New supply and greater diversity in tourism to aid recovery of Qatar's hospitality segment

Under pressure from reduced corporate demand, softer oil prices and slow economic growth, the hospitality industry in Doha and the wider GCC struggled with lower occupancy rates in 2016 and 2017. However, growth in the industry is expected to be faster over the next four years than in any other market in the Gulf region, with the exception of Dubai. In its 2016 “GCC Hospitality Industry Report”, financial advisory firm Alpen Capital forecast that growth in Qatar’s hospitality market will exceed 10% annually until 2020. This is primarily credited to the development of hospitality properties ahead of the 2022 FIFA World Cup. A greater increase in supply than demand is nevertheless likely to maintain pressure on occupancy rates and average daily rates in hotels and serviced apartments.

Falling Occupancy

Most hotels in Doha have experienced a decline in occupancy attributed to slowing economic activity and corporate spending, increasing supply and, in 2017, the blockade imposed on Qatar by Saudi Arabia, the UAE, Bahrain and Egypt. Statistics released by Qatar Tourism Authority (QTA) indicate that the occupancy rate across all hotel classifications averaged 57% in the first nine months of 2017, down from 61% in the same period of 2016.

Supply

The impact of lower oil prices and reduced corporate demand on the sector is compounded by the new supply that has come on-line in Doha since 2014. Although the government has framed plans to boost tourism activity, industry experts have expressed concern that the quantity of stock in the pipeline ahead of the World Cup will lead to oversupply.

The country has expanded its room inventory, introducing close to 50% of the existing room capacity in hotels between 2010 and 2015. In 2016 alone, 10 new hotel properties were opened, adding more than 2100 rooms, mostly in the five-star segment. New additions in 2016 included Mövenpick Hotel Al Aziziyah, Centro Capital Doha, The Westin Doha Hotel & Spa, AlRayyan Hotel at the Mall of Qatar and The Curve Hotel in West Bay.

Seven properties opened in the first nine months of 2017, raising the number of rooms by 8%. This brought the total to 24,960 across 125 properties at the end of September 2017, a 13% rise year-on-year. QTA has forecast a doubling of room supply in the coming years, with more than 100 projects, amounting to 20,580 rooms, at various stages of development. Branded hotels that have opened already or are set to open before the end of 2017 include the Mandarin Oriental, M Gallery Doha Msheireb, Mondrian Doha, Park Hyatt in Msheireb Downtown Doha (MDD), Centara Grand West Bay Doha and Holiday Inn in Doha’s Business Park.

Larger projects under way include the $480m semi-submerged Amphibious 1000 resort, comprising four complementary but distinct hotels, as well as the $1.5bn Silver Pearl Hotel, composed of two semicircular 30-storey towers separated by a vaulted atrium.

An oversupplied market scenario was anticipated by QTA, having encouraged investors to build hotel stock leading up to 2022 as a means of meeting FIFA’s minimum requirement of 60,000 rooms. However, delays of up to two years are not uncommon, which leaves more time for the market to absorb the new supply.

If the current pipeline is completed on schedule, the total supply of hotel rooms and hotel apartments could increase to more than 47,000 by 2020, short of the 60,000 mandated by FIFA for the World Cup. However, plans are being considered to accommodate tourists in Bedouin-style desert camps and cruise ships.

Key Indicators

The net effect of reduced hotel occupancy and increased supply in Doha has been to drive down the average room rate (ARR) and revenue per available room (RevPAR). ARR fell 14.5% in 2016, according to EY’s “Middle East Hotel Benchmark Survey Report”. According to QTA, ARR across all hotel classifications was QR460 ($126) in the first three quarters of 2017, down from QR495 ($136) over the same period in 2016. The overall average room yield for Doha in 2016 was $136, a 16.6% drop from $163 in 2015. Under pressure from declining ARR and occupancy levels, RevPAR across all hotel classifications fell to QR264 ($73) in the first nine months of 2017, down from QR301 ($83) over the same period in 2016, a drop of 12%.

Market Diversification

Although occupancy levels for rooms in general have declined, the serviced apartment concept continues to evolve and appeal to a wider audience. Its resilience and limited presence in the market will likely appeal to developers and investors. However, location is a key determining factor for occupancy in the segment, with hotels in the West Bay area reporting close to 90% occupancy, while others nearer the airport achieved 35%.

In 2016 hotel apartment occupancy rates outpaced those of hotels (63% versus 62%), but both RevPAR and ARR were lower across hotel apartments than hotels, according to QTA. Qatar also has substantial scope for developing mid-scale hotel properties to add to its stock of predominantly upscale and five-star hotels, particularly as they are faster and less costly to build.

Other tourism products being developed across the country, such as eco-lodges and desert hotels, are aimed at diversifying the country’s offering and shifting tourism density away from Doha.

Qatar is also among the top-10 sharia-compliant tourism markets in the world, and QTA sees an opportunity in destination-style resorts outside of Doha. A number of developments are reportedly at the planning stage. These are expected to include residential units comprising apartments, villas and condominiums, hotels, a business park, medical facilities, a cultural centre, education services and retail.

Government Planning

To effectively manage future supply and demand issues, QTA is playing an active role assisting the private sector with forecasting. Among the greatest challenges in the lead up to 2022 is the flexibility required to scale up for that event, before scaling back down and incorporating leftover assets. Desert camps, for example, fit into a key theme of sustainability beyond 2022, allowing for greater planning flexibility than brick-and-mortar accommodation.

Working with Tourism Economics, an Oxford Economics company specialising in forecast and analysis of travel trends, QTA – in collaboration with the Supreme Committee for Delivery and Legacy – has also built a dynamic accommodation model that provides visibility on pipeline projections on occupancy rates, ARR and RevPAR by star class up to 2030. The intended purpose of the model is for use as a communication tool, with investors seeking projections on future demand in different market segments and for different products.

While Qatar can expect to see moderate growth in corporate demand in 2017, upcoming demand generators such as Lusail City and MDD are expected to enhance the appeal of the country as a leisure destination. Over time an increase in visitor numbers is likely to diversify the demand base for accommodation, and therefore present new development opportunities.