Abu Dhabi’s luxury hotels can emerge market drivers

Leisure hospitality could prove the bigger draw this year in Abu Dhabi and doing enough to buck the trend of less than stellar returns expected for its business hotels.

The oil price situation has had an “impact on visitation in the capital, with many hotel operators indicating that there was a softening of corporate

demand particularly in terms of oil and government related visitation,” according to a report by the consultancy Knight Frank. “With oil prices forecast to fall further in 2016, this trend is likely to continue — however this is anticipated to be counterbalanced to some degree by increasing leisure demand.”

There was a compounded annual growth rate of 16 per cent in the supply of upscale hotel rooms in Abu Dhabi between 2011-15. This has been through delivery of the two St. Regis properties, and one apiece from Sofitel, Ritz Carlton, Anantara and Rosewood.

“While Abu Dhabi has historically been driven by corporate and MICE visitation, leisure tourism has seen a boost over the past few years supported by the development of leisure demand generators, including Saadiyat Island, Yas Waterworld, Yas Mall, and the Du Arena,” the report adds. “This

trend is expected to continue as future demand generators such as the upcoming Cultural District are completed.

“As a result, the more diversified demand base should be less susceptible to external forces.”

But developers and hotel operators need to make sure they do not create too much of a supply overhang.

“The delivery of the Grand Hyatt, Four Seasons, Edition, Fairmont, Biltmore and Hard Rock Hotel over the next 24 months, will have direct implications for the future performance of Abu Dhabi’s luxury sector,” the report notes. “Luxury hotels which do not have clear differentiators are finding themselves in an increasingly precarious position, and the anticipated future supply poses a further risk.

“However, this will only be an issue if the projects are delivered on schedule. The hotel supply in Abu Dhabi is often delayed, and as such, it is unlikely that the pipeline in its current state will materialise in its entirety as anticipated.”

Even then, there are opportunities for additional hotels in Abu Dhabi, though not of the luxury type. What could work would be the “development of midscale hotels and internationally-branded serviced apartments,” Knight Frank reports. “These two asset classes are underrepresented in the market to date, and may be a safer bet than further iconic flagship developments in the years to come.”

Source: Staff Report, gulfnews.com


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