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Dubai: More investors are snapping up hotels in Dubai despite the lack of owners willing to offer assets for sale, according to analysts.
The latest hotel to be bought is the Movenpick Hotel and Apartments Bur Dubai, which was sold late last year by Kingdom Hotel Investments, a subsidiary of Saudi Arabia-based conglomerate Kingdom Holding, to an unnamed investment firm in the UAE for $95 million (Dh349 million).
The acquisition is said to be Dubai’s first open market hotel transaction.
Earlier that year, the Movenpick Hotel Jumeirah Beach was acquired by Bank Muscat GCC Property Income Fund, which is managed by the asset management division of Bank Muscat.
Hotel sale transactions in the emirate have increased in the last 18 months against a backdrop of a strong hospitality market, according to Yusuf Wahbah, Head of Transaction Real Estate for the Middle East and North Africa at global consultancy, EY.
“[The rise in hotel transactions] was [due to] a combination of factors. If you look at the KPIs [key performance indicators] of the hospitality industry in 2013 and 2014, they did extremely well, despite the fact thousands of hotel rooms entered the market during those years. We’ve only seen a marginal drop in occupancy. And what happened in the Middle East — the Arab Spring — benefited the Dubai hospitality market,” he said.
Dubai’s hospitality market has performed well over the last two years, with hotels maintaining an average occupancy of 80 per cent, despite new hotel and hotel apartment rooms coming into the market (around 4,000 rooms have entered the market during that period).
A number of hotel transactions in the last 18 months were in the “high-end four-star and entry-level five-star” segments of the Dubai hospitality market, Wahbah said, adding there were “roughly two to three transactions in 2013” without providing a figure for 2014.
But, according to an analyst, the number of hotel transactions is hard to quantify, since the market lacks transparency.
“There may be deals behind the scenes, but they are not publicly available,” said Mat Green, head of UAE research and consultancy at CBRE Middle East.
Another challenge in the market is that there are hotel owners that are hesitant to sell because they have “a mentality that they are long-term owners of properties and not traders,” Green said.
“There are plenty of willing buyers, but there is a disconnect between that and the availability of products,” he added.
Wahbah expects hotel transactions in Dubai to increase in the coming years, and points out that investors from the Gulf Cooperation Council (GCC) countries would be interested in owning some of the emirate’s hotels.
“The reason for [the future growth of hotel transactions] is the hospitality market in Dubai is performing extremely well. There are very well performing assets, and returns are decent. Also, Dubai is becoming one of the most sought-after destinations regionally and globally,” he said.
In 2015, he expects hotel transaction volumes in Dubai to be similar to the last 18 months as oil prices continue to fall. Global benchmark Brent crude has lost more than half of its value from a June 2014 high of $155 a barrel.
Dubai is still behind developed markets like London and Paris that have much higher hotel transaction volumes, analysts said.