Dubai hotel occupancy recovers but oversupply threatensPosted on 02 May 2010 with no comments from readers
Dubai hotels are back to running at the highest revenue per available room in the world after a savage dip last year in the wake of the local real estate crash and global financial crisis. But they are bracing for a new challenge over the next three years as more than 12,000 new rooms will boost the current inventory of 42,000 rooms by a quarter.
This threatens to oversupply the Dubai hospitality market. The recovery from the financial crisis is in any case only relative. Dubai room rates are still down significantly on the boom years. They have just been holding up better than in other global cities, an achievement but still a loss of revenue.
However, a return to high levels of occupancy, particularly over the past few months, is a hopeful sign. If nothing else it means that the appeal of Dubai as a destination has not been damaged by the onslaught of bad publicity from the property crash and debt crisis.
Indeed, rather like a film star caught doing something naughty by the tabloids there is a sense in which no publicity seems to be bad publicity for Dubai. The worst thing would be if the media tired of Dubai and the city became forgotten.
At the same time, the huge scale of the investments in Emirates Airline, the airports and of course the hotel infrastructure does have its own ongoing momentum and huge marketing effort. To some extent the Dubai tourism sector will be investment driven whatever happens to the global economy over the next few years.
However, new hotel investments are unlikely given the competition for guests among the existing and upcoming hotels. It is also fairly clear that revenue per available room is very likely to take another plunge as new supply comes on stream.
Vulnerability of success
Then again this makes Dubai more vulnerable to any further setbacks in the global economy than if hotel room supply was more restricted. Tourism, as noted last year, can drop very quickly in an economic downturn and new markets like China hardly look immune from future falls.
The full impact of the volcanic dust clouds on European travel plans are also not yet clear. It would hardly be surprising if forward bookings from these key markets were not affected with travelers wanting to be clear about the prospects of getting home.
That said Dubai is going to be one of the liveliest hospitality markets in the world over the next three years as the excess capacity ordered in the boom years is delivered, but at least it goes into this challenge from a position of some strength.