Why developers are considering midscale Dubai hotels

Dubai, The UAE

Three years ago, Dubai launched a financial incentive to develop more mid-range (three- and four-star) hotels ahead of the upcoming 2020 Expo, as part of a plan to attract 20 million visitors to the Emirate and double the number of hotel rooms available.

And while there is no shortage of luxury development in the Emirate, some reports indicate that investors, eager to take advantage of the deals, are opting to build four-star properties. 

The incentives, Saeed Khalifa Mohammad Al Fuqaei, chairman of the Shuraa Group, told Gulf News, “translates into extremely attractive yields…When you have incentives from the government to create more hotel stock outside of five-star, you run with the opportunity.” The Shuraa Group has been involved in three of these transactions to date.

As developers seek opportunities for more growth around Dubai, mixed-use projects are gaining in appeal. The land around the Expo grounds is also seeing development activity, but some are eyeing opportunities offshore in the Deira Islands development. Several branded properties have been signed or have already opened in the district, but midscale hotels will also have room to grow. “The moment a particular emerging location gets the bulk of its infrastructure ready, that would be a good time for investor-developers to launch mid-market hotel projects,” Al Fuqaei said, noting that his company is planning to focus on building hotels rather than owning them. “Land prices are still attractive…and when you have the property ready with a hotel operator on board, the price you can sell at carries a higher premium.”

Notably, Amruda Nair, CEO and managing director of Aiana Hotels and Resorts, suggested that branded hotels will have an edge over independent properties thanks to financial considerations. “Often a franchise model or management contract with a brand is often more cost-effective,” Nair said. “It is usually when the operations are scaled by multiple properties that the own-and-operate model works to the developer’s advantage and can result in a 6-8 percent increase in their returns.”