Seeing double: Aiming to attract twice the number of visitors by the end of decade

The energy going into providing facilities for tens of millions of foreign visitors is relentless. On the agenda for the next few years are around 16,000 new hotel rooms, running from the height of luxury to several budget accommodations, and half a dozen or more theme parks. Dubai has set itself the target of reaching 20m visitors per year by 2020 – the total for the first nine months of 2013 was 7.9m. The emirate received a major boost towards achieving this goal when its bid to host World Expo 2020 was accepted in November 2013. The announcement of the winning host city was made at the 154th Bureau International des Exhibitions in Paris. Dubai won 116 out of 168 votes. Of the anticipated 25m Expo attendees between October 2020 and April 2021, it is forecast that 70% will be from outside the UAE, according to preliminary studies by the Dubai Department of Tourism and Commerce Marketing (DTCM).

New Space

To provide beds for all these arrivals will require Dubai to double its existing capacity of around 80,000 rooms. Much of the accommodation currently under construction includes new budget hotels and privately owned apartments made available to visitors for short-term rentals under a series of new regulations ensuring quality and safety. Christopher Hewett, senior consultant at TRI Hospitality Consulting, believes that a proportion of the Expo visitors will find accommodation in other emirates, Qatar or Bahrain. “Some hotels could be booked up for the entire six months,” he said.

Meanwhile, the current occupancy rates of hotels are on the rise and revenue is also on the way up as Dubai enters a tourism boom period. The vacancy levels in low season are also lessening, bringing a new problem for the hotel industry. Owners and managers of the estimated 10,000 five-star rooms that need refurbishing after around 15 years are having difficulty finding time to carry out the work when demand is low. The star status system itself is under scrutiny with an overhaul of accommodation ratings that takes into account accommodation options at universities and youth hostels. Amid all this activity, thoughts are turning to where to find the extra 1m-1.5m workers needed to fill the employment positions created by the upsurge in tourism arrivals.

Hotel Classification

 Under Decree No. 17 of August 2013 the hotel classification system is undergoing its biggest change since 1998. The new rules enlarge the categories of accommodation covered as well as the criteria used. University dormitories, youth hostels, budget hotels and floating hotels have been added to hotels, hotel apartments and guesthouses under the definition of “hotel establishments”.

All of these segments are required to obtain a licence for the appropriate category from the DTCM. Licences are valid for 12 months, or in certain circumstances, for four years, and are renewable. According to law firm Clyde & Co, self-catering facilities and timeshares are likely to be added as new categories to the current list. The ratings system has been broken down along the following distinctions: Hotels can be classified as five-, four-, three-, two- or onestar; resorts can be categorised as five-, four- or three-star; hotel apartments can be deluxe, superior or standard; guesthouses are classified as either deluxe or standard; and youth hostels and universities are not given a designation in the system.

Optional classifications describing location and facilities or style may be added by the DTCM. According to Clyde & Co, draft proposals from the DTCM suggest that an additional 19 classifications are to be included, with airport, heritage, island, boutique, golf, spa, business and sport being a few of them. Hotels in the future are likely to be given more than one classification under this system.

Time to Conform

 Existing businesses have a grace period of one year from August 8, 2013, the date on which the decree was implemented, to conform to the new standards. Fines for non-compliance range from Dh100,000 ($27,200) to Dh500,000 ($136,100) and may be accompanied by measures such as downgrading, a six-month or even permanent closure and a cancellation of the facility’s licence.

Similar rules have been introduced to cover the holiday homes market. Renting out a furnished apartment by the day, week or month will now require a DTCM licence, which will be granted after its condition has been approved by the department as either standard or deluxe. Helal Saeed Al Marri, the director-general of the DTCM, expects to achieve 20m visitors to Dubai by 2020 and thus the supply of visitor accommodation needs to be broadened. Al Marri said the department was in contact with the private sector to encourage the provision of more five-star hotels. Tax exemptions for the construction of three-and four-star establishments should similarly prompt increased supply in that segment, he added.

