Opening doors: Luxury developments promise to boost capacity and raise the emirate’s profile as a destination

The government of Ras Al Khaimah has embarked on an ambitious programme to expand its tourism facilities to meet increasing demand from visitors. In the short term, one key project is the development of Hilton Worldwide’s Waldorf Astoria hotel, a highend property which promises to raise the emirate’s profile as a luxury destination. Over the longer term, the flagship Al Marjan Island development will be central to boosting residential and tourism capacity.

Luxury Developments

The RAK Tourism Development Authority (RAK TDA), working with the Al Hamra Group, invested a total of around Dh250m ($65.4m) to construct a 346-room luxury development. Al Hamra Group initially planned on directly managing the property itself, but it later signed a deal with Hilton Worldwide in 2011 to establish the hotel under the Waldorf Astoria brand.

The Waldorf Astoria is an important component of RAK’s tourism sector: the RAK TDA’s investment in the hotel, for example, represents almost 40% of its total investment budget. The hotel held a “soft” opening in August 2013 and will formally open towards the end of 2013. The Waldorf Astoria is designed to look like an Arabian palace and features amenities of a standard hitherto unseen in RAK. It includes 10 restaurants and bars, an 18-hole golf course, a private beach and temperature-controlled swimming pools. The development aims to attract wealthy clients from the Middle East and Europe and help promote the emirate more broadly as a high-end holiday destination.

Creating Space

Al Marjan Island, or the “coral island”, is the UAE’s fourth man-made island project and is located 27 km south of RAK’s city centre. The RAK Investment Authority (RAKIA), the government’s investment agency, was given ownership rights to the island and is mandated with overseeing all aspects of its development. RAKEEN, RAKIA’s property arm, is the master developer, and it is promoting greater focus on environmental and ecological sustainability. The $1.8bn project extends more than 4 km into the sea with a total area of 2.7m sq metres. It will add another 21 km of beach to RAK’s existing 64 km of natural coastline.

Al Marjan Island is being completed in a phased approach. Land reclamation was finished in 2009 and several major hotels have begun construction. The island offers foreign investors 100% freehold ownership, and the development, slated for completion in 2019, will include four islands connected to the mainland by a narrow peninsula.

Island one and the peninsula will serve as the gateway to the other islands, and provide commercial and community space. Island two will largely be residential and will have an emphasis on public walkways. Island three will serve as the centre of entertainment and nightlife, while island four will house a number of hotels and resorts.

New Hotels

The RAK TDA unveiled 36 plots on 622,000 sq metres across all four islands and the peninsula at the 2012 Arabian Hotel and Investment Conference in Dubai. Plots included space for hotels and resorts, commercial buildings, apartments and villas with an estimated total value of $457m.

Several major hotels are being built on the islands, such as the DoubleTree Resort by Hilton Marjan Island, which is scheduled to open in 2014. The 309-room resort is expected to feature suites and chalets located on a private beach.

The new Santorini Hotel will be the latest addition to the Bin Majid Group’s portfolio in the UAE. The hotel will have a total of 265 rooms and suites as well as direct access to the beach. InterContinental Hotels Group is also planning to enter the market with a 442-room Crowne Plaza Resort on Al Marjan Island, set to open in 2015.

The Crowne Plaza Resort Ras Al Khaimah is expected to cover more than 18,000 sq metres and include nine restaurants, including an all-day dining restaurant, a cigar lounge, two coffee shops, a pool bar, traditional bar and a nightclub. Following the lead of other establishments, the Crowne Plaza Resort is planning to cater to corporate guests to tap into the growing MICE market.

The RAK Hospitality Group (RAK HG) is also investing an estimated Dh300m ($81.7m) to develop the Bab Al Bahr resort. This represents almost 50% of the RAK TDA’s investment funding to expand tourist facilities. In 2012, RAK HG signed a deal appointing Rixos Hotels to manage the 700-room resort.

Setbacks

Despite the successes, not all projects have gone smoothly. La Hoya Bay, a Dh3bn ($816.6m) mixed-use development, encountered major obstacles several years ago due to solvency issues with Khoie Properties, the company behind the development. The CEO is reportedly working with investors, who were offered cash refunds in 2010, to get the project off the ground. RAKEEN’s appointment to oversee the project in 2010 is likely to help ease concerns amongst investors going forward. In early 2013, the company announced that it would be restarting construction on phase one, which will mainly include residential properties.

Back on the mainland, RAK Properties, a major developer based in RAK, is also restarting work on Mina Al Arab, a luxury waterfront resort and residential community. The Dh10bn ($2.72bn) project had been put on hold due to tightening finances during the economic crisis but appears to be resuming as the real estate markets stabilise. When completed, Mina Al Arab will feature 5500 residential units, 388 villas, a number of resorts, theme parks, a marina and a traditional Arabian souk.

The project is being developed as an all-inclusive community with 3.1m sq metres of landscaped public areas that will feature bike paths and other amenities. The developers are seeing strong resale demand for townhouses and villas, indicating sustained interest in the property, with correspondingly high prices.

Opportunities

The flurry of projects being announced and completed is a positive sign for RAK’s tourism sector. However, there are still gaps in the market, particularly for cheaper three- and fourMonthly hotel performance, 2011-13 star properties. It is likely that early movers will continue targeting the more lucrative luxury segment, leaving opportunities in the mid-market range.

In addition to hotels and resorts, the RAK TDA is focused on developing a range of services and opportunities to entice travellers. Working in partnership with a private firm, RAK Pearls, the RAK TDA is drawing on the emirate’s rich heritage in pearling by establishing a pearl farm and museum. According to the company, it manages the only functioning pearl farm in the Middle East.

Besides harvesting more than 100,000 pearls a year, RAK Pearls is also developing related activities to help visitors “learn and experience the processes of natural pearl cultivation”. The firm is actively growing its portfolio and working with partners to expand into other GCC markets.

Ecotourism is another segment that is gaining traction. The Banyan Tree Al Wadi nature reserve is one of the more popular parks and is home to a variety of local flora and fauna. The resort also offers archery, horseback riding and a falconry show.

Guiding The Sector

In addition, the RAK TDA recently launched the “Ras Al Khaimah Investors’ Guide” at the Arabian Investment Conference in 2012 to advertise key opportunities for private investment in the emirate. The guide provides detailed analysis of hotels in RAK benchmarked against other comparable destinations. According to the guide, RAK recorded the highest growth in hotel occupancy and revenue per available room across the UAE, GCC and broader MENA region. It is one of only five cities to demonstrate growth in all key performance metrics for the tourism sector.

The 10-year development strategy and feasibility study for hotels in RAK focused on the potential for establishing four- and five-star properties in line with the RAK TDA’s development targets. According to the analysis, the total project cost for a 300-room four-star hotel is around $140,000 per room, with $200,000 per room reported for a five-star hotel. The cost of land accounts for approximately 30% of total investment costs and the study estimates a return on investment within nine years.

The investors’ guide cites the emirate’s “A” credit rating from global ratings agencies Fitch and Standard & Poor’s. Both companies have recently pointed to RAK’s fiscal prudence in terms of its debt burden, the emirate’s steady economic progress and a focused development strategy.

In addition, Fitch noted that, “Ras Al Khaimah’s strategic location is inside a region of strong demand growth and also positioned between Europe and India. Tourism is growing sharply as new hotels open and occupancy rates continue to rise.”

Whether the emirate will be able to sustain the current growth trajectory and achieve its long-term tourism development goals will only be clear with time, but the plans will likely depend in no small part on continued government investment and support, and increasing engagement with the private sector.