Foreigners eye Dubai hotel property market

source Emirates Business 24/7

Many foreign investors are showing interest in the Dubai hotel property market and could benefit from opportunities after Ramadan, said a senior executive.

"Though the number of transactions in Dubai is still low there is a lot of interest among investors in properties here," Amine Hamdani, a Vice-President at specialist real estate consultancy CBRE Hotels, told Emirates Business. "Many foreign investors are looking at Dubai with interest. CBRE has identified about 12 interesting hotel properties in Dubai. Five are operational and the others are newly developed.

"The hotels, which all have more than 120 rooms, are in the range of $60 million (Dh220m) to $200m each, depending on the location."

Hamdani said investors were looking for income-generating and operational hotels in good locations. Newly developed hotels or those in the pipeline were of less interest to international buyers.

"It still makes sense to invest in the hotels market across the region and several opportunities are available for cash-rich investors. Very few hotel investment deals have happened as the industry in this region has been dominated by developers, not investors."

He said two types of property were available. The first was a hotel run by a multinational chain in a good location with attractive cash flow. The second was a hotel that was badly managed, in a poor location and needed improvements to its operations and facilities.

"The first type would attract investors looking for a good level of return without operational inputs who would be able to benefit from the expertise of the management company, the brand and the current cash flow. The likely investors are real estate funds, pension and government funds, hotel funds, holdings targeting diversification and banks.

"The internal rate of return for this investment would be above nine per cent. The other investment would attract investors with a higher risk profile or hoteliers targeting poorly performing properties."

Hamdani said earlier estimates indicated that 65,000 new hotel rooms would be needed in the next seven to eight years, but because of the economic crisis the number of extra rooms in the next five years would be just 22,000 – about 30.8 per cent of the forecast. The market has been hit by adverse conditions in the real estate market as several mixed use developments that included hotels have been stopped or delayed.

"This pattern will be reflected throughout the GCC hotel industry, resulting in a much lower supply than was predicted by investors, consultants and other interested parties.

"On the flip side, during the past four years developers have been investing in the hotel industry, attracted by hotel yields, high earnings before interest, tax, deprecation and amortisation margins, diversification purposes or just for prestige.

"In the next four to six years the institutionalisation of the hotel industry and the emergence of a strong investment market will see more foreign buyers looking for long-term opportunities and will close the door to a large portion of short-term players, though some will remain and have a role in bringing back liquidity," he said.