Why Dubai's hotels saw a downturn in July

STR Global’s preliminary July data for Dubai indicate negative RevPAR performance.

Based on daily data from July, Dubai reported:
* increases in supply (+8.3 percent) and decreases in demand (-4.5 percent);
* an 11.8-percent decline in occupancy to 45.4 percent;
* a 5.0-percent increase in average daily rate to AED638.66; and
* a 7.4-percent decline in RevPAR to AED290.23.

“Dubai reported the lowest occupancy levels of any month for the last 18 years, when STR Global began tracking hotel performance for the market”, Elizabeth Winkle, managing director of STR Global, said in a statement. 

In June, the emirate posted a 4.2-percent decrease in RevPAR, down to $134.41.

Still, the downturn may be only temporary: Winkle noted that July is one of the hottest months within the region, and that, this year, the month coincided with the fasting month of Ramadan. 

The overall negative trend was on top of growing supply, Winkle added, and the emirate certainly has a positive forecast. As we reported back in March, Dubai plans to almost double the number of hotel rooms by 2020 as it expects a surge of visitors to the emirate ahead of that year’s World Expo.

Dubai, which spent more than $110 billion to transform itself into the Middle East’s commercial and entertainment hub, is seeking to attract 20 million tourists annually by the end of the decade. To do that, it needs to raise the number of hotel rooms to as many as 160,000, many of which will be outside of the luxury category—thus opening the emirate to a wider range of visitors. 

Recent transactions also indicate confidence in the emirate's hotel industry: Last month, Commercial Bank of Dubai arranged around Dhs200 million (approximately U.S. $60 million) to finance the acquisition of the Movenpick Hotel in Jumeirah Beach Residence by a group owned by Bank Muscat. 

But at the same time, Dubai could be in the middle of a property bubble, as the International Monetary Fund warned last month. Average hotel room prices prices increased by around 20 percent last year, according to Jones Lang LaSalle. Ratings agency Moody's also warned in research on Emaar Properties that that Dubai's pre-eminent property firm faces a potential risk due to 'exuberance' in the emirate's property market, which means that it faces the risk of overcapacity.

STR Global will release July 2014 results in two weeks. The August edition of the STR Global Hotel Market Forecast will be available by the end of this month.