The UAE’s hospitality sector has encountered copious challenges in the past few years and though the industry is beginning to see light at the end of the tunnel, stability is not yet on the horizon. Sidharth Mehta highlights some of the vital factors that have attributed to the sector’s ongoing difficulties, “Low oil prices, the unstable geo-political situation throughout the Middle East and currency fluctuations in China and Russia have all had an adverse effect. These issues have not gone away and will continue in 2016.”
Mehta explains that in January Sultan Al Mansouri, the UAE’s Minister of Economy analysed his retrospective predictions from 2015 and downgraded growth expectations from 4.5% to 3% for 2016. However, this was not the first time growth forecast for the country has been altered. In July 2015 the IMF believed the rate would decline to 3.5% and now expects a further drop to 3.1%. Though these figures are comparative to those of 2011, when the UAE was recovering from the 2009 recession, Mehta believes a 3% growth level is one that many developed economies would ‘happily accept’ and he makes a solid point.
As Hospitality Business Middle East has previously outlined, the region continues to face challenges with resilience helped greatly by its forward-thinking leadership and dynamic demographics, which amalgamate a multitude of nationalities, cultures and skills. Mehta believes the hospitality industry is equally as strong, “The hospitality industry is one of the most flexible industry sectors in the UAE. It is clear to me that the industry is already adapting to new realities.”
But what are these new realities?
With the rouble falling to its weakest level against the dollar at the tail-end of 2015 due to a vast drop in oil prices, the UAE faced a steep decline in Russian visitors that form one of the country’s most important tourist sources. Though the industry was still bruised by the loss of one of its key tourism markets, it has been mostly stabilised by tourists from India, Pakistan, China, Western Europe, Iran and the GCC.
The rise in tourists hailing from India and Pakistan is a trend Mehta develops on, “Indians and Pakistanis are a vital part of the UAE’s tourism and real estate industries – and they have also seen their currencies getting impacted against the dollar. However, there is still a strong positive sentiment in both markets.”
Additionally, hotels in the UAE have experienced demographic changes in the form of a rising demand for mid-market, affordable offerings. A change that is still being adapted to by a region that has no shortage of hotels with marble-laden lobbies and chandelier embellished ceilings. However, UAE hoteliers have slowly begun unveiling hotels and concepts that meet this trend with brands such as Jumeirah unveiling the Venu concept and Hilton’s Garden Inn hotels. Issam Kazim, CEO of Dubai Corporation for Tourism and Commerce Marketing (DCTCM), reinforces the fact that this is something the UAE had already factored into its growth plans, “While Dubai is well known for its impressive array of luxury properties, we are keen that the city also caters to those on a more restrictive budget by offering high-quality mid-market accommodation. As we work towards meeting our Tourism Vision for 2020 of attracting 20 million people a year to the city by 2020, we want to ensure that our accommodation caters to all categories of visitor.”
This is something Mehta echoes, and something he believes is driven by business and leisure travellers also looking for more keenly priced accommodation, along with consumers seeking value for money and competitive pricing given the vast options offered within the market. However, he also states that it needn’t only be limited to new hotel concepts and explains, “Hoteliers should look to exploit this by targeting consumers in the mid-income group, whether it is by offering bundled packages or lowering their room rates.”
With rising awareness surrounding this trend among hoteliers, the budget hotel market is not as easy to infiltrate as it initially was. Mehta says, “The competition in the mid-market travel and hospitality segment is severe right now; however, the key is in the quality of the product.”
A bright future
Given that construction of new hotels in the UAE is rife in preparation for Expo2020, 2016 is sure to be smooth sailing in comparison to 2015, right?
Unfortunately this isn’t the case according to Mehta, and we won’t be seeing any respite until at least 2017 with 2016 being the year of ‘waiting and watching’. When asked about how the mega-event will affect the economy and hospitality sector he says, “The latter half of 2017 should pick up in preparation for 2020. There will be a spike in hiring and trade as businesses gear up to expand in order to deal with the high volume of demand in 2020.”
