This document discusses recent trends in the hotel industry in the Middle East. It notes that while some cities like Dubai and Abu Dhabi saw occupancy rates increase in September 2017 compared to the previous year, average room rates fell, resulting in an overall decline in revenue. However, some cities like Kuwait and Cairo saw significant revenue increases. The document also mentions that while occupancy rates have increased in many Middle Eastern markets, falling room rates have led to decreased revenues. Developers continue investing in new hotel projects despite current challenges facing the industry.

1. Spotlight on Hotel
Developments and Trends
in the Middle East
DR. EHSAN BAYAT

2. Spotlight on Hotel Developments and
Trends in the Middle East
 In the Middle East and North Africa, the hotel industry has become a central
part of the larger real estate sector. This past summer proved to be one of
mixed fortune for hospitality providers in this region, although a year-on-
year increase in per-room profits was recorded in August. However, in
September, per-room revenue dropped significantly. According to a poll of
full-service hotels conducted by HotStats, total year-on-year profits fell by
more than 17 percent in September.
 A slight drop between August and September is expected due to the end of
summer and, hence, the tourism season. Oddly enough, occupancy rates in
September actually increased when compared to the three-month summer
average, yet the average achieved room rate fell by nearly 11 percent.
Furthermore, hotels reported a drop in food and beverage sales, as well as
leisure revenue. The issue of falling revenue was complicated by increased
operating costs. Payroll increased to 29.9 percent of total revenue, a 2.4
percent increase from the previous year, which makes the reduction in
income even more difficult for hotels to manage.

3. A Look at September Hotel
Performance in Key Regional Cities
 Dubai remains one of the most important economies for the Middle East. Notably, Dubai relies much less
on the oil industry than other economies in the region, which has made it more resilient to the
challenges of the last few years. At the same time, Dubai faces a number of unique challenges,
particularly in the hotel industry. The city’s hospitality market is largely shifting toward the mid-market
segment, which is creating issues for luxury hotels, and Expo 2020 has encouraged many companies to
build more accommodations, which is drastically increasing competition.
 In September, year-on-year revenue in the hotel market fell by more than 13 percent due to lower
occupancy and reduced room rates. However, it is important to remember that nearly 4,000 new rooms
were added to Dubai’s hospitality pool in the third quarter of 2017, so in some ways it is surprising that
the drop was not more severe. Some major projects recently opened their doors, including the
DoubleTree by Hilton Business Bay and Rixos JBR.
 In Abu Dhabi, hotel occupancy actually rose as compared with 2016, but average room rates fell by 12
percent, meaning that the year-on-year revenue also fell. In Saudi Arabia, occupancy rates increased
when compared to 2016 in Makkah and Madinah, as well as in Jeddah and Riyadh. However, increased
competition still caused some precipitous reductions in revenue in these cities. In Makkah, revenue
decreased by more than 22 percent. Likewise, in Madinah revenue fell by 15.5 percent. However, Riyadh’s
average hotel income held steady, and Jeddah actually experienced a small increase.

4. Not All Cities Have Struggling
Hospitality Markets
 Some other cities also failed to fit into the pattern of major cities such as
Dubai and Abu Dhabi. Kuwait saw occupancy rates rise more than 44
percent with a 27.6 percent increase in revenue. This result is attributable
to an increase in leisure and business travel in the city. Cairo also saw a
significant increase in revenue from hotels. The average rate of a room
nearly doubled from September 2016 to September 2017. This finding
may stem from the floating of the Egyptian pound. As Egypt’s tourism
industry continues to recover amid security concerns, the demand for
rooms has expanded into the double digits over the course of 2017.

5. Reports from Another Hospitality
Industry Tracker
 Hospitality industry tracker STR reported on hotel performance across the
Middle East and North Africa in October. Throughout much of these markets,
occupancy rates have continued to rise based on year-on-year rates.
However, falling revenue per room yielded a drop in revenue. In Bahrain, STR
reported that occupancy rates increased by nearly 10 percent while average
daily room rates fell by more than 8 percent. In the end, the return on rooms
remained about the same, but STR highlighted the fact that October 2016
had a low base and that two major events occurred in October in Bahrain.
 Recently, tourism authorities in Bahrain announced that $10 billion would be
invested in 15 new five-star hotels and nearly 63 new four-star hotels in the
country between 2017 and 2020, which will significantly increase competition.
At the same time, Bahrain has been working to increase its appeal as a tourist
destination, so occupancy rates may continue to increase. STR added that
the doubling in income from Cairo hotels continued into October.

6. Developers Continue to Plan New
Hotels
 Despite the obvious challenges facing the hospitality industry in the Middle
East, some developers are continuing to push projects forward. One notable
case is Emaar Hospitality Group, a major developer that reports having
10,000 hotel rooms under construction. The rooms will open in the United
Arab Emirates, Egypt, Bahrain, Saudi Arabia, Turkey, and more. Emaar is
developing several different hotel brands, including Vida Hotels and Resorts,
Rove Hotels, and Address Hotels + Resorts. Each of these brands offers a
unique experience for guests.
 Moving forward, it will be interesting to see how the hospitality industry in
this region develops with so many new units hitting the market. Of course,
visitors also need to consider the steps that several countries and cities have
made to increase business opportunities and drive tourism as a means of
diversifying economies in the wake of oil devaluation. Perhaps occupancy
rates will increase sufficiently to make these projects profitable.