Investment and development have been kicked into high gear for Asia, the Middle East and Africa, as projected increases in travelers looms on the horizon and operators want to be prepared for when they come. However, as Dubai confidently opens more hotel rooms as its rates continue to fall one has to wonder if this is an investment bubble waiting to burst, and if so how long can it last?
Albawaba Business is asking just that question, and finding varying answers. Guy Wilkinson, founder of consultancy Viability, said the next couple of years will be challenging for the Middle East from an investment standpoint if demand continues to fall and the global economy slows down. Rudi Jagersbacher, president of Hilton Worldwide Middle East & Africa, disagreed.
"I can’t speak about the situation in China but certainly in the Middle East the new supply will be absorbed," Jagersbacher told Albawaba Business. "Anybody who has been around in Dubai for as long as I have knows that anything is possible in the hotel industry here."
Rates and revenues in the Middle East have been affected by a number of factors, including political instability, the increase in overall supply and recently the volatility of oil prices. According to Gulf Business, a report from PwC showed a dramatic fall in oil prices reduced the number of tourists from certain areas, specifically Russians who's spend was reduced by nearly 50 percent.
“Not only do we see a decrease in Russian visitors in Q4, the spend was significantly down, resulting in a major impact to revenue per available room (RevPAR), particularly in the luxury segment from those who did travel," Philip Shepered, partner, PwC Middle East Hospitality and Leisure, told Gulf Business. "Another challenge is the 25 per cent devaluation of the Euro against the dollar, which has led to drop in visitors from the Eurozone."
But these numbers have not deterred the brands, especially Starwood Hotels & Resorts, who announced at the Arabian Hotel Investment Conference that it plans to open 50 luxury, upper upscale and mid-market hotels in the Middle East by 2019. The company signed five new Aloft and Element hotel deals in Dubai (UAE), Doha (Qatar) and Muscat (Oman).
This is further solidified by a report from JLL's Hotels & Hospitality Group (2015 Middle East Hotel Intelligence Report) showing that the markets of Dubai, Abu Dhabi, Doha, Jeddah and Riyadh still have strong investor interest. According to the report, Dubai leads the tourism and hospitality market and has plans to attract 20 million tourists annually by 2020 leading up to the World Expo.