Tax Exemptions

However, Dubai’s reputation for high-end offerings has made it difficult for firms looking to offer more varied accommodations. According to Clyde & Co, the financial incentive proposed for developers of mid-range hotels was a waiver of the 10% Municipality Tax for four years of their operations. To qualify, the date of receipt for the permit must fall between October 1, 2013 and December 31, 2017. The tax is levied on each guest per night. The message to developers in this segment is very clear: If you want to open new three- and four-star hotels do it now and save money. Russel Sharpe, chief operations officer of Citymax Hotels, said, “Entrepreneurs who want to build a mid-market brand today are being pushed out to the suburbs because land prices in the interior of Dubai are too high.”

Reaction

Property developer Emaar was certainly well prepared for this and announced in June 2013 its own brand of budget hotels, the Dubai Inn, which it said it would bring to the market in collaboration with Meraas Holding, in several areas around the city.

George Kostas, the CEO of Majid Al Futtaim Properties, which manages Mall of the Emirates, told OBG, “Our strategy is to co-develop hotels around our malls and we have no plans to do otherwise. However, if the overall picture is showing 85-90% occupancy across the board, the target of growing to 20m tourists by 2020 shows there is a great need for hotels of all kinds, from two- to five-star.”

Occupancy

Figures for the first half of 2013 show that Kostas’ numbers were spot on. According to the DTCM, hotel occupancy averaged 84.6% over the sixmonth period, up 2.8 percentage points from 81.8% in the first half of 2012, while the rate for hotel apartments was 85.8%, up 6.5 percentage points from 79.3% in the first half of 2012. Hotstats put first-quarter 2013 rates at 83.9%, up from 77.3% in the same period of the previous year, and the Ernst & Young Middle East Hotel Benchmark Survey calculated Dubai’s overall occupancy rate to be 83.6% at the close of 2012. With the experts and analysts agreeing and DTCM’s next set of quarterly figures confirmed, the euphoria appears to be justified. Nine-month figures from DTCM showed increases across the number of guests, room occupancy levels, hotel and hotel apartment revenues, and average length of stay. A clean sweep saw guest numbers across all hotels and hotel apartments rise by 9.8% from 7.2m in the 2012 to 7.9m in the same period of 2013.

By the time figures for November 2013 were published it was looking even better. According to STR Global’s data for the emirate, occupancy rates for the month rose to 87.5%, the highest November level for six years. This was achieved in face of a supply increase of 6.9%, but helped by a spike in demand of 8.8%. Hewett told OBG, “Dubai is doing around 86% occupancy and that really shows the strength of the tourism model. So there is room to absorb the new supply and there are a lot more midline properties coming on-line, making it more affordable.”

Earnings

The year 2013 proved to be replete with good news. At the same time as the guest numbers in hotels and hotel apartments were reaching almost 8m between January and September, the money they were bringing in increased as well. Revenues rose at an even faster rate than tourists and the receipts went up year-on-year over the same period by more than 17% to hit Dh15.33bn ($4.17bn), up from Dh13.08bn ($3.5bn). In a statement accompanying the figures, DTCM reported that hotel room occupancy averaged 78.6% over the nine months, up 3.1% compared to the same period in 2012, and the hotel apartment occupancy rate reached some 81%, compared with 75.5% in the first nine months of 2012.

“Increasing the length of stay has been identified as a key driver of tourism growth within the Tourism Vision for 2020 and these results were also positive, with the average length of stay across hotels and hotel apartments between January and September rising by 3.5% year-on-year to 3.9 days,” the DTCM statement added. Al Marri also said a 17.1% increase in hotel revenues was particularly encouraging, especially given the number of new hotel establishments that entered the market during the year.

Later in the year there was another welcome statistic, this time from STR Global. In November 2013 the key revenue per available room (RevPAR) figure rose by 12.7% to $254.18 and average daily rates (ADR) were up by 9.9% to $290.68, according to STR Global. The increase in ADR that month was the largest in the MENA region, which overall saw occupancy levels drop 1.7 percentage points to 64.6%, ADR rise by 6.8% to $180.88 and RevPAR go up by 4.9% to $116.78. “The region’s performance is mostly driven by Abu Dhabi, Dubai, Manama and Muscat, which all posted double-digit RevPAR growth yearto-date November 2013 in local currency terms,” said Elizabeth Winkle, STR Global’s managing director.

