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By
Otto Pohl
Reprinted from International Herald Tribune
December 5, 2005
No
matter how you look at it - occupancy rates, average
room price, revenue per available room - the Dubai hotel
market ranks among the world's best, and it has for
several years. The almost surreal boom is beginning
to make some participants and observers nervous, however,
while others feel that the time is right to invest in
the city's still wide-open, mid-level hotel segment.
"No market booms for eternity," says Peter
Fulton, regional director for Hyatt in Dubai. With the
company's hotel revenue growing at 20 to 25 percent
annually, however, he also feels compelled to continue
development. His latest property, a five-star Park Hyatt,
opened in August.
Given the torrid growth of the market, even a slowdown
to normal levels could seem like a recession. That's
what HVS International, a hotel consultancy, warns in
a new report. While carefully avoiding terms like "recession"
or "crash," the report warns that the market
may be overheated.
"If you take today's market performance, which
is abnormally positive, our projections for the future
are lower than today's performance," Elie Younes,
associate director at HVS and co-author of the report,
qualifies carefully.
On the other hand, the Dubai government believes that
the city is just getting going. It predicts that 15
million visitors will be arriving in Dubai annually
by 2010, about three times the current number. If that
forecast holds, room shortages will continue at all
price points - and in the past, government predictions
have proven accurate.
While the growth lasts, ever more outlandish definitions
of luxury have become the norm.
Next spring, for example, Kempinski Hotels is opening
a five-star Swiss chalet-style hotel next to five indoor
ski slopes inside one of the world's largest malls,
which is also new. In most markets, creating a luxury
Alpine experience in what nature had relegated to featureless
desert would presumably be a major civic event.
Here, it may well be drowned out by the next project
of eye-popping proportions - the opening of the world's
largest hotel tower, or another development nearby called
Dubailand, a Disneyland style theme park that will double
the entire size of Dubai.
"There's an inflation in luxury," says David
Vely, director of development and strategy in the Middle
East for Accor hotels, whose brands include Sofitel
and Novotel. Rooms of 45 square meters, about 485 square
feet, have become the minimum for five-star hotels in
Dubai, he says, 50 percent more than what is accepted
as five-star in cities like Paris and London. Ever fancier
guest service options are on offer, from chauffered
Rolls-Royces to elaborate spas.
Even the star rating system is straining from the bulge
at the high end. Ever since the Burj Al Arab, which
was completed in 1999, declared itself the world's first
seven-star hotel, other hotels feel compelled to stretch
toward those claims: properties such as the ski slope
Kempinski bill themselves as "five-star deluxe,"
and unofficially several Dubai properties give themselves
six stars.
"It's a bit of a game," Vely says. "You
pile up stars like you pile up pancakes."
Despite the fact that there are now more five-star hotel
rooms in Dubai than three- and four-star rooms added
together, five-star properties typically maintain occupancy
rates around 90 percent and average room rates above
$300.
Given those kinds of returns, Accor Hotels has positioned
itself as the most active player in the market, according
to the Deloitte Hotel Benchmark survey. The company
has more than a dozen new hotels in the works, although
Vely admits the difficulty of making a reasonable forecast
more than three years in the future. Calling today's
stratospheric land prices "pure speculation,"
he fears that the risks may begin to outweigh the cost
of developing new hotels. Still, the market is too good
not to participate.
One of the reasons Dubai has been able to establish
itself from the start as a luxury destination is because
many of the market's core investors - the ruling family
of Dubai as well as other sheikhs from across the United
Arab Emirates - have been willing to accept lower returns
on their investments. As a rule, international hotel
brands in Dubai are only management companies, while
most of the money invested is local.
The classic example is the Burj al Arab hotel, which
was commissioned by Sheikh Mohammed bin Rashid al Maktoum,
the crown prince of Dubai. Precise costs aren't public
information, but it is widely assumed that the hotel
was far too expensive to provide what many investors
would consider an acceptable return. "But the goal
was not to make a hotel, but instead an emblem for the
country, like the Eiffel Tower or Statue of Liberty,"
Vely says. "It's more like a marketing expense."
Indeed, the hotel has achieved iconic status - it is
featured on Dubai license plates and is used in Dubai
imagery worldwide - and has arguably attracted enough
attention to the city to have been an advantageous investment.
Given the visitor-driven ambitions of the Dubai government,
it seems fitting that the government chose to build
a hotel as its national icon.
New hotel and condo hotel projects are announced seemingly
daily. "If you haven't been here in two weeks,
you're out of touch," says Bernard Walsh, managing
director of dmg world media Dubai Ltd.
Dmg
organizes the Hotel Show, the region's largest industry
trade show, which is held in Dubai. The growth of that
show reflects the industry's expansion. When it started
in 2002, it occupied one exhibition hall. This year's
show occupied seven. Walsh estimates that next year
the show will be 20 percent larger. "The place
in every way is a gold rush town," he says.
In the older town center of Deira as well as along the
clogged Sheikh Zayed road toward Jumeira, skyscrapers
hover and twist above dozens of hotel developments.
Construction of the Burj Dubai, which its developer
Emaar Properties hopes will become the tallest tower
in the world, is nearing the 20th floor. The tower will
feature the worldwide flagship of the Armani hotels
as well as office, retail and residence space. Hotels
by Radisson SAS, Hilton, and Shangri-La are also in
the works.
Of course, no city built on luxury and self-promotion
would be complete without a Trump hotel, and Dubai doesn't
disappoint. Last month, the Trump Organization announced
that it will build the Palm Trump International Hotel
and Tower on the Palm Jumeira development. The development,
which will feature approximately 500 condominiums with
access to five-star hotel services and amenities, is
estimated to cost $400 million and will begin pre-selling
at the end of this year.
But as the race to luxury continues, some hoteliers
see opportunity in the other direction. In October,
InterContinental Hotels, the world's largest hotel management
company by rooms, announced that it would build 20 Express
by Holiday Inn hotels in the coming seven years across
the Gulf, five of them in Dubai. And Accor hotels is
building seven more budget-class Ibis hotels beyond
the one they already have.
Given the religious inclinations of the region, several
hotels have interpreted luxury to include alcohol-free
premises. Al Sondos Suites by Le Meridien, an alcohol-free
boutique hotel near the airport, announced occupancy
rates over 95 percent for the last quarter of 2005.
Coral International, a Dubai-based company that touts
itself as the world's first alcohol-free hotel management
company, has three hotels in Dubai and in November announced
plans for three more alcohol-free hotels in neighboring
emirates.
The high occupancy rates can cause headaches for those
trying to juggle demands for rooms in a hotel already
filled to capacity. "If I had another 50 bedrooms,
I would fill them every day," says Frank Owens,
resident manager of the Moscow Hotel, a 138-room hotel
that opened last month to capacity bookings. The pleas
for rooms he has to handle have an inverse side as well,
however. "It makes me feel very popular,"
he says.
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