More hotels slated for Dubai despite declining occupancy and rates

(The Address Jumeirah Resort and Spa)

Have we mentioned Dubai’s goal of bringing in 20 million visitors by the time of the 2020 Expo, and how the Emirate has offered incentives for hotel development to accommodate all of those guests? It seems to be working: According to Deloitte, Dubai’s hotel room inventory is expected to hit 76,500 by the end of the year, up 14 percent from 2015, with 9,300 rooms across 31 new hotels in the pipeline.

But maybe it was all a bit too much, because reports are indicating that Dubai’s hotel industry could already be oversaturated, with occupancy and room rates already affected.

Last month, we noted that demand for Dubai hotels was up 24.6 percent year-over-year in July, but STR credited that bump to the Eid al-Fitr festivities. The hotels saw a 17.6-percent increase in occupancy to 67.5 percent for the month, while RevPAR increased 7.5 percent to Dh365.08.  

For this year, the gross operating profit per available room is expected to drop 23.4 percent compared to last year, according to Hotstats. The declines are poised to continue in 2017 and 2018. 

In the short term (2016 to 2017), Deloitte expects Dubai’s supply/demand gap to widen, leading to a “new normal” in hotel performance. Occupancy levels at between 70 percent and 75 percent are likely for the remainder of this year. Emaar, Dubai's biggest property developer, has the Address Dubai Marina, which reported an occupancy rate of 28 percent in June and room rates of $88. The Sheraton, Le Meridien, Ocean View and Hilton Hotels at Jumeirah Beach are charging less than $100 per night for some rooms. 

The Effects

In light of declining profits and middling occupancy rates, some developers are delaying openings or opting to abandon projects in various stages of completion. 

Emaar’s Address Boulevard Dubai, the first Address hotel to open in seven years, was expected to be finished by May but is still under construction. The Kempinski Palace Hotel on the Palm has also been under construction for some years, and while investors have reportedly been told that the project will be completed this year, it seems unlikely.

Some developers have partitioned the new hotels under construction and have been selling hotel rooms off-plan. In all cases so far, to ensure sales, developers have had to offer guaranteed returns. The Dukes Hotel at Oceana on the Palm, which was slated to be completed in May, is offering a guaranteed 10-percent return over the first five years. 

The construction of the Seaview Hotel near the Zabeel Saray Hotel is almost complete, but the site has been abandoned for more than a year. The Kingdom of Sheba Hotel and Residences development at the top of the Palm has reportedly been abandoned, although the buildings were “almost completed” more than two years ago. Worked stopped on the partially built Taj Exotica Hotel four years ago, but the Arenco Group is reportedly looking into completing the work.

More Rooms

In spite of declining profits and middling occupancy rates, hotel companies are still signing deals to open more properties throughout the Emirate.

Marriott International, for example, finalized its acquisition of Starwood Hotels & Resorts last week, and now has 30 properties in Dubai. By 2022, that number is slated to grow to 60 hotels with 17,000 rooms. “We are bullish about Dubai beyond 2020," Alex Kyriakidis, the president and managing director for the Middle East and Africa at Marriott International, said. "The government is regenerating the whole area where 2020 Expo will take place, it is investing in another major airport, theme parks, malls, more leisure attractions, and continuing to grow Emirates as the airline and the hub in Dubai."

There’s also the 55-story Corinthia Hotel and Resort being built by Meraas Holding on Jumeirah Beach, close to the Moevenpick Hotel. 

Emaar is planning to bring a “massive” new hotel and resort to Jumeirah Beach. The resort and associated residences will be operated by Emaar's hospitality wing, which manages The Address Hotel chain. As such, the new Jumeirah Beach resort will be branded The Address Jumeirah Resort and Spa (pictured above).

And the new Viceroy resort hotel on the Palm, built and funded by Chinese investors, is one development that may actually finish on time, if not ahead of schedule.