Product SolutionsAbout CoStarContactLogin Add a Listing English (US) Hoteliers, Investors Debate Viability of New Hotel Development in Middle East Hotels in the Pipeline More Than Make Up for Hotels Closed During Pandemic, STR Analyst Says Participating on a panel at the Gulf & Indian Ocean Hotel Investors’ Summit are (from left) Aditya Rajaram, of Radar Holdings; Ahmed El Bassyouni, of Al Ghurair Properties; Alison Grinnell, of RAK Hospitality Holding; and Olivier Harnisch, of Saudi Arabian Public Investment Fund. On the screen to the left is Robin Rossman, managing director, STR. (Terence Baker). By Terence Baker Hotel News Now November 22, 2021 | 2:43 P.M. social-icons-logos-CoStar-lghtblue_facebook_24pix dark graysocial-icons-logos-CoStar-lghtblue_twitter_24pix dark graysocial-icons-logos-CoStar-lghtblue_linkedIn_24pix dark gray RAS AL KHAIMAH, UNITED ARAB EMIRATES — As hotel markets in the Middle East continue to mature, hoteliers and investors argue the key consideration in whether to develop in the region should be the profitability of existing hotels — not necessarily the current supply and not predictions for occupancy. At a Gulf & Indian Ocean Hotel Investors’ Summit focused on hotel development, the four participating panelists were divided evenly on whether there is still room to build new hotels in the Middle East. Ahmed Elbassyouni, head of hospitality at Al Ghurair Properties, said with another 40,000 hotel rooms due to open in Dubai in the next three to four years, yields are declining, and assets are being devalued year after year. “Some areas of Dubai, if not all, are oversaturated. In midscale in 2018, average daily rate was $65, and now it is $59. The question is, will that rate drop to $40?” he said. “There should be regulations on new-builds. They need to fit into the city in a long-term play,” he added. Aditya Rajaram, managing director of Radar Holdings, also spoke against unchecked new hotel construction. He said overbuilding of hotels often happens in the Middle East due to not every hotelier having access to the same information and transparency of data. “Two-thirds of the world is close to Dubai. This is the slogan used all the time, but we have to remember that 90% of that population does not have the spending power to come, and even if some are able, they stay with friends and family, or at an Airbnb,” he said. He added some new-builds are justified, such as the luxury developments within one kilometer of Business Bay. The two panelists who argued for new hotel construction in the Middle East were Alison Grinnell, CEO of RAK Hospitality Holding, and Olivier Harnisch, a member of the board of directors at Gulf Hotels Group and CEO of Saudi Arabian Public Investment Fund. Grinnell said while hotel construction will continue, owners can choose to not build the same hotels. “If we do stop, then the old hotels will see fewer guests as people will stop traveling. We must get more involved in the destination planning," she said. “In Ras al Khaimah, [new hotel] supply is coming next year, which is maybe a little earlier than we hoped." She added that is a little concerning, "but not too much.” Harnisch said Ras al Khaimah currently has 7,000 hotel rooms, while 75% to 80% of Saudi Arabia’s 100,000 hotel rooms are in the two Holy Cities. He said more focus needs to be placed on the underlying reasons to build. “Dubai is healthy, and it requires investors. It is still one of the best hotel markets in the world. Revenue per available room is still pretty good, even if we look at some periods we might see as black,” he said. Harnisch said Dubai is a mature market, and investors need to react to that maturity. Overinvestment will become evident if there are not sufficient returns on investment in a particular market. “Look at what is the yield per square meter, and what is the demand. And we need to lower our break-even points,” he added, referring to the calculation of occupancy and revenue required to cover the cost of operating the hotel. Danger Signs Grinnell said oversupply is an occupancy issue, and if hotel average daily rate goes down, it’s because operators are not doing a good job. Harnisch said “some projects simply are overinvested." "It now is no longer a return on ego or a return on brand, but rather it has to be a return on investment,” he said. Rajaram said the industry should be mature enough to analyze revenue management properly as the basis for future development. “Pricing has to determine build,” he said. Robin Rossmann, managing director at CoStar's hospitality analytics firm STR, said “the Middle East is the region of the world where this [supply] debate is the most important.” “A decade ago, as a consultant, I would have said you cannot possibly build another hotel, but things have changed dramatically," he said, adding that the hotel supply dynamic in the Middle East was not significantly changed by the number of hotels that closed during the pandemic. Rossmann said new hotel supply is coming to the region, as the two-to-three-year timeline of financed hotels under construction is still playing out. “Expect more hotels to open this year than they did last year. They will more than offset any closings,” he said. Dubai's hotel supply also will increase, but a little more slowly than it did in 2018 and 2019, Rossmann said. Dubai has one of the largest hotel pipelines in the world, with nearly 40,000 rooms in development. Makkah has almost 35,000 hotel rooms in its pipeline. “If all the keys in Dubai open, that will be a 39% increase in supply; Makkah, plus 80%,” Rossmann said. If every room in the pipeline in Doha and Jeddah open, he added, hotel supply will grow 73% and 86%, respectively. In London, the increase in supply is predicted to be 25%. “Whether the market is oversupplied depends on who you ask,” Rossmann said. Return to the Hotel News Now home page TRENDING 1. Air Freighter Demand Rises, Another Spending Bill Passes, Ford and Rivian Split 2. Authentic Brands To Stay Private, Investors Drive Home Sales, Biden Renominates Powell 3. Dick’s Earnings Rise, More Customers in Best Buy Stores, Philly Service Sector Activity Grows 4. Gap Trims Brick-and-Mortar Operations, Rethinks International Real Estate Footprint 5. Sale of Storied Los Angeles Athletic Club, California Yacht Club Said To Edge Closer 6. Big Las Vegas Apartment Deal Reflects Rising Demand in Improving Climate 7. What Amazon’s Land Buying Binge Means for the US Industrial Market 8. Thanksgiving Travel Expected To Nearly Hit Pre-Pandemic Levels 9. Pratt & Whitney Sells What CBRE Calls Biggest Available Development Site Between New York and Boston 10. Biotech Company To Develop Multimillion-Dollar Facility at Former Bristol Myers Campus Get In Touch sales@costar.com 800-613-1303 Request a Demo Company About CoStar CoStarGroup.com Careers Press Room Privacy Notice CA: Do Not Sell My Personal Info Terms of Use Help Fight Data Theft FAQs Contact Us Products CoStar CoStar Comps CoStar Tenant CoStar Public Record CoStar Market Analytics CoStar Lease Analysis CoStar Mobile CoStar Investment Analysis CoStar Real Estate Manager CoStar Lease Accounting CoStar Private Sale Network CoStar Advisory Services CoStar Brokerage Applications CoStar Risk Analytics Social © 2021 CoStar Group