Athanasios Tsetsonis - Sector Economist
Published Date: 28 March 2017
Dubai’s hotel occupancy averaged 86.3% in Jan-Feb 2017, up from 83.0% the same period a year ago. According to the latest data from STR Global, the supply of hotel rooms in Dubai increased by 5.5% y/y in February 2017 while demand also increased by 13.7% y/y the same month. The supply of hotel rooms in Dubai increased by 5.9% y/y in Jan-Feb 2017 to 89,592 rooms with the Department of Tourism and Commerce Marketing (DTCM) targeting 140,000 to 160,000 hotel rooms by 2020. Data from STR Global also shows that a further 19,891 hotel rooms are currently under construction in Dubai, of which 7,554 are due to come online by year end. Another 23,582 hotel rooms are in planning stages.
Meanwhile, hotels have discounted room rates through most of 2016 in order to keep occupancy levels high, although the STR data also shows some improvement in pricing power since Q4 2016. In Jan-Feb 2017 RevPAR decreased by -0.9% compared to -13.8% the same period last year. RevPAR stood at an average of AED 701 (USD 191) in Jan-Feb compared to AED 709 (USD 193) in the same period last year. Substantial additional supply is likely to cap RevPAR growth in the coming months however.
Similarly, the average daily rate (ADR) charged by hotels has fallen at a slower pace in Jan-Feb 2017. Hotels in Dubai have lowered their ADR by -4.7% y/y in Jan-Feb compared to a decline of -10.5% y/y the same period of the previous year suggesting weaker pricing power with hotels further adjusting prices downwards to offset some of the impact of the stronger USD.
There is a high degree of concentration of hotel room supply (number of hotel rooms) within a few key segments. For instance, upscale, upper upscale and luxury hotel rooms (4* to 6* stars) accounted for 41.0% of Dubai’s total existing supply and 58.3% of the additional projected supply. The midscale and upper midscale segment (2* to 3* stars) accounted for just 11.8% of Dubai’s total existing supply. In our view, Dubai’s tourism strategy to strengthen the midscale and upper midscale segment is moving in the right direction with 21.1% of the additional projected supply directed to that segment. This should perhaps shift the focus of the government to the economy range too as the market is top heavy at the luxury end.
Similarly, Dubai’s hotel supply (number of hotels) is equally segmented with upscale, upper upscale and luxury hotels (4* to 6* stars) accounting for 36.0% of Dubai’s total existing hotels and 60.0% of the additional projected supply. Again, the focus should be on the midscale and upper midscale range (2* to 3* stars). Separately, the difference between hotel and hotel room supply for the independent segment highlights the fact that independent hotels are relatively smaller in size (fewer rooms) compared to luxury segments where 18.0% of the existing hotel room supply is absorbed by the 12.4% of the existing hotels.
H1 2017 Dubai Real Estate Update