Cavendish Maxwell report provides an outlook for the Dubai hospitality real estate llUlU”ket segment as occupancy rates decline due to increased supply

Overall occupancy rates increased by 0.5% in Dubai during 2017, predominantly due to expected supply not entering the market and an increase in recorded guest numbers.

However, as of Q2 2018, increases in supply of 4% have outpaced demand increases of only 1.7%, resulting in a 3.9% decrease in average occupancy levels. Dubai average daily rate figures for the period of January to May 2018 are showing a 4.0% fall versus the same period in 2017.

Although the rate of decline is slowing, it is expected that declines will continue as additional supply enters the market.


Luxury operational performance

Operational performance in the luxury segment has remained resilient despite heavy pressure on all department revenue streams. Cavendish Maxwell has analysed the trading performance of a group ofluxury positioned properties, over 30% of which are described as resorts. Resort properties typically have very different cost structures to those of a city hotel tower positioned in the luxury sector. As the value of a hotel asset is intrinsically linked to the profitability, it  is important to understand how certain properties are performing in order to provide accurate forecasts.

At the end of 2017, the Department of Tourism and Commerce Marketing {DTCM) reported a total hospitality inventory of 107,431. As of the end of Q2 2018, the total inventory has increased by 4% to 111,743

Undistributed operating expenses include all expenses relating to property operation, maintenance, system costs, utilities, administration, general, sales and marketing costs.

Luxury properties within the set managed to decrease their undistributed operating expenses per available room (PAR) by 1.4%. Departmental profits, which include revenue streams linked to rooms, F&B, spas and all other operating departments, fell 3.2% per occupied room (POR).

The result of reduced revenues was partially offset by the reduction in costs, but the average gross operating profit (GOP) of the selected group of hotels was down 5.3% to just under 40%.


Supply and demand

At the end of 2017, the Department of Tourism and Commerce Marketing (DTCM) reported a total hospitality inventory ofl07,431. As of the end of Q2 2018, the total inventory has increased by 4% to 111,743.

Noticeable openings include the QE2 and Holiday Inn Dubai Festival City, both of which opened in April. Demand in the form of visitors and overnight guests staying in Dubai hotels totalled 15.79 million in 2017. Dubai continues to diversify and push to increase tourism numbers through a number of government initiatives to promote growth.

Dubai has seen positive results, recording a 41% increase in Chinese tourism and a 15% increase in Indian visitors. Russian guest numbers continue to increase and it is now the fourth highest source market in Dubai, with numbers expected to continue rising. Q2 2018 continued to see growth in tourism numbers, with an increase of 1.7% compared to QI.



The graph below shows the forecast for hotel room supply. The total forecast supply includes all projects that have progressed to the planning phase. This represents an inventory increase of 64.3%, or 69,000 rooms. However, approximately 58% of the total forecast supply is currently under construction and is expected to be completed by December 2020. This represents an inventory increase of 41.2% or 40,000 rooms. To achieve the 20 million visitor target set for 2020, Dubai needs to increase guest numbers by 7″/4, 8% and 10% during 2018, 2019 and 2020 respectively. DTCM data shows the current average length of stay in Dubai is 3.5 days and a double occupancy factor of 19. Double occupancy factor refers to the average number of guests per occupied room.

Keeping the above factors constant, assuming Dubai achieves the targeted 20 million visitors and applying the supply forecasts, Dubai can expect to see the average occupancies in the graphs below in 2020.

Dan HarrisonAssociate Partner, Hotels, Hospitality and Leisure
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