- 1 Definition / Scope
- 2 Market Overview
- 3 Key Metrics
- 4 Top Market Opportunities
- 5 Market Drivers
- 6 Market Restraints
- 7 Industry Challenges
- 8 Technology Trends
- 9 Regulatory Trends
- 10 Other Key Market Trends
- 11 Market Size and Forecast
- 12 Market Outlook
- 13 Distribution Chain Analysis
- 14 Competitive Landscape
- 15 Competitive Factors
- 16 Strategic Conclusion
- 17 References
Definition / Scope
The GDP contribution by the hospitality industry shows a growth of 8% year on year with over 2,000 projects that are under-construction in pipeline. The growth is estimated to remain sustained due to the increasing occupancy rates as occupancies in this sector is expected to reach 35.5 million by 2019 and will grow at a CAGR of 10.2% thereafter.
Dubai is expected to observe 20 million international tourist arrivals by 2020 and its hotel supply is expected to reach 132,000 by 2019. The number of mid-scale hotels are on rise and will target the budget tourists which will further drive the growth of supply scale and revenues of this industry.
Further, the economic scenario of the country will improve such as recovery of oil prices, happening of big events, regulatory initiatives, investment in tourism activities which will support the growth of the industry.
- Upcoming Projects: In Abu Dhabi alone 80 projects related to hospitality business are under construction whose estimated value is $6 billion followed by areas in Northern Emirates region such as Ajman, Fujairah, Ras Al Khaimah, Sharjah and Umm Al Quwain which have around 85 projects actively under development valued at almost $20 billion. In terms of hotel categories 150 five-star, 80 four-star and around 35 three-star projects are soon to be launched. Among all the projects, 40 are expected to be finalized by the end of 2018 while over 280 projects are scheduled to be completed before the mega event-Expo 2020 Dubai. At present, 6% of all the projects under various stages of construction are based on hospitality business.
- Supply picture: At present Dubai has over 130,000 rooms with 40,000 rooms are in pipeline for construction. As per the current forecasts, Dubai will have over 170,000 hotel rooms by 2020 which is more than the availability in major cities of the world such as Paris, London and Singapore. The hotel supply has increased by 30% by 2018. The total room supply is expected to grow at a CAGR of 4% which is little relaxed than 5.7% increase in international tourist arrivals.
- Tourist arrivals: Dubai is the ranked as the fourth among the popular destination to travel in the world by the tourists around the globe. By the end of 2018, 16 million visitors are expected to visit Dubai. As of 2016 14.9 million international overnight visitors were recorded who spent an accumulated $28.5 billion annually. Since 2018, 10% growth in the volume of tourist's inflow in Dubai is expected.
- Source Markets: India and China were among the major source markets of visitors to Dubai. The marketing activities which has been channeled towards these countries are enticing the citizens to visit Dubai. Additionally, Saudi Arabia and UK are the important markets for Dubai. Also the newer source markets are likely to come from Far East which is expected to drive the performance of sector further.
- Investment opportunities: With number of projects in pipeline and the higher rate of return from the business the flow of investment is likely to increase in hospitality sector of Dubai. The investment will be channelized mostly into hotels, hotel apartments, resorts & spas, wellness centers, restaurants and travel management ventures.
|Base Year||2018||Researched through internet|
Top Market Opportunities
- The biggest opportunity within the hospitality sector in Dubai at present is the entry of mid-market and this has been realized by the government, operators and developers. This segment can easily go commercial as Dubai is no longer an exotic and expensive destination as it invites wide range of tourists from different regions which requires to create accommodation type for different target market and establish price ranges as well.Extensive airline network, increased airport capability, changing source markets, middle class segment tourist arrivals, addition of new tourism and family attractions are multiple factors driving the demand for mid-market hotels.As mid-market segment is growing, the opportunity also lies for the developers to design and cater to all types of travelers. The key is to drive demand by using pricing strategy without compromising with quality and design.
- At present Dubai has over 60,000 active hotel rooms. According to CBRE, The hotels in Dubai are recognized to have the best experiential offering in a global scenario which is the main reason why Dubai is becoming one of the most popular tourism destination. The Tourism 2020 vision of the government of Dubai aims to attract 20 million annual tourists into the city by 2020 up from 10.16 million at present and to archive this target the hotel room supply in Dubai has to be raised to 150,000 in order to meet the surplus demand. Thus, the supply of hotels at present is not enough to meet the demand due to which there is high scope for the new entrants to flourish. But the strategy of the upcoming hotels in Dubai must be to focus and serve the niche markets to deliver new experiences and technology integrated features that will definitely attract the millennial and modern tourists.
