Despite a challenging Dubai tourism market, Rezidor Hotel Group has found opportunity in the budget segment.
Rezidor hotels eyes budget market
Despite a challenging Dubai tourism market, Rezidor Hotel Group has found opportunity in the budget segment, it said. Rezidor, which operates three Radisson hotels in the emirate, is looking for more opportunities for its three-star Park Inn brand, having already signed two agreements for the brand over the summer, said Kurt Ritter, the chief executive of Rezidor.
The mid-market hotels are often more profitable because they are cheaper to build and run, he said. The general downturn in the industry in Dubai, which is heavily skewed towards the five-star market, makes these options even more lucrative. Although the emirate has seen a 35 per cent fall in revenue per available room (RevPAR) this year - a key indicator of a hotel's profitability - the decline was from exceptionally high levels, Mr Ritter said. "Today if someone complains about their RevPAR, I think they have nothing to complain about. I think on a global view it's still one of the best."
"I don't feel sorry for anybody," he added. "It's still at a high level." He said he was unsure where the "hurting point" for hotels lies. "But I think it is good to mention that we all hope the Government is very cautious with issuing licences.". "I think there is no part of the world that has had such an explosive growth," Mr Ritter said. "Somewhere there will be too many hotels and what happens is that people panic and lower the prices, which are hard to [back] get up. Then you have much cheaper tourism coming with less money and less class, which is of course not good because Dubai is not built for that."
While expected new hotel openings have slowed because of the economic downturn, there could still be a 46 per cent increase in rooms by the end of 2011, with around 17,837 rooms planned, according to a report from Jones Lang LaSalle. This would put further pressure on rates and occupancy levels. The report also stated some of these projects could be delayed because of difficulty in getting financing and a slower pace of construction in the emirate compared to previous years.
Unbranded, or independent, hotels in less desirable locations are likely to suffer the most, said Blair Hagkull, the managing director of the firm's Middle East and North Africa division. While all they can do to cope with reduced demand is cut rates, branded hotels have global networks they can exploit and instantly recognisable restaurants that would still attract visitors. "A rising tide is generous to everyone but when a market is declining people respond differently," Mr Hagkull said, adding Dubai's past performance was not sustainable. He said development of the budget sector was a natural consequence as the market matured and a rebranding of some hotels is likely.
"Some of the operators selected are inexperienced - so owners are coming back to look at operators that have a precedent and system in place," said Rani Gharbie, the director of development at InterContinental Hotels Group. Rezidor sees opportunities in that. "There are lot of owners blaming the operators during the crunch," Mr Ritter said. "A lot of hotels are looking for a brand. You will see some flag changes. There will be less new-build hotels and more rebranding."