Dubai is seeing a shift towards the development of mid-market hotels, underpinned by government incentives, a growing middle class in key source markets and the rise of a younger, more cash constrained guest profile, a report said.

Strong demand for branded mid-market hotels has helped to support average occupancy levels which are above market wide averages, added H1 2015 Dubai hospitality insight report released by Knight Frank, a leading independent global property consultancy.

Overall, the hospitality market in Dubai exhibited strong performance in relation to other major markets in the Middle East despite a dip in key performance indicators, the report said.

According to Knight Frank, although the first quarter (Q1) of 2015 resulted in a year-on-year RevPAR (revenue per available room) decrease of 7 per cent, Dubai remains among the leading markets in the region.

From an investment standpoint, mid-market hotels have significant advantages over luxury and upper upscale properties:

• Lower capital investment – Relatively smaller investment for mid-market hotels on a per key basis due to lower construction cost and higher design efficiency

•Smaller construction period – Modular construction allows for the minimisation of time between capital outlay and revenue recognition

• Lower land requirements – As a product of the comparatively high room to gross floor area ratio, mid-market hotels can be developed on smaller parcels of land

From an operational perspective, mid-market hotels have the following advantages:

•Lean cost structure – Lower staff to room ratio results in lower operating costs

•Higher profitability ratios – Rooms driven business model, with fewer ancillary revenue generators, allowing for higher EBITDA margins

• Less revenue volatility – Demand trends are less seasonal than in the luxury and upper upscale segments which result in more predictable revenue flows

Outlook

“Looking forward to the next five years, we can expect to see an influx of quality, internationally branded mid-market properties come to market, which will likely benefit from strong demand levels,” Knight Frank said in the report.

The current push towards mid-market developments will reinforce Dubai’s standing as an emergent hotel market through the provision of a more diverse product offering.

As increasingly more internationally branded midscale hotels come to market, the next asset class to see rapid growth in the medium term is likely to be the budget sector as the hotel market matures further, according to the report. – TradeArabia News Service