Nikola Kosutic, Head of Dubai Research at Euromonitor International, talks about some of the emerging trends set to propel the U.A.E all the way to the top of the global hospitality industry in the next few years.
What were the major trends in the U.A.E. hotel industry in 2016? What emerging trends can we expect to see in the near future?
Hotels in U.A.E. recorded a strong growth of 7.4% in terms of the number of outlets in 2016, thanks to the ongoing focus on infrastructure development and the sustained increase in demand for lodging across the country. The fore-cast for the industry remains strong and, when compared to other countries with 1000 outlets or more, the U.A.E. is set to become the fourth fastest growing hotel market globally over the next five years, with Sri Lanka taking the top spot, followed by India, Nigeria, and Thailand in fifth place. In terms of the value, the numbers are equally impressive. The U.A.E. is already the 11th largest hotel market globally ($8.6 billion in 2016), leaving behind countries such as Thailand, Australia, India and Brazil, to name just a few. In the group of the countries with a hotel market valued over $1 billion, the U.A.E. will record the 5th highest growth rate globally, and it will surpass the United Kingdom to become 10th largest hotel market globally by 2020.
Within the different accommodation types available in the market, the growing demand for more affordable accommodation was also reflected in the higher value growth seen for the economy and mid-market hotels in 2015 and 2016, which will continue over the next five-year period. Both of these categories will outperform luxury hotels, growing by 48% in value terms, over next five years, compared to 19% growth of luxury hotels in the U.A.E. Short-term rentals account for less than 2% of the U.A.E.’s overall lodging market value in 2016 and, at the moment, this segment doesn’t represent a threat to the hotel industry. Driven by an improving regulatory environment, short-term rentals are expected to expand rapidly over next five years, however, due to the relatively small difference in price between short-term rentals and hotel rooms, they will complement the overall lodging market growth rather than directly compete with hotels.
How has digitalisation impacted the hospitality industry in the U.A.E.?
Online sales growth rates for the hospitality industry remained moderate throughout 2016. After five years of rapid growth (ranging from 18% to 40%), online sales grew by 6% in 2016 as the channel is entering into more mature phase. Operators will have to ramp up their investments in order to reach the new segment of tech-savvy consumers. This will involve various forms of partnerships between hoteliers and other players from hospitality and finance sectors. Hotel sales through mobile devices remained negligible in the U.A.E. in 2016, with the development of the category impeded by the lack of uptake by intermediaries in developing the advanced technologies for mobile sales. This is in stark contrast to U.A.E.’s high rates of smartphone possession glob-ally and represents an area of great opportunity for players willing to invest in this area.
How will the proposed V.A.T. affect the price of hotels in the U.A.E.?
According to Euromonitor’s VAT impact analytics model, hoteliers are expected to bear the largest proportion of new V.A.T. burden. With an average room rate of $178 in 2016, and the already existing municipality tax, service charge and tourism dirham, there is not much scope for a further price increase. The pipeline for new hotel developments remains strong and, due to the increasing competition and softening of occupancy rates, hoteliers are expected to absorb 84% of overall V.A.T. bur-den amounting to a cumulative sum of $1.9 billion over next five years. To compensate for the reduced profit margins, we are expecting to see increased focus on a hotel’s ancillary revenue streams and, in particular, the food and beverage offering.
What is the real impact of lower oil prices on occupancy levels?
Lower oil prices have mainly impacted the business travel segment. The leisure segment has proven to be more resilient as lower global oil prices have had a positive impact on the disposable income on some of the U.A.E.’s key source markets such as India, China and Western Europe. This, coupled with expanding air links and the development of the general tourist offering, resulted in 9% growth of leisure arrivals in 2016. On the other hand, low oil prices resulted in reduced business travel budgets across all sectors of industry. Even those companies that do not directly rely on the oil and gas sector took a more cautious approach to business travel. Therefore, low oil prices, combined with other important factors such as strong U.S. dollar and increasing hotel supply, resulted in four percentage point’s reduction of hotel occupancy rates in 2015, followed by mild recovery of 0.5 percentage points in 2016.
Will sustainability begin to play a big part in the hospitality industry in the near future?
A sustainable environment and infrastructure are the key performance indicators under the U.A.E. Vision 2021. With the Emirates Green Building Council increasingly playing a much more active role, such as the development of energy and water benchmarking standards for U.A.E. hotels and categorization of buildings under the Pearl Building Rating System (PBRS) by Estidama in Abu Dhabi, we see that developing and con-forming to principle sustainability parameters, such as energy and water conservation, will be increasingly important for the hospitality sector in near future. We expect more players in the hospitality sector to move towards outsourcing of waste management, as well as facility management services, especially as Dubai looks forward to retrofitting 30,000 buildings by 2030. Additionally, we expect to see more eco-inspired hotels across the Emirates in the coming years