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GCC countries require more investment alternatives and innovations to preserve competitiveness in hospitality and tourism sector

Al Mazaya Report: “Hotel Investment raises qualitative investment values and targets more coastal areas and islands”

Since the turn of the century, the tourism sector has been one of the key economic drivers of activity and accelerated growth in GCC economies. This is noted not just within the industry itself, but also in relation to the tourism sector’s ability to become a catalyst for other direct or indirect service sectors to grow.

Undoubtedly, the growth of the regional tourism industry has had a significant role in maintaining the pace of real estate projects and development and, despite the impact of the 2008 financial crisis, the hotel and tourism sector has remained adaptable to the pressures of recession and recovery. In fact, over the last few years, the hospitality and tourism sector has seen accelerated growth rates and continues to raise its contribution to the percentage of GDP in all GCC countries, with various other Middle Eastern countries also noting growth.

With new hotel projects continuing to come online, it has become necessary to reassess the projects in terms of quantity and quality, to compare them with the pace of economic activity around the world, and to enable them to compete with global tourism destinations. Rising competition from across the world adds a variety of challenges to the pace of activity and rate of returns; therefore, the hotel industry may encounter further pressures if construction continues without a clear perception of key indicators relating to demand.

Al Mazaya Holding Company’s Weekly Real Estate Report agrees that tourism diversity is important for alleviating the negative effects of direct competition. Of course, each market in the region relies on its own distinct and relative strengths to distinguish it from neighbouring markets and competitors.

The tourism sector in Saudi Arabia, for example, accounts for huge investments connected to religious tourism, business tourism, recreation and domestic tourism. Understandably, many hotel investments in Qatar are currently setting their sites on catering to the huge influx of guests expected for the FIFA World Cup 2022. The enormity of this event is also expected to drive many other direct or indirect investments into the country. One of the oldest tourism markets in the region, the Kingdom of Bahrain, continues to realise a steady flow of inward investment with continuous demand for real estate developments to support the hotel and tourism sector.

In the UAE, the strategic approach since the start of the century has been to shift focus from domestic and regional tourism to positioning its competitiveness at the international level. There is no doubt that the UAE – and Dubai in particular – continues to set the benchmark in the region when it comes to tourism, with unique and innovative hotel projects a regular feature of its ongoing development. Notably, the UAE is demonstrating its strategic prowess in this sector by continuing to improve its position on both the Global Competitiveness Index and the Top Global Destinations Index.

Al Mazaya’s Report does, however, point out that investment based on long term planning is now an urgent necessity in order to avoid challenges relating to declines in project feasibility and returns, which could cause considerable setbacks to incoming regional tourism traffic.

With reference to the region’s level of activity, investment and competitiveness, Al Mazaya’s Report says that achievements in the hotel sector cannot be discussed without reference to the achievements and successes accomplished by the sector in the UAE – and Dubai in particular.

According to Dubai’s Department of Tourism and Commerce Marketing (DTCM), the number of hotel developments currently under construction, in the emirate, is 63, offering an additional 30,000 rooms to the 96,000 the emirate provided, by end of 2015. This activity comes in light of the high targets the Dubai government has set out to achieve, with 20 million tourists expected, per annum, by 2020. Additional estimates suggest this figure could jump to 25 million – in the year Dubai hosts Expo 2020.

With as much as 10 per cent declines recorded on average hotel room rates last year, the hotel sector saw significant improvements on competitiveness indices and showed an ability to maintain high occupancy levels, often exceeding 80 per cent. This reflected positively on investment returns, which were estimated at AED 26.8 billion, by end of 2015, demonstrating strong activity, in spite of the volatility and pressures encountered by international tourism markets.

In this context, the pace of investment in the Gulf hotel sector can be seen to be increasing rapidly. There is also strong competition between neighbouring GCC countries, each keen to raise their share of the regional tourism traffic.

The Kingdom of Bahrain is targeting a contribution of seven per cent of GDP, from its tourism sector, by the year 2020. Additional data indicates that the number of hotel rooms in the kingdom is expected to reach 20,000, by 2018, compared to the 17,000 rooms currently available. In the last two years, Bahrain has seen a steady increase in its hotel occupancy rates, largely due to an upsurge in tourists visiting the kingdom. This was a result of having more options available and maintaining average prices within suitable limits for both regional and international tourists’ budgets. Holiday package deals and promotional offers are seen as a means to attract more visitors – this is an area that definitely could benefit from more promotion and marketing, in order to achieve the aforementioned targets.

In light of the momentum recorded in the regional hotel sector, Al Mazaya’s Report states that the Qatari market will be a significant player in this sector, in the next few years. Current data points to an increase in the number of hotel rooms in the Qatari tourism market – up to 23,000 rooms in early 2016 – with capacity set to rise by 27 per cent, by the year’s end. The sector’s plans and strategies, resulting from both public and private sector activities, aim to increase the number of tourists visiting Qatar to nine million by 2030, with the tourism industry expected to contribute more than five per cent of overall GDP, in the same period.

After the UAE market, the Qatari hotel sector has one of the highest levels of inward investment. Of course, this is in line with the requirements for hosting the FIFA World Cup 2022 and the corresponding development plans being implemented. Current figures indicate that the government intends to spend over USD 45 billion on developing tourism products as it seeks to create tourism experiences that are unique and competitive.

It has become increasingly evident that countries in the region need to create more investment alternatives and innovations so as to maintain the competitiveness of the hospitality and tourism sectors, by creating new advanced destinations and services that are attractive to tourists.

Current demand levels will continue to drive the expansion of regional real estate and tourism investments, with islands and coastal areas, as well as other outstanding sites available for development, set to attract a growing number of tourists. This, in turn, will create more prospects for domestic and foreign private sector investment and will enhance diversification standards for the sector’s output in the coming years.

Despite the current progress and tangible successes already achieved, the tourist sector needs more qualitative local and foreign investments, as well as ongoing commitments and support for the industry, by all regional governments. It should be emphasised here that current investors in the hotel sector are calling for further action in both public and private sectors in order to insure its survival and to avoid any setbacks or unexpected delays in development. To this end, greater coordination and partnerships are required, from all parties, to protect the sector from any unexpected pressures and shocks.