Still on the way up

 The upward trajectory of room rates seems likely to continue throughout 2014 despite the addition of new hotels. STR Global said that of 31,000 new hotel rooms in the pipeline for the UAE as a whole, a little over half – 16,600 – were for Dubai. Even so, STR Global forecasts that RevPAR would increase by 3.5% thanks to rising ADR. “Supply growth is expected to dilute occupancy rates, leaving ADR to drive RevPAR growth,” Winkle said Hewett told OBG, “There are around 59,000 hotel rooms, rising to around 80,000 if you include the hotel apartments, in just over 600 establishments, the vast majority of them hotels. In the pipeline are roughly 16,500 rooms over the next four years.”

Source Market

 Saudi Arabia, India, the UK, the US, Russia, Kuwait, Germany, Oman, China and Iran made up the top 10 source markets for January to September 2013, with the order mostly unchanged compared to that seen in 2012.

Saudi Arabia, the biggest single market, showed the most growth as visitor numbers burst through the million barrier with a 24.8% increase to reach 1.05m, over 843,568 in 2012. India, Australia and China all made strong showings with double-digit rises. The number of Indian tourists rose by nearly 15% to 631,638, visitors from China grew by 10.9% to 201,036. Australia’s 194,448 tourists put it in 11th place, and was just over 50,000 higher than for the same nine months of the previous year. Iran saw the most drastic decrease at 25% as visitors fell from 262,881 in the first nine months of 2012 to 196,897 in the same period in 2013. Globally more than one in every seven persons travelled in 2012 as international tourist arrivals grew by 4% to reach 1.03bn, according to the UN World Tourism Organisation (UNWTO). The figure was 39m higher than 995m in the previous year.

“About 50% of this traffic is originating from the developing and emerging markets,” Taleb Rifai, secretary-general of the UNWTO, told local press while on a trip to the region in May 2013. “Ten years ago, the ratio was 60:40 in favour of the developed world, while this is going to change to 60:40 in favour of the developing world in 10 years.”

Refurbishment

 The thousands of new hotel rooms being planned or actually built in Dubai has directed attention to the condition of the current stock, especially the proportion that has been in existence since before the turn of the millennium.

According to some estimates, there could be as many as 10,000 five-star rooms that are in need of refurbishing. EC Harris consultants put the cost of a full refurbishment at Dh325,000 ($88,465) for each room and even that hefty total does not take into account upgrading or renewing common areas or the revenues that will be lost due to rooms being unavailable to guests during renovations.

Christopher Seymour, the head of Property UAE at EC Harris, said, “Some of the hotel assets in Dubai are now over 15 years old and to maintain the quality of the offering, protect the brand and meet customer expectations, refurbishment programmes are becoming a requirement.” He added that since the quality of accommodation in Dubai’s hospitality sector is very high, due to the number of new hotels expected on the market some operators “are forced to refit and refresh their older hotel assets in order to remain competitive”. Apart from the cost, one additional problem could be finding the time to do it. The traditional quiet period at the approach to and the height of summer is fast shrinking making Dubai a victim of its own success. “Most operators now view the only window as late May to early September – a period of just 14 weeks,” Seymour said.

Staffing

A combination of the avalanche of new accommodation and the 2020 Expo will inevitably create a very heavy demand for labour. With a single five-star hotel requiring perhaps as many as 800 staff, there should be a sizeable influx of foreigners into Dubai in search of jobs over the next few years. Although Dubai, like the other emirates, has a policy of encouraging employment for nationals, the pure numbers needed, apart from any other considerations, determine that many will need to come from outside.

A survey conducted by Dubai International Academic City (DIAC) in conjunction with Deloitte sought out the views of 2400 students in 17 markets in the Middle East and Asia on skill gaps between the workforce and industry’s needs and whether the education system was helping to bridge those gaps. The survey also revealed that the abilities most in demand in the tourism industry were those needed for customer relations, event management, and food and beverage management. It identified a specific shortage of senior-level employees in facilities, customer relations and hotel management, while there were not enough suitably skilled mid-level employees for facilities, food and beverage management, and events management. Finally, the survey showed that entry-level employees lacked customer service skills and that there is a growing demand for hotel management skills to oversee these entry-level positions.

