Dubai's hotel supply outpaces demand; more properties set to open

According to the Middle East Hotel Market Insight report by audit firm Deloitte and STR Global, demand for hotel accommodations in Dubai had "considerably slowed" to 5.1 percent in the first nine months of 2015, from 6.4 percent in 2014. At the same time, the supply of hotel rooms to the market rose by 6.7 percent, outpacing the demand. The mismatch between demand and supply pushed down the occupancy rate by 1.3 percent, the report said. Average daily rates also fell as a result of this imbalance.

These decreases also match STR Global’s preliminary September 2015 data for Dubai, which saw slight drops in several key performance metrics. 

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Based on daily data from September, Dubai reported:

  • a 0.3 percent decrease in occupancy to 76.1 percent;
  • a 2.6 percent decrease in average daily rate to AED645.61; and
  • a 3.0 percent decrease in revenue per available room to AED491.08.

However, for the month of September, Dubai saw increases in supply (+5.4 percent) and demand (+5.1 percent) from August's numbers. And in spite of the year-to-date numbers, STR global area director Philip Wooller expects long-term demand to grow. “The current drop in the average room rate will have a positive effect in maintaining the occupancy levels throughout the city," he told Gulf Business, "and to some extent, this shift was necessary to keep Dubai competitive as it moves towards achieving its targeted growth in visitors during the Expo year in 2020.”

Dubai, which is aiming to attract about 20 million tourists annually by 2020, has evoked concerns of an over supply in the hotel sector with an increasing number of properties in the construction pipeline. The city currently aims to have 28,000 new hotel rooms open by 2018, two years ahead of the 2020 Dubai World Expo. Next year, 8,400 hotel rooms are set to enter the Dubai market and an additional 9,200 in 2017.

Experts say there will be a sustained demand for rooms, especially due to the connectivity that the emirate has with the rest of the world.

Dubai had 369 hotels in July 2015, according to data provided by STR Global. This reflected a compound average growth rate of 5.25 percent from the 233 hotels in 2006. Over this period the number of rooms in Dubai rose from 39,000 across all sectors of the market to 75,600.

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