Supply glut to push down hotel occupancy in Dubai

Dubai hotels will see lower occupancy for the year and slower growth in room rates as new supply comes into the market.

Dubai ha 69,948 rooms from 351 hotels, with the majority in the luxury and upscale segments. Christopher Pike / The National

Dubai hotel occupancy is expected to weaken over the rest of this year as competition among operators intensifies.

Last month, the traditional slow season for the hotels because of Ramadan and the weather, occupancy levels plunged to an 18-year low of 45 per cent, according to STR Global.

The emirate has 69,948 rooms from 351 hotels, with the majority in the luxury and upscale segments. In the pipeline are another 24,278 rooms from 83 hotels, mainly serving the same segment.

“Because of the new supply, we believe occupancy rates will soften and be lower this year than the last but still strong in the high 70s,” said Elizabeth Winkle, the managing director of STR Global. “Our forecast for Dubai puts [full year] occupancy [at the end of December] at about 77.4 per cent, down 3.3 per cent.”

The increase in the number of rooms is not expected to immediately affect room rates, which are forecast to rise by 5.7 per cent for the full year to Dh920.97. The growth rate will be slower than last, when room rates grew by 6.4 per cent to Dh871.93. The occupancy rate decline will, however, affect the full-year revenue per available room, which will have a muted growth rate at 2.2 per cent to Dh712.41.

“There is a risk that we saturate the top end of the market and rates will soften,” Ms Winkle said.

And there is concern from some hoteliers as well.

“We had not increased the rates, as more supply is being added in the market. We are trying to maintain the existing rates for the next season and after analysing the third quarter we will update our rate strategy according to market trend and demand,” said Habib Khan, the general manager of the Arabian Courtyard Hotel and Spa in Bur Dubai. “We will be having more supply in Dubai in the next few years and then it will become a bigger challenge to fill the rooms.”

With the emirate adding new destinations such as the Jumeirah Beach Residence promenade and the Bluewaters Island project with a Ferris wheel scheduled for 2016, some operators are optimistic about the performance of the properties despite the new supply.

“Since the number of tourists and business travellers is also increasing along with the upcoming Expo 2020, we foresee great opportunities, including the efforts that the Government of Dubai are exerting to promote Dubai,” said Moussa El Hayek, the chief operations officer at Al Bustan Center and Residence in Al Ghusais.

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