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.

Dubai records world’s ‘highest’ guest increase

Despite concerns that a slowing worldwide economy and fears over tighter visa restrictions in the UAE would curtail growth in the hospitality sector, hotels in Dubai recorded a 22 per cent rise in revenues for the first quarter.

The Dubai Department of Tourism and Commerce Marketing (DTCM) reported yesterday that hotel revenues in the emirate reached Dh4.26 billion (US$1.16bn) compared to Dh3.49bn during the same period last year.

The number of hotel and hotel apartment guests also rose seven per cent, to 1.891 million, in the first quarter compared to 1.769 million in the same quarter last year.

“[This is] the highest guest increase percentage in the world,” said the DTCM report.

Dubai has been known in the hotel industry for having a relatively low statistical figure for the number of consecutive nights that guests spend in a hotel – an average of three nights, compared to nine in Egypt, for example. This year, however, hotels and hotel apartments in Dubai registered an 8.2 per cent increase in the average length of stay.

Also, the amount of money that an average individual guest spent per stay rose 17 per cent.

Khalid Bin Sulayem, the director general of DTCM, said the overall number of consecutive guest nights during this period rose 10 per cent, to 6.07 million from 5.51 million during the same period last year.

The number of operating hotel and hotel apartments was up nine per cent, to 475 from 437 in the first quarter of last year. Similarly, the number of occupied rooms jumped 12 per cent to 31,450 compared to 28,203 in the corresponding period last year.

There was a 20 per cent increase in the number of available hotel apartment rooms, which reached 12,046 compared to 10,080 during the same period last year.

The positive numbers for the hotel industry in Dubai follows recent reports that tightened visa regulations for the UAE may reduce revenues in the local hospitality after they go into effect in August.

Last month, however, the DTCM reassured the industry that these new regulations would not apply to most tourists.