However, when looking at the bigger picture of Expo 2020 preparation, Mehta believes that 2017 will be the year that the ‘domino effect’ of the 6-month event will be felt. Given that the Department of Tourism and Commerce Marketing (DTCM) is aiming to introduce 160,000 new hotel rooms in Dubai by 2020 and with 93,000 rooms coming into the market in 2014 alone, growth in the city is promising. Mehta reveals, “Some market observers believe that as many as 75,000 rooms will come on to the market this year – and while supply may be slightly outstripping demand, that is likely to drive visitor volume.” Competitive room pricing, along with impeccable service and savvy consumer targeting will also collectively attribute to encouraging a rise in visitor volumes.
Internally, Mehta explains that the rise in hotel construction inevitably leads to a rise in jobs in the region, which in turn provides a boost to the region’s economy. However, its current situation both regionally and globally is not all bad news.
“Dubai is a transit city. It is home to some of the world’s leading airlines. And those airlines are optimistic about 2016 – particularly as lower oil prices should cut the price of air travel and leave more money in the pockets of people,” Mehta tells Hospitality Business Middle East. And with consumer and overall spending set to remain cautious throughout the year, a decline in the prices of air fares should lead to a rise in international tourists to the UAE.
An interesting analysis by Mehta – and what seems to be a general observation from economists and investors – is that he believes the “appetite for risk in the Middle East region has reduced”. Though construction continues with cranes filling the UAE’s skylines, it is much more calculated following the 2009 recession and this time, sustainability is the keyword for regional growth and development.
In contrast, Mehta does also highlight a silver lining for investors, “We expect a certain amount of ‘wait and see’ to continue into 2016 as currency fluctuations are predicted to continue. However, it is also worth pointing out that investors who buy at the right time in a recovering market could benefit from both appreciating property prices and recovering exchange rates.” This is something many investors opportunistically took advantage of upon announcement of Dubai winning the Expo 2020 bid with many investing heavily into hospitality and real estate (both commercially and residentially). However, given the market corrections currently being faced by the UAE, this may be a key time to invest and benefit from lower prices rather than the previous Expo announcement spike.
With the oil industry in – pardon the pun – turmoil, the region is quickly learning that diversification is more vital than ever. Fortunately, this is something it took into account well before the issue arose.
Other diverse income sources have had to be explored and one of the key areas is F&B, which Mehta believes to be one of the country’s most ‘vibrant’ sectors. With KPMG having released a UAE F&B trend report in 2015, he shares the key themes that will emerge this year:
• The region’s popularity with international visitors will continue to attract well-known brands and names given the growing market and strong demographics
• A rise in concepts catering to previously underserved niche markets and consumers
• Popularity for healthy offerings in restaurants and outlets is only set to grow and this is something operators need to focus on in order to maintain and entice new customers
• Though many industry figures thought it would be a passing phase, street food and food van outlets in the region are continuing to lure hordes of visitors and will be seen more widely
Tourism is another essential avenue that the region relies upon and Mehta explains how this is developing, “The different emirates all seem to be carving out different tourism industries, all of which appeal to slightly different demographics. While Dubai and Abu Dhabi are likely to continue to lead the pack, there is considerable opportunity for growth across the market.”
“If you are visiting from colder parts, guaranteed sun can be very attractive. There is definitely a push to show that the UAE is more than just the bright lights of Dubai, which of course is extremely attractive to a very large segment of the global population too,” he concludes.
The region’s hospitality industry may have a bumpy ride ahead of it in 2016, but so far it’s put up a strong fight against challenges such as the recession, declining visitors from its key markets and gradually adapting to an ever-changing demographic.
To survive the economic turbulence of 2016, Mehta provides some simple, but beneficial advice to the hospitality sector: put a strong focus on maintaining and improving the quality of products, while also reworking business models to optimise costs and finding ways to cater to the mid-market travel segment – whether this is by altering prices and targeting specific consumers in existing properties or introducing new mid-market projects.
One thought on “A bumpy ride”
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