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STRONG FUNDAMENTALS

GCC hospitality market to hit $28bn by 2016

Manama, October 7, 2012

The GCC hospitality market will grow at an annual rate of 8.1 per cent to hit $28.3 billion by 2016 compared to $19.2 billion in 2011, owing to factors such as favourable economic conditions combined with infrastructure development, said a report.

Driven by its macro-economic fundamentals, the GCC region performed relatively better in the current economic crisis, stated Alpen Capital in its GCC Hospitality industry report which focuses on the key performance indicators of the GCC region’s hospitality industry, such as number of hotel rooms, its trends, challenges and the industry’s outlook over the next five years.
 
Government support helped tackle the economic turbulence, and public sector spending on infrastructure has driven the region’s economic growth. With the improvement in economic conditions, business and consumer sentiments are showing signs of revival, said the report.

This is likely to boost domestic as well as inter-regional tourism in the GCC region, which will contribute significantly to tourist arrivals. In addition, as economic conditions improve globally, international tourism is likely to increase from both emerging as well as developed markets, it added.

"The GCC hospitality sector is poised for a healthy growth owing to factors such as favourable economic conditions combined with infrastructure development, increased bids to host high profile global events and government support to the private sector," remarked Sameena Ahmad, the managing director at Alpen Capital.

"All these factors have contributed to the steady increase in tourist arrivals which in turn has facilitated the growth of the hospitality industry in the region," he added.

Sanjay Bhatia, the managing director at Alpen Capital said, "The GCC hospitality industry has been high on the investment radar of businesses given the macroeconomic trends and the rise in business/ leisure visitors to the region."

"The industry has strong fundamentals and is beginning to realize its potential. Accordingly, we believe that the industry presents itself as an excellent opportunity for all stakeholders," he added.

According to the report, the occupancy rates were expected to average around 67–73 per cent between 2012 and 2016.
As business and leisure tourism continues to grow and the up-scale hotel segment account for most of the demand for hotels, ADR is likely to average around $212–$247 between 2012 and 2016.

Saudi Arabia is expected to remain the largest GCC market in terms of revenues, followed by the UAE. Qatar is expected to be one of the fastest growing markets, driven by rising business tourism and leisure tourism as the country prepares itself for the FIFA World Cup 2022, and in order to achieve its 2030 national vision, the report stated.

Alpen Capital said tourist arrivals in the GCC were also increasing on emergence of the region as a preferred tourist hub due to varied offerings for tourists.

"These range from shopping festivals to annual sporting events to conferences and exhibitions attracting both leisure and business travelers," he noted.

Driven by the efforts undertaken by governments in countries such as the UAE and Qatar, the region’s aviation industry has undergone a drastic change with carriers such as Emirates, Qatar Airlines and Etihad turning into global carriers. These companies have facilitated the countries transformation into successfully global hubs for millions of transit passengers.

Demand for hotels is also likely to be driven by higher arrivals from Asian nations as travel spend is likely to grow at an impressive rate driven by rising income levels, said the Alpen Capital in its report.

There is a growing domestic demand for hotels which is likely to be driven by rising income levels in the GCC region and the fact that per capita income in GCC nations is higher than most advanced economies.

From the supply perspective, the ongoing development of the hotel pipeline across the luxury, midscale and economy segments is a positive, it added.

Hotel room supply in the GCC region, primarily in the UAE, is geared towards luxury hotels due to strong demand for such accommodation and the fact that the UAE is recognized as a premium tourism destination.

Nevertheless, given the economic slowdown, the anticipated budgetary cuts by individuals and businesses and the consequent down-trading, hoteliers are strengthening their budget hotel pipeline to meet demand.

While international players are aggressively establishing their brands in the GCC, local players like Jumeirah and Rotana have made a mark not only in the GCC markets, but have made themselves known globally driven by their impressive hotel operations.

Serviced apartments are sprouting up in the region in tandem with the rising number of expatriates and business travelers visiting the GCC region. These apartments provide the option of longer stays at cheaper rates relative to traditional hotels.

Increased awareness amongst individual and business travelers regarding personal health and well-being coupled with rising income levels have bolstered the spa and wellness industry, a component of luxury hospitality.

Hotels in the GCC region are also likely to speed up redecoration and refurbishment activities in order to stay competitive as new hotels enter the market, said the report.

According to Alpen Capital, the hotel  room supply in the region is expected to grow in tandem with the imminent rise in demand.

The oversupply of hotel rooms could be a challenge going forward as this could affect the performance of the hospitality industry by reducing occupancy rates and exerting pressure on ADRs, said the report.

Over the past few years, the hotel pipeline has increased considerably to meet the growing demand. However, a fall in tourist activities during an economically turbulent environment will impact the demand for hotels by affecting occupancy levels and ADRs, it added.   

The lack of debt funding for projects could pose severe concerns for hoteliers in the GCC region. Banks are being conscious about who they lend to due to the tough economic conditions.

Due to the risks involved in hotel investments, banks have adopted stringent lending policies such as higher interest rates and lower loan-to-value ratios. As a result, several hotel construction projects have been put on hold, cancelled or delayed due to the lack of debt financing, the report pointed out.

Another issue facing the hospitality industry is the shortage of skilled labor and high employee turnover. As demand increases, it becomes imperative for hotels to hire and retain skilled labor if they are to attract customers.

"The growth of the hospitality industry is largely dependent on the travel and tourism activities, industries ancillary to it as well as directly related with the well-being of the economy. If there is a negative shift in the socio-economic and political stability of countries in the Middle East, this could severely impact revenues of the region’s hospitality industry."

On the outlook, Alpen Capital said the hospitality sector's future is promising, and GCC governments and private stakeholders are committed to undertake various measures to address the current challenges.-TradeArabia News Service




Tags: hospitality | GCC | travel | growth | Alpen Capital |

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