Dubai hotel sector 'needs rethink', luxury rates to hit new normal

Filippo Sona, of Drees & Sommer says Dubai hospitality market will require ‘complete repositioning’ to continue to be successful

Sona said consolidation of average room rate in Dubai is here to stay, adding that $180-200 is going to be the new average five-star room rate.

The hotel sector in Dubai will need a complete repositioning to continue to be successful over the coming decade, according to the hospitality division at consultant Drees & Sommer.

Driven by the evolving economy, increased hotel supply and the consolidation of the average room rate witnessed in the Dubai market, hotel owners and operators will need to shift from a revenue-driven strategy to a cost-driven strategy, said Filippo Sona, managing director, Global Hospitality at Drees & Sommer.

He said the consolidation of average room rate in Dubai is here to stay, adding that $180-200 is going to be the new average five-star room rate.

Sona said he is calling for a repositioning across three main aspects of the hotel industry in Dubai – business models, physical assets and brands.

Sona said: “It is time for hoteliers to reposition and reinvent themselves. The main issues surround the business model. For example, staff accommodation, currently provided by hotel owners in Dubai, is a massive cost that is neither sustainable nor necessary. It will become obsolete. This is for two reasons.

“Firstly, Dubai’s residential market is stable but expanding, and there will be units coming online that hotel employees can afford to rent. Secondly, the trend towards outsourcing hotel services, from security to housekeeping, is growing and coupled with developments in technology that will make hotel operations more efficient, hotels will require smaller workforces in the future.”

Sona said such dramatic change requires a huge shift in mindset which will take time, adding that it needs to start now and take place within the next 10 years.

When it comes to brands and physical assets, hotels that were built prior to 2010 will need to be repositioned to compete with the new supply coming online.

According to STR’s latest data, there are 427 hotels accounting for 123,742 rooms in construction in the Middle East, with 54,438 of these rooms in the UAE.

“The repositioning of physical assets will require more than a refurbishment,” said Sona. “The consolidation of average room rate that we are seeing right now is here to stay. Dubai is a spectacular destination, with visitor numbers increasing year-on-year, but $180-200 is going to be the new average five-star room rate and properties need to be designed accordingly.”

Potentially, this means hotels will need to have room sizes equivalent to those in other key global markets, such as London, New York and Amsterdam, he said.

“Hotel brands will need to be onboard with this change too, and ensure their product meets the needs of the future market dynamics,” he added

Sona noted that the profile of Dubai’s hotel general managers will also change over time.

“Hotel owners need to be able to rely on seasoned operators who are used to working in city hotels in markets where every dollar counts. General managers need to understand the cost structure of their operations very well.”

Sona will be speaking at the Arabian Hotel Investment Conference 2020 (AHIC), being held at Madinat Jumeirah in Dubai from April 14-16.

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