Training

Ayoub Kazim, managing director of the TECOM Education Cluster at DIAC, told a roundtable on the survey results that an additional 1.5m jobs would be needed to serve the 20m visitors targeted by 2020 and to bring in Dh300bn ($81.66bn) in annual revenue by that date. The number of people employed in the tourism industry at the time of the roundtable in May 2013 was 383,500. To put the target into perspective, Kazim said that to reach the 2020 objective, academic institutions would need to produce 100,000-150,000 graduates each year for 10 years. There are currently around 110 academic institutions with 35,000-40,000 graduates annually. Kazim added that more focus is needed on vocational training because only 2-3% of high school graduates went on to receive vocational training. “What is needed to meet market demands, not just in tourism and hospitality, but other industries like energy and transport, is more like 15-20%,” he said.

Emiratis comprise only 1% of the tourism industry’s workforce so more effort is necessary to entice them into the sector, which demands long hours, Kazim said, adding that schools, parents and academic institutions should highlight career opportunities to encourage students to pursue vocational education.

Mice

World Expo 2020 may be the biggest event imaginable, but the meetings, incentives, conferences and exhibitions (MICE) segment is an area that Dubai has been growing in for years. A recent study carried out by Oxford Economics showed that spending by visitors to events at the Dubai World Trade Centre alone in 2011 contributed Dh6.5bn ($1.77bn) to the emirate’s economy. That same year, Dubai hosted 34 international events.

Buoyed by its success in landing Expo 2020, Dubai has added another ambition to its agenda – to become “the most successful events city in the world,” according to the DTCM’s Al Marri. The Dubai Air Show in 2013 (see Transport chapter) provided a useful contribution to that ambition with its announcements of record plane orders worth more than $200bn. International sports events already include, among many others, a million-dollar marathon, the Dubai World Cup horse race worth $6m and a leg of the DP Golf World Tour Championship worth $8m, all of which attract spectators alongside top-tier athletes.

According to a Bank of America Merrill Lynch study, staging World Expo 2020 will boost the Dubai economy by around $23bn between 2015 and 2021. Research by Alia Moubayed, senior economist at Barclays Capital, indicates that hosting World Expo 2020 could help Dubai’s economic growth more than double to 10.5% by that date. Expansion would rise on average by 6.4% in the years to 2017 and then go up to 10.5% between 2018 and 2021, Moubayed said. In 2013 the figure was around 4.9%.

Ahmad Belhoul, the DTCM’s chief executive for strategy and tourism sector development, said that although the emirate was “aiming to move from being the regional hub to a world-class business and entertainment destination”, neither Dubai nor the UAE as a whole had plans to bid for an Olympic Games.

“More focus now is on Expo 2020 and making that as successful as it can be,” Shaima Al Zarooni, a member of the Olympic Committee, was reported as saying in the local press in December 2013. “Dubai and the UAE are very strong and the [former] International Olympic Committee president [Jacques Rogge] has stated our capability because of the infrastructure, the strategic location and the facilities available. But it is not a focus right now.”

Sporting Events

 In February 2013 Emirates Airline signed a five-year agreement to become a global partner of Formula One (F1) and Emaar Properties has struck a sponsorship deal with the Lotus F1 team. The partnership is Emaar’s first foray into international motor sport. However, the company has previously sponsored Dubai World Cup horse racing, the Dubai Desert Classic golf tournament and a one-off Indian Masters golf tournament in New Delhi in 2008. “With this new partnership with the developer of such iconic projects as Burj Khalifa and The Dubai Mall, we are looking forward to some home support as we race in the UAE once again this year,” said Eric Boullier, the team principal of the Lotus F1 team. Emirates’ F1 agreement gives it a strong branding presence in 15 of the 19 races this year.

“Emirates sponsors teams and venues in markets where they want to develop roots, and effectively uses sport to localise its brand in such markets and become part of the community,” said Hermann Behrens, the CEO of Brand Union Middle East.

Cycling

The connections with sport, however, are not confined to big-budget sponsored events, at home or abroad. Wider interests include encouraging local sporting participation – at whatever level – not least for its effect on health in a region where non-communicable diseases such as obesity and diabetes are on the rise as quality of life improves.

The Dubai Sports Council also wants to broaden the range of sports introduced into the emirate and to encourage up-and-coming professional athletes to use Dubai as a base for their training