According to the Institute of International Finance, the United Arab Emirates economic performance is predicted to pick up pace in 2018, which is positive news considering that oil prices continue to be low, together with the additional pressure from a depression in the property market.
However, Dubai’s fiscal stance is still expansionary whilst the rest of the Emirates can look forward to a more conservative outlook. An expected economic growth of around 3.2% is further bolstered by an inflow of FDI – Foreign Direct Investment – along with the growth in tourism and travel sectors. Sustained growth has handed the monetary advantage to the UAE over other economies that have experienced some difficulty and volatility in previous years.
The hotel construction pipeline is poised to deliver a reported 9 billion dollars worth of completed projects, mainly in Dubai and Abu Dhabi during 2017-2018, although this is an expected peak as the country readies itself for the Expo 2020, where the UAE intend to “connect minds and create the future” in the first Expo of its kind in the MEASA region. The event will undoubtedly attract hordes of corporate visitors, along with no end of inquisitive tourists from around the globe.
In general, the UAE hospitality sector has outperformed forecasts due to an unexpected rise in domestic tourism, which is reportedly set to grow further as more residents realise the convenience of holidaying on your own doorstep. Local travel is less expensive and certainly not so tiring, and with a myriad of new uniquely featured entertainment complexes popping up, there doesn’t seem to be an argument against staying home and rediscovering one’s love for the UAE.
The Dubai government recently announced additional incentives to stimulate key business sectors including tourism. These were principally introduced to help facilitate continued growth in the market. The primary aim of attracting 20 million visitors, stated in the Dubai Tourism Strategy 2020, has 3 key objectives:
Maintaining market share in existing source markets
Increasing market share in markets with high growth potential
Increasing the number of repeat visits
Industry analysts have expressed concern regarding the relatively high cost of hotel rooms having a negative effect on the tourist demographic. The promotion of time-sharing is seen as a vehicle to alleviate the high cost issue, and is expected to coax tourists to stay more frequently, and for longer periods. Over time, the market has been able to mature into a very family friendly and mass-tourist orientated destination, which should feed a hungry market. Another area ripe for development is an – as yet – untapped nucleus of tourists in transit, and it is understood that it would be sensible to try and exploit it.
Hoteliers in the region have enjoyed a fairly stable period of business despite the sizeable amount of availability. This assessment is based on hotel room rates and occupancy ratios, which are the main market performance markers. However, this doesn’t mean there aren’t challenges ahead, bearing in mind the governments' compromised budgets due to the oil price, and a volley of new fiscal reforms. It appears the market is managing to pull off a delicate balancing act with fewer corporate clients arriving and larger numbers of tourists restoring the equilibrium. A great deal of credit has to be awarded to the various theme parks and resorts that are delivering superb entertainment. A relaxation in visa conditions has unexpectedly facilitated a welcome increase in Russian visitors.
Dubai is at the heart of hotel construction because it accounts for at least 75% of the 6000 or so additional rooms completed and handed over in the UAE. As part of the government drive to broaden the tourist base, investors and developers are being encouraged to break away from the traditional 5-star premium hotels on a grand scale, and turn their attention to 3-4-star low key operations. Invariably, this will induce a competitive edge to the market, and will need careful stewardship to maintain profitability.