The days of record rates for Dubai's hotels may be numbered

Walking the halls of this year's Arabian Travel Market, you could be forgiven for forgetting the Gulf region was in the middle of an economic slump.

Dubai World Trade Centre was the usual swarm of delegates and many hotel operators seemed to be relishing the challenge. At least that was the impression created.

"Operating in an upward market is maybe easy for everybody, sometimes when there is a downturn that's when the best company can prove they add value to the business," said InterContinental Hotels Group chief operating officer for India, the Middle East and Africa, Pascal Gauvin.

This fighting spirit was not without cause. During the exhibition, Dubai's Department of Tourism and Commerce Marketing revealed the emirate had seen a 5.1 per cent jump in tourist numbers during the first quarter, welcoming 4.1 million visitors in what was surely one of the most economically uncertain periods in recent memory.

Perhaps more importantly for hoteliers, the emirate also maintained its position at the top of major world markets, recording the highest average daily rate in the first quarter for the 12th consecutive year at $234.88, according to STR Global.

"Despite the challenges of lower oil price and currency fluctuations, tourism continues to perform positively and we believe that with every challenge comes an opportunity," said Mövenpick Hotels & Resorts chief operating officer Andreas Mattmüller.

The hotel operator, with its plan to open 45 properties in the region compared to 30 today, is one of many looking to cater to the growing number of visitors.

Research company STR Global's data shows there were 80,423 rooms in 251 hotels in the construction, final planning and planning stages in the Middle East in March - a 40.9 per cent increase year-on-year. Of this total, the Gulf markets accounted for the lion's share. Mecca topped the list with 21,056 rooms under construction in 13 hotels, followed by Dubai with 20,640 rooms in 66 hotels, Riyadh with 6,878 rooms in 31 hotels and Doha with 5,724 rooms in 26 hotels.

And despite a shaky start to the year, hotel operators have shown no signs of slowing down.

During the event, local player Emaar Hospitality revealed plans for 35 new hotels and serviced residences with the majority focussed on Dubai, while Abu Dhabi rival Rotana also revealed a pipeline of 18 properties to open by 2017 - bringing its total to 75 that year with an aim to reach 100 by 2020.

Despite the number of new rooms on the horizon, Rotana president and chief executive Omer Kaddouri suggested the market can absorb the new capacity.

 "Abu Dhabi and Dubai can handle more hotels because we're not seeing a huge decrease in occupancy," he argued.

But as Dubai looks to broaden its appeal with plans to attract 20 million visitors a year by 2020, hotel operators may need to get used to a new normal.

"Where we are seeing a challenge is in the average room rate due to many factors," the Rotana CEO added.

Despite Dubai holding onto its crown with the highest average daily rate in Q1, the emirate actually saw a 10.1 per cent dip in value compared to the previous year. While this can be blamed on geopolitical issues and the strong dollar to some extent, another factor pushing down prices in the coming years will be the introduction of more mid-range hotels.

Rotana's mid-scale Centro brand is its fastest growing with 16 properties in the development phase across the region, according to Kaddouri. "Not everybody has $300 to spend on a hotel but many more people have $100," he said.

Emaar Hospitality is also making its first strides in the segment, announcing the opening dates for its first hotels from Meraas budget joint venture Rove Hotels in Downtown Dubai and Satwa at this year's ATM.

"When you go this higher volume route you are talking about a more price conscious client coming in and hence the need for more mid-scale properties," said corporate director of operations Chris Newman.

As this shift continues the days of world beating rates may soon be a thing of the past.

"Hoteliers have to understand they cannot always have high average room rates," said Kaddouri. "It's not sustainable, so get used to the fact that you're going to have to be careful when pricing your hotels."

© Gulf Business 2016