russia and China due to currency fluctuations; less overall liquidity in the region; and "uncertain macroeconomic conditions." 

Still, the report noted that there have been no major delays or cancellations in terms of mega projects—but these may happen later in the year if conditions do not improve. 

Beach properties in Dubai and hotels in Jeddah had the highest yields in the region, with ADR of $311 and $214 per night, respectively. Demand for Dubai’s beach hotels had always outstripped supply, the report said, and while this is expected to continue, hoteliers can expect more competition from three- and four-star properties across the emirate, and that these may be good areas for future investment. The report suggested that budget hotels may gain traction in Saudi Arabia, where 40 percent of visitors travel by land rather than air.

Source: Gulf Business

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