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UAE hotels record slowdown in revenues

Feb 25, 2016

DUBAI, United Arab Emirates - Business isn’t looking very good for many hotels in Dubai and Abu Dhabi.

A new benchmark study released by global accountancy firm Ernst & Young (EY) on Wednesday showed that premium and budget hotels across the UAE recorded a slowdown in revenues during the last three months of 2015.

The decline has been attributed to the fall in the influx of holidaymakers from key markets, coupled with less liquidity, low oil prices, currency fluctuations and uncertain macroeconomic conditions.

Dubai hoteliers saw their revenue per available room (RevPAR), a measure of a hotel’s financial performance, dropped by 6.1 percent in the last quarter compared to the same period a year earlier. The slump is mainly a result of hotel operators’ inability to keep room prices profitable and guests flowing in.

Average daily room rates in Dubai dropped from $318 to $303 during the same period, according to EY’s Middle East hotel benchmark survey report. At the same time, occupancy rate dipped by 1.3 percent .

Hotels in Abu Dhabi encountered a similar setback, with RevPAR in the UAE capital decreasing by 12.9 percent, overall occupancy 4 percent and average room rates 9.2 percent.

As early as May last year, some hotel operators had already reported a slowdown in the hospitality business. They noted that visitor numbers from Europe, particularly Russian travelers – whose spending power has been eroded due to the euro’s devaluation against the dollar – had been on a decline.

However, some hoteliers in Dubai maintained that they haven't had any issues filling their rooms, citing that visitors continue to come in, especially during holidays and trade events.

Abdulla Al Shammar, managing director at Central Hotels, said their occupancy rate did drop by 1 to 2 percent in January compared to a year ago. But he pointed out that the decline is very minimal, adding that special events, including the Dubai Shopping Festival and exhibitions at the World Trade Centre, often boost guest numbers.

“Notably, on peak periods, such as [when there are exhibitions] and holidays, we’re able to close at 100 percent,” Al Shammar said.

“There are, however, forecasts of a marginal drop in occupancy during the summer period which could be due to increasing supply and a lower purchasing power from key markets.”

Nives Deininger, director of sales at Golden Sands Hotel Apartments, said their occupancy increased to 93 percent in January from 90 per cent in the same period last year.

"Actually, hotel occupancy is higher in January for us, since we have been aggressively targeting key markets and driving volume by extending promotional offers," Deininger said.

The overall outlook for Middle East and North Africa (Mena) hotels in 2016 isn’t looking great however, with analysts expecting the market to register a “flat or negative performance” this year.

“It will be difficult for hotels to maintain the same performance as 2015 this year, and it’s expected that there will be a minimal decline in RevPAR in 2016,” said Yousef Wahbah, Mena head of transaction real estate at EY.

“Several factors point to a flat or negative performance in 2016, including reduced economic growth due to lower oil prices, less liquidity in the region, reduced visitors from Europe, Russia and China due to currency fluctuations and the uncertain macroeconomic conditions,” Wahbah added.

However, certain hotel operators in Dubai are faring the slowdown better than their peers. According to EY’s report. Dubai beach hotels, as well as those in Jeddah, had the highest room yields in the region, recording an average of $311 and $214, respectively in 2015.

EY’s report also highlighted that, despite a challenging revenue environment, Dubai and Abu Dhabi had the highest occupancy rates in the region at 80 per cent, followed closely by Ras Al Khaimah at 75 percent, on par with those of popular cities like London, New York and Tokyo.

Across the region, hotels in Cairo saw the biggest improvement in profitability, with their 2015 RevPAR increasing by 34 percent compared to 2014, thanks to improved political environment.

UAE hotels record slowdown in revenues

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