Abu Dhabi’s hotel market has grown rapidly in a very short period, but in its new “second stage of growth” its hoteliers need to see the entire picture, not just build the same hotel over and over again.
ABU DHABI, United Arab Emirates—As hotels in Abu Dhabi continue to see a slump in rate like many other energy-producing destinations, sources said hoteliers in the market must adapt through innovation.
Although Abu Dhabi has made a conscious decision to concentrate on art, culture and mega-attractions, sources said the market’s trajectory mirrors the transition and business model of neighboring Dubai. The two emirates have become closer, as Abu Dhabi is currently in its second stage of growth.
“It is time to promote efficiency,” said Khalid Anib, CEO of Abu Dhabi National Hotels. “Assets are doing well despite the oil slump, and occupancy still is high, between 80% and 85%, but without doubt there has been a drop in average daily rate.”
Saif Saeed Ghobash, director general of the Abu Dhabi Tourism & Culture Authority, said the local government could delay permits for some hotel segments in order to slow rapid supply increases.
“Hotels have to improve their value proposition, and we need to work hand in hand. We’re playing a long game,” Ghobash said.
Anton Bawab, regional president of Viceroy Hotel Group, said rising supply is already affecting other performance metrics in the market.
“The numbers are scary on (revenue per available room), too,” Bawab said.
According to Abu Dhabi’s full-year 2016 performance data from STR, parent company of Hotel News Now, occupancy decreased 4% to 71.4%, average daily rate fell 9.9% to 467.64 Emirati dirhams ($127.33) and RevPAR dropped 13.5% to 333.98 Emirati dirhams ($90.94).
Those numbers are not helped by the new supply entering the market. STR’s pipeline report shows 6,042 rooms under contract in Abu Dhabi as of January 2017, which is a 24.1% year-over-year increase.
What must be done
Anib said sources in the market agree that Abu Dhabi is ripe with opportunity if hoteliers and properties are willing to adapt.
“Now is the opportunity for operators to learn how to turn occupancy into acceptable bottom lines,” he said. “It is a massive opportunity to become efficient and profitable. Innovation is needed.”
Sources said hoteliers in Abu Dhabi should take a step back to view the whole panorama, rather than just let their enthusiasm run ragged.
“Do not sign on the trading of the last six months,” Bawab said. “We are ignorant of the new market dynamics but sign on the strength of our operations experience.”
Ghobash said the region has experienced changes to its hotel demand before, and what’s happening now is just another period of change.
“Abu Dhabi was business-oriented, but the strategy is now on leisure and mainly on (meetings, incentives, conventions and exhibitions), although 80% of our MICE offering is centered at the Abu Dhabi Convention Center,” Ghobash said. “Each emirate presents themselves as different tourist destinations, but there are similarities. Many tourists stay in Abu Dhabi and go to (attraction) Dubai Parks across the border. It is good for us; it is good for them; it is good for the United Arab Emirates.”
Possible staff declines
Sources said having a large hotel staff is a luxury that is no longer viable.
“The number of staff is scary, sometimes 1,300 employees,” Anib said. “If you go to London or Paris, for 150 keys, (there’s) 45 to 60 staff maximum.”
Anib said hoteliers will look to first trim labor costs when trying to balance their budgets, and he added some new hotels in the market aren’t realistic with their staff expectations.
“We had low wages and the ability to (be) building luxury properties, so there would be a staff member to open the door, another to hand you a cold towel,” he said. “The differentiation was that the market allowed this, but we are in a new era, and we have to accept that costs will have to be tightened. We have to take stock of what is likely to come. … Some hotels are still being built based on feasibility studies written in the good old days.”