Real Estate and Hospitality Thought Leadership Series

We welcome you to the Second Edition of our Hospitality Thought Leadership series.

In the second edition we have provided an industry update for February 2023, besides covering key risks faced by the industry incumbents in Dubai.?

Hospitality Industry Growth and Associated Risks

The hospitality industry is an essential sector that caters to the needs of tourists, travellers, and residents alike. Its incumbents comprise of hotels, restaurants, travel agencies, leisure destinations and other associated service providers. In recent years, the hospitality industry has witnessed significant growth, driven by the rise in global tourism, increased disposable income, growing urbanization and technological advancements (refer to the first edition for more details).

Dubai’s demand for leisure offerings have received an impetus for growth, due to the enabling business environment created by the Emirate’s Leadership.?

Industry Update for February 2023 (Dubai):?

According to Dubai Tourism, Dubai welcomed approximately 1.47 Million overnight visitors in January 2023 with the highest number of visitors coming from India (186K), followed by Russian (115k) and KSA (98k).?The total number of visitors were circa 50% higher than January 2022.

The total number of available rooms increased by circa 26% from 116,858 in January 2019 (pre-pandemic) to 147,199 in January 2023 with the average occupancy at 80.3%. Average Occupancy in January 2023 was marginally lower at (-2.4) ppt than pre-pandemic level despite the circa 26% increase in room inventory.?The ADR AED 603 (USD 165) and RevPAR AED 484 (USD 132) has also shown an increase of 14% and 11% respectively as compared to January 2019.?

Top Hospitality News

-Dubai Hotels to report carbon emission under new rules - Department of Economy & Tourism (DET) re-introduced its carbon calculator

-Abu Dhabi has removed the tourism fee taxation on event organisers across the capital - 10% Tourism Fee on tickets sold has been removed.?

-Saudi Arabia launches its own “Orient Express” Saudi Arabia’s national railway has partnered with the Italian development and management firm behind Orient Express to launch “five-star luxury” trains across the Kingdom’s desert.

-Jumeriah Hotel Group introduces guests check in though mobile phones- Digital technology to reduce check in time.?

-Hyatt Group Plans 11,700 new rooms in EMEA- 25% of the pipeline comprises of “Lifestyle” hotels

Key Risks associated with the industry:

Risks are an inherent part of any industry. As the industry grows, so do the risk associated with it.?Following, depict the outcome of our research and interviews with industry professionals.

·?????Economic downturn: Economic slowdown in source markets can have an adverse impact on the hospitality industry in the UAE. Fall in discretionary spending is the root cause for reduction in leisure travel.

·?????Regional Political instability: By and large, the UAE is considered as a safe travel destination, however, any regional instability may have a domino effect on all GCC countries, impeding tourist inflow.

·?????Increased competition leading to emphasis on yield management: The hospitality industry, especially in Dubai, is highly competitive (the city boasts a branded room inventory in excess of 130,000 keys). As new concepts and strategies for customer retention are developed by the players in the market, hotel operators are in a constant pursuit for balancing room yields.

·?????Cybersecurity breach: With the increasing use of technology in the hospitality industry, there is a greater risk of cyber-attacks, which can lead to the loss of personal information and financial data of guests. One of the biggest threats to the hotel industry comes from Point of Sale (PoS) attacks, owing to guest preference for cashless mode of payment. It has far reaching consequences besides pure financial loss.

·?????Travel disruption and border closures: Border closures, as witnessed in 2020 and 2021, has a detrimental effect on travel and is increasingly being considered as a possibility in Risk Registers by leisure operators.

·?????Sustainability question: Hotels produces significant amounts of waste besides consuming large quantities of water and energy. Increasing concerns about climate change and environmental impact can affect the way the hospitality industry functions. Operating departments in hotels are implementing ways and means to address this issue, however, there appears to be an urgency to encourage sustainability as a mind-set change.

·?????Lack of skilled hospitality professionals: A shortage of skilled hospitality professionals are creating challenges for businesses. This is being witnessed across operational departments.

·?????Changing consumer preferences: Consumer preferences are constantly changing with the change in tastes, likings, technology etc. The hospitality industry needs to adapt to remain competitive. For instance, technology enhancements require a certain amount of capex investment, which may impact owner’s return expectations.

·????Regulatory changes: Changes in regulations and policies can create challenges for the hospitality industry. For example, changes in visa requirements can lead to a decrease in tourism.?

Conclusion:

In conclusion, the hospitality industry is expected to grow in 2023, driven by increased demand for travel, growing urbanization, increased disposable income, and technological advancements. The ongoing efforts to develop Dubai's tourism infrastructure, as well as the growing popularity of eco-tourism and medical tourism are some of the factors contributing to the sector's growth.

However, the industry faces challenges that could hinder its growth, including economic uncertainty, changes in consumer behaviour, intense competition, and labour shortages. The Hospitality Industry needs to be aware of these risks and take appropriate measures to mitigate them to ensure sustainable growth.

?Authored by:

RSM UAE Contacts: