- Broker Directory
- My Tools
- News & Advice
- Market Trends
- Other GN Sites
Dubai: As one of the most rapidly developing hospitality markets in the Middle East, Dubai’s landscape has seen an influx of global hotel brands in recent years.
The impact that a well-recognised brand has on operational performance is well documented, with competitive advantage achieved through a combination of increased brand recognition, centralised services, efficient operations and global capabilities. Whereas in immature markets local players tend to dominate the hospitality market, this is not the case in Dubai, where international operators are responsible for operating about 61 per cent of the aggregate hotel room supply.
In the serviced apartment segment, however, the figure is much lower, with international brands operating circa 24 per cent of the existing supply.
If Dubai is broken down by area, it is clear that prime locations such as the Palm, Dubai Marina and Downtown have a high penetration of internationally branded properties, whereas older areas such as Deira and Bur Dubai — which account for almost 41 per cent of total hotel supply — have the lowest. A noticeable trend is the undersupply of quality branded serviced apartments not only on a market-wide basis but also, more specifically, in the newer parts of town such as Dubai Marina, Jumeirah Lakes Towers and Barsha.
To quantify the premium, we have taken the achieved revenue per available room (RevPAR) of a sample of internationally branded properties, and compared them to an unbranded/locally branded competitive set.
While the premium in RevPAR performance can be seen across segments, research indicates that internationally branded properties in the five-star segment are able to drive the highest premium over locally branded hotel stock. While there are some exceptions to this trend — such as The Address — this generally applies across the emirate and highlights the importance of an international operator at the top end of the market.
Although developers are often reluctant to engage international operators for serviced apartment developments, partially because they are seen to be less complex than full-service hotels (due to lower guest turnover, lower staff-to-room ratios and fewer food and beverage outlets, among other reasons) this belief may be misguided — particularly since internationally branded serviced apartment properties are able to outperform their locally branded counterparts by a significant margin.
Looking at the three- and four-star segments, in which international brand penetration is modest, the RevPAR premium remains significant, indicative of the value that international operators can bring regardless of categorisation.
The brand equity associated with international hotel brands stemming from awareness, loyalty, perceived quality and brand image underscores the value that developers can achieve through partnering with international hotel operators. Although the fee structure of hotel management agreements may have a significant impact on profitability at the property level, there are many other aspects of such contracts that go far beyond these financial terms.
Such examples include the contract term, performance tests, reciprocity, owner approvals, non-compete clauses and termination clauses, each of which may require extensive negotiations between developers and operators.
The strength of branded properties in Dubai is clear, with owners being able to achieve RevPAR premiums between 22 and 36 per cent over locally branded and owner-operated properties. Although there are certain costs involved with such partnerships, it is important to understand the terms of the contract and negotiate terms that align the interests of owner and operator.
Looking at other markets in the GCC, which have a lower brand penetration ratio than Dubai, it is worth noting that the benefits of internationally branded operators are applicable on a regional level. The key to driving value in such partnerships lie not only in negotiating the commercial terms but also in examining the non-financial elements of hotel management agreements, which may only come into play when properties are fully operational.
Source: Ali Manzoor, Special to Gulf News
The writer is the Development Consultancy Manager at Knight Frank Dubai.