Dale Qi Shen,associate director, hotels strategic advisory services at CBRE Middle East region, one of the largest commercial real estate services and investment firms in the world, pinpoints seven growing trends in the region’s hotel industry to look out for
- Growth in visitor numbers prompted by an ease in visa regulations
In order to achieve their respective targeted visitor numbers (Dubai 2020 Tourism Vision, Saudi Vision 2030 and Oman Vision 2020), GCC countries are eyeing new source markets and easing their visa requirements. The UAE and Oman now grant visas on arrival to Russian, Chinese and Indian citizens. Saudi Arabia also recently announced its own plans to issue tourist visas as of Q1 2018. The easing of entry restrictions in the UAE proved to be a success in 2017, with visitor numbers from these source markets up significantly. In Dubai, for example, arrivals from India, China and Russia increased by 17 percent, 46 percent and 111 percent respectively, year-on-year. Going forward, arrivals from China are expected to increase by 21 percent to reach 2.5 million by 2021. Furthermore, additional GCC hotels are expected to be listed on Ctrip.com, China’s number one travel website, as in the case of the Armani Hotel Dubai, which appeared there in early January. The Indian source market is also expected to become more important in the GCC’s visitor segmentation due to the country’s relative proximity to the region. Indian millennials, some 400 million people, looking for a quick escape are likely to represent a significant share of the country’s outbound visitors coming to the GCC. Moreover, the decision to restore flight connections between Egypt and Russia in January is expected to increase the flow of Russian nationals to the region.
- Significant increase in supply
With GCC countries aware that in order to achieve their visitor number targets, they must increase their accommodation capacities, there is evidence of a significant portfolio, both under construction and in the planning stage. The GCC region encompasses around 2,000 ongoing hospitality projects, two thirds of which are located within the UAE and Saudi Arabia. In 2018, Dubai is expected to add approximately 17,000 hotel rooms to its current inventory. Furthermore, according to MEED Projects, there are over USD 14 billion worth of hospitality construction contracts to be awarded in 2018 in the MENA region. This incoming new supply will put pressure on average daily rates (ADRs), as well as occupancy, creating additional impetus for older properties to undertake refurbishment programs or to seek reclassification. The additional supply may also lead to a restructuring of the market in terms of ownership, particularly within markets where foreign ownership is a factor, and we expect a growing number of hotel transactions in the years to come.
- New developments positioned towards lifestyle, green and midscale offerings
As the GCC hospitality market continues to mature from its existing provision of luxury, branded hotels and aged owner-operated accommodation, the need for more upscale and midscale developments reaching international standards is anticipated to rise in order to meet the demands of a wider spectrum of visitors. Consequently, more lifestyle and midscale segment properties have begun entering the market. In addition, concepts with innovative accommodation solutions offering community spaces that increase guests’ interactions, such as informal and open-plan meeting and lounge areas, are gaining in importance. More developers are also aspiring to deliver environmentally friendly buildings. In Dubai, Diamond Developers has begun building its IHG Indigo hotel in Sustainable City, which will be 100 percent solar powered. In a separate move, Emaar recently partnered with the Emirates Green Building Council to get its existing and upcoming properties Green Key Certified.
- Further operation rationalization
In most of the GCC market, gross profit margins (GOP) have decreased due to the challenging conditions of the past few years, which have forced hotels to rationalize their operations and diversify their revenue mix. Hotel operators and owners have started to value-engineer their cost structures and put their support functions into clusters, as well as renegotiating procurement contracts and outsourcing certain back-of-house operations. Hotels are also looking at various ways of adding value to their public areas by creating new leisure concepts, such as pop-up cinemas and mini indoor golf facilities, while also leasing out operated F&B outlets, spa or gym components. Meanwhile, the function of revenue management is becoming ever-more important, since a detailed revenue strategy is crucial to avoid strong rate fluctuations.
- VAT implementation in GCC countries
While Bahrain, Kuwait and Oman decided to delay implementation of VAT to 2019, the UAE and Saudi Arabia introduced the tax from January 1, 2018, at a rate of five percent. Despite hoteliers across these markets declaring that implementation has been smooth, VAT is expected to decrease the relative attractiveness of the countries that have implemented the tax compared to those that have not. While some hotels will do their utmost to soften the impact of the tax by reducing the net room rate, guests will still, in most cases, have to pay VAT, which will increase accommodation costs. This, in turn, could weigh on occupancy rates, with alternative destinations outside the GCC, but within the MENA region, perhaps registering a commensurate upturn as a result.
Hoteliers are constantly looking at ways to improve guests’ experience, and technology will be making a major contribution to their efforts in 2018. Powerful customer relationship management (CRM) software, as well as smart televisions that allow guests to use their media accounts on their room’s TV, are expected to be part of this. Mobile phone applications are also set to play an important role in 2018, as operators continue to implement mobile check-in and mobile keyless access.
- Health and wellness
Health and wellness are playing an increasingly bigger role today, and hospitality must amend its offering to adapt to this trend. Properties are expected to revisit their F&B element and concepts, to match guests’ changing expectations, as well as to review their spa and gym business approach. Hilton recently introduced its Five Feet to Fitness room, where guests can work out within their own room and IHG’s EVEN brand is built around health and wellbeing. Within the region, The Retreat Palm Dubai – MGallery by Sofitel opened in 2017, offering distinctive wellness programs for its guests.
Dale Qi Shen, associate director, hotels strategic advisory services at CBRE Middle East region.
CBRE Group, a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm. CBRE Hotels has orchestrated the sale and financing of some of the world’s most notable hotels and resorts, including the Grosvenor House Hotel London, the Fairmont Copley Plaza Boston and the Westin Melbourne.