- As the hospitality properties provide a higher return in form of rents in comparison to the traditional residential properties. The return in form of rent is 50% higher that of the hotel guest rooms and apartments and total return on investment recovered within 8 years contrast to residential assets which take 12-14 years for complete return. This is also one of the major factor that is driving the land and building owners to rent the property to hotels at a feasible cost.
- Millennial's are the future consumers of the hotels. As per the 2014 US census, these travelers range between the ages of 18 and 34 and contribute almost $ 200 billion to $ 300 billion in annual spending worldwide. However their interests are shifting on the trendy technology-friendly design hotels rather than traditional luxury class hotels.The most important amenities for them are well-connected location, clean rooms, great, free WIFI, apps and accessibility via various technology platforms which is why focusing on design properties and integrating it with technologies could be an opportunity for the future investors to cater the high-spending segments.
- Regulatory policies - At present, the Dubai's hotel market is in maturity phase and the demand is persistent, the market is competitive and the bullish trend within the industry is supported by the entry of global hotel brands. Despite of the increasing supply of hotels, it remains as one of the healthy lodging markets in the world and also embraces the presence of most exquisite group of hotels providing unique experiences.So far the government of Dubai has been supportive of the creative offering of the hotels and also the requirement of substantial investment for infrastructure projects and leisure destinations that further make the hotels in Dubai competitive in a global platform. Government has also been coming up with regulatory policies such as opening of new tourist destinations, exemption from value-added tax (VAT) for tourists, preparations for Expo 2020 Dubai that are in line with driving tourism growth which in turn backs the growth of hospitality industry.
- Boost in tourism activities - Increase in tourism activities and tourist attractions are another major reason for the drive of the hotel business in Dubai. The hands-on efforts have been made by Department of Tourism and Commerce Marketing, Sharjah Tourism Board, Department of Culture and Tourism to entice more travelers to the nation. Some of their tourism-friendly happenings are The Louvre Abu Dhabi, Warner Bros theme park, Dubai Frame, Jebel Jais Flight, the heritage area in Sharjah and Dubai Parks and Resorts etc. Additionally, the recent UAE-China strategic partnership and the UAE's new transit visa rules are expected to draw in more visitors and also initiating for airport expansions which will raise the management capacity of visitor flow.
Some of the restrains that is caused in the market of Hospitality business in Dubai are:
- High development and land cost: As the industry has already stepped into mature phase there are numerous properties being built up across prime clusters of the city and land across these areas are highly priced making it unfeasible for the hoteliers with comparatively lower returns.
- Lack of public transport network: As primary locations can be afforded by the five star hotels, the budget hotels in Dubai are spread across second tier cities or sub-urban areas where the public transport connectivity is weak and this could put off the price conscious consumers.
- Low barriers to entry: The risk is higher for the mid-market hotels in Dubai which has a low potential to grow due to the new hotel properties opening up now and then and also the segment is vulnerable to the fluctuating rates between 4 star and 5 star hotels.
- Lending and construction support: To meet the future demand for accommodation, there has to be expansion of the mid-market hotels but Dubai has very little support for the lending, construction and infrastructure facilities for such hotels.
- Developer Perception: Generally, the investors in hospitality business in Dubai look for the investment in luxury class hotels because they want to showcase these properties as the "trophy assets" which they might not be able to if they build a mid-market hotel. Thus, less focus is being given on building a portfolio of different types of hotel catering to different market segments.
- Need of change in Landscape of industry
It remains as one of the challenges for the hospitality industry at present which is not going to last for a long time. Due to the marketing efforts that has been targeted mostly to the upscale hotels in Dubai, the source markets for luxury class hotels in Dubai has reached a saturated phase. However, the inflow of tourists from new source markets such as Africa, India, China and neighboring countries from middle east which is why Dubai is receiving more diverse class of tourists who are budget conscious as well.
All of these tourists cannot afford a $1,200 a night price however they are still looking for a high quality place to stay with facilities such as fine dining, spas, rooftop pools and other amenities if not a luxury class hotel. The situation demands for two types of openings- first, a mid-scale hotel which can provide top class service at affordable price and second, a niche market targeting hotels which can differentiate their offering by integrating entertainment or advance technology features rather than top class service.
- Consequences of increasing demand supply
At present Dubai requires 40,000 more rooms to meet the accessibility for the large volume of tourist's inflow. At present, the supply of hotels is growing faster than demand but the situation is causing burden upon the industry players to complete their projects at a faster rate because of the expected tourist arrivals to Dubai which is expected to boom in near future. The situation is temporary as both supply and demand is going to increase which is going to bring forth more competition in the market especially in upper middle and lower middle tiers. The prices offered in the market will slip down and the profitability which the sector is enjoying until now will sling down due to low returns. Another challenge that the increasing demand/supply is likely to bring down the occupancy levels to 70% average in comparison to the 80% average at present. The occupancy levels are likely to get sustained at 70% level too but only for next 5 years or so.
Recently, the Government of Dubai has announced to integrate block chain technology into the hospitality sector. The block chain technology will be beneficial for this sector in short to mid-term.
It has the potential to make the operations more secure and address the efficiency issues as well.The quality customer service is one of the most required attribute by the consumers of hospitality business and these can be met by the upcoming technologies like block chain capabilities.
The cost reduction, time reduction and authenticating documents are some of the basic features of this technology which would help the companies to drive out large chunk of revenues from consumer's wallet, also gain positive reviews of their business and retain their consumers in long term. Although block chain technology is expensive, the hospitality industry can definitely afford it and leverage into these and gain advantage over their competitors in global platform.
The ruler, Sheikh Mohammed bin Rashid Al Maktoum has made a declaration to regulate the licensing and classification of hotel establishments in Dubai. A government body also known as DTCM i.e. Dubai Department of Tourism and Commerce Marketing has been authorized with the task of doing so. As a part of the mandate the committee has already issued a guideline regarding the new system also known as 'Hotel Classification Scheme' where the information about type, quality of hotel rooms available and services provided by them will be mentioned.
The system will also consist of a framework where hotels will be categorized from one to five star and on the basis of the niche market that it caters in such as resort, guest house, beach, airport, family, desert etc. The update is required due to the aggressive growth of hotel across the country. This regulation is definitely going to help the hospitality service providers to tap onto new marketing opportunities and also make the visitors clear about their choices in regard to what type of hotel they are seeking and what experiences they expect from their hotel. A grace period of one year has been conveyed to the existing hotel so that they can alter their services, ratings and categories after which the system will be fully implemented.
Other Key Market Trends
The mid-scale or the mid-market hotels, resorts, service apartments are on rise in Dubai. Although, Dubai contains numerous luxury class properties which are globally renowned but the trend has shifted to the development and inclusion of mid-scale properties which is going to drive the supply and growth of hospitality business in Dubai.
These budget hotels are initiated as a part of portfolio formation and also for the purpose to attract budget conscious tourists. 10-12% investment is being accounted for this segment. The hospitality industry of Dubai stores diverse range of offering such as wild desert adventures, basking, parties, and tours down the emirate’s historic location, fun at the sporting centers or anything. Overabundance of leisure and relaxation facilities are the perfect reason for the tourists to visit Dubai.
Every year hotels are coming up with new schemes such as floating buildings and theme parks which differentiate it from the mainstream hotel business. Although, the sector is quite sophisticated and creative, the strategy is perfect to cater the diverse group of tourists expected to visit Dubai by 2020 and the trend is likely to stay as government is doing everything to support the developers to make their dream turn into reality.
Market Size and Forecast
The overall GCC hospitality market is expected to grow at a 7.2 per cent CAGR from $22.9 billion in 2017 to $32.5 billion in 2022 where the revenue growth of Dubai is going to be significant in comparison to all other countries in this region. The hospitality market of Dubai is projected to reach $7.6 billion by 2022 at CAGR of 8.5 per cent from 2017 to 2022.
The second half of the year 2018 has been quite bright for the hospitality industry of Dubai and is also expected to be better in 2019.
- The average daily rate (ADR) is $139 as of 2017 and is expected to reach $149 by 2022 at a CAGR of 2.1%. Revenue per available room (RevPAR)at present is $ 104 and is expected to reach $116 at a CAGR of 1.2% by 2022. Similarly, occupancy rate is 75% at present and is expected to reach 78% by 2022.
- Over $200 billion worth projects related to hospitality industry are under construction at present
- The hotel room supply capacity is expected to rise up to 183,718 by 2022 from 137,017 at 2017 at a CAGR of 6% respectively.
- Within Dubai the annual foreign tourist visits are expected to grow at CAGR of 4.3 per cent to 25.5 million by 2022. The number of tourists arriving from China, Russia, Southeast Asia, UK, Latin America and Sub-Saharan Africa has increased since 2016.
- Dubai is at present home to 104 five star hotels and the landscape of hospitality is in a transitioning phase at present as more mid-scale hotels are being constructed. The penetration of midmarket hotel is to stay strong until 2022.
- Technological change has been the greatest asset of the last decade and hotel industry is embracing the change with technical amenities such as self-check-in, app-based stay management and other services. There is a rise in the use of technology across operations in the industry. Besides technology, service quality is also comparable with the global benchmark. The hotels in Dubai are well known for innovative building, style and facilities which makes it stand out in the global platform. Thus, in line to the current course the hospitality industry of Dubai will definitely prosper in near future.
- The industry is anticipated to also see increased implementation of Airbnb-type renting models. Regional players such as Emaar Hospitality, Rotana, CityMax Hotels and Habtoor Hotels are building room portfolios and increasing their construction pipelines at a substantial rate within Dubai.
- On a macro level, more favorable economy will lead to a better business environment for new business owners, initiatives such as reduced visa deposits, will further strengthen the ease of doing business and flow of investment into the sector.
Distribution Chain Analysis
At present more than 60% of the hotel supply in Dubai belongs to the upscale or luxury class with remaining 40% in low and mid class segment.
- Source Markets
As of 2017, the top source markets for Dubai's hospitality sector are in order India, UK, Saudi Arabia and China. By 2027, Saudi Arabia is expected to overtake UK and gain the second position with 10,392 overnight stays whereas India is going to retain its number one position by supplying 16,229 overnight stays. Observing the data from 2007 to 2017, India has recorded a highest rate of increase at 351%. Similarly, Egypt is another market that is expected to join the list of top source market and increase at a rate of 116% in near future.
- A leading global real estate research agency claims that there are 82,983 hotel rooms and 24,734 serviced apartments present in Dubai and the figure is likely to expand more as there are number of hotels and resorts under construction at present. 
- Since 2018, Marriott group of hotels has planned to open up several new properties within the country i.e. brands such as Al Bandar Rotana, Dubai Creek, and FLOW Hotel were introduced within first 5 months of 2018 followed by, Al Jadaf which is on its way for launch whereas Gevora and Bulgari have been introduced under luxury sector. Similarly, US-based Caesars Palace will open two hotels on Bluewaters Island under brand names 'The Palm, Stella Di Mare' and 'Mandarin Oriental' also due till the end of 2018. A pipeline of hotels are under construction at present in Dubai and these are mostly from the international group of hotels.
- The five star hotel space in Dubai is currently occupied with number of players so a new entry will need profound investment to compete which is why three star and four star hotels are opening up belligerently. These segments are of mid-scale and affordable. Some of the hotel brands that are popular in this space are Rove, Emaar Meraas, Jumeirah, Zabeel House MINI followed by Hilton Garden Inn and Hampton by Hilton group of hotels. About 28000 hotels are at a scope of construction and development in this space.
- Centara hotel & Resorts group which is also a worldwide established hotel chain has recently been constructing its first resort in Dubai. The design of the resort is unique and exotic and is suited to be eco-friendly. Further, the resort is accommodated with 600 rooms and will have an inbuilt water park. It aims to enter the country within 2020.
- Smarthotels Hospitality Limited is a group of established brand in hotel business in Dubai differentiate its offering with tech-driven FORM Hotel Dubai, the city’s “first upscale design concept” property.
- The newest state-of-art concept hotel in Dubai called, QE2 which is also one of the world’s most famous cruise liners from the 1960s, has been revamped as a luxury floating hotel that consists of indulging facilities such as a restaurant and also a special museum that portrays the ship's previous life and it is docked in Dubai's sea harbor.
- Burj Al Arab which is the most iconic 7 star property in Dubai is also in the list of top luxury class hotels in the world. It excels in deluxe amenities and world class offering.
- As of 2017, a new 110 room resort called Bulgari Resort has been established on the offshore Jumeirah Bay island locating itself as an urban retreat for guests seeking the taste and experience of Italy in the Middle east region. Other upscale resorts that have been opened up in the same region are: The Four Seasons hotel in Jumeirah and Nikki Beach Resort & Spa.
- The competition is very less in the leisure hotel market as UAE is one of the most well-known leisure destination with 17 major leisure attractions and more additions every year. It is also expected to account for 90% of the total leisure tourism market in entire Middle East region by 2020.
As far as consumer behavior is concerned they are always looking for something different in terms of design, service, value and experience which is the main reason why the hoteliers must focus on making their properties accessible by driving value and also keep up with the consumer trends. The product and services offering they make must be relevant to their target market. Although, the luxury hotels growth is likely to remain stagnant, the scope lies for the mid-scale market which will receive most of the demand. This segment has to compete with the lower rated hotels and attract the consumer mass market by providing accommodation at affordable rates.
As Dubai is one of the major holiday destination in the world which also differentiates it from the rest of the global cities because it is a popular beach destination and not a place where people travel for corporate purposes. Thus, people will always demand for a proper five-star hotels too which is why approximately one third of five-star hotels in Dubai are beach resorts, in addition to city hotels, mall hotels, marina hotels. Thus, the overall view of the hospitality industry in Dubai remains optimistic.