Will Dubai's luxury hotel supply exceed demand?

Jumeirah Group, the Dubai-based hotel company, has been tapped by property investment company RP Global to operate a mixed-use development within its $1-billion tower in Business Bay. According to Arabian Business, the Jumeirah Business Bay will include a 200-room hotel managed under the Jumeirah brand.

In a statement, Ravi Pillai, chairman of the RP Group of Companies, the holding company of RP Global, noted that the company is investing close to $1 billion of its own resources into Dubai’s real estate sector to develop the tower.

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The tower will have a built-up area of over 3 million square feet, and is expected to include food and beverage outlets, a Talise Spa and Health Club, conference and banquet facilities and an open air rooftop Sky bar. It scheduled to be completed before the opening of the World Expo 2020 event. 

As The National noted, Jumeirah does not own the majority of the hotels it operates in the UAE and overseas. “That is our model for international expansion,” Piers Schreiber, a spokesman for the group, said. “By 2020, we expect to have 40 hotels open.” This goal falls under the city's plan 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.

Supply and demand in Dubai
But even with the Expo looming, supply may outpace demand. Hotels in Dubai are reportedly facing a slowdown in average daily rates as the city’s room inventory grows. “Average daily room rate in the market has been pressured as year-to-date supply growth has outpaced demand,” STR Global announced last week. The consultancy group reported that the city's hotel occupancy rate reached 57.8 percent in July, up by 24.7 percent year-on-year, and revenue per available room rose 21.9 percent to Dh346.76 in July. Room rates kept sliding that month, falling 2.2 percent year on year to below Dh600.

UAE hotels as a whole reported occupancy rates of 57.6 percent, a rise of 24 percent, and a 23.6 percent increase in revenue per available room to Dh307.46. The average daily room rate was down 0.4 percent to Dh533.88. Combined room rates for June and July, the Ramadan months, fell 4.5 percent to Dh523.8 as revenue per available room dropped 3.2 percent to Dh310.60, the research company said last week.

And while luxury developments have are evergreen in Dubai, budget and mid-market hotel rooms may bring in more value-focused visitors and put pressure on the bigger names. Of the 3,000+ hotel rooms expected to come online through December, 44 percent are in the midscale or lower categories, indicating increased demand for less expensive properties.

Jumeirah by the numbers
This development could be good news for Jumeirah Group, which reported revenue growth of 5.2 percent in 2014, down from 8 percent a year prior. Across the group's hotel portfolio, the company recorded an occupancy rate of 80.1 percent and revenue per available room of $293. 

The Group, which operates 23 hotels in Europe, the Middle East and Asia, has 25 Jumeirah and Venu properties in the pipeline. It has eight properties under development in China and two in Mumbai and Goa, India, which are expected to come on stream from 2017 onwards.

As of May, however, 2015 seemed more promising for the company: For the first four months of the year, occupancy was at 84.6 percent and RevPAR at AED2,018.

Pictured above: Ravi Pillai, chairman, RP Group of Companies, with Gerald Lawless, president and Group CEO, Jumeirah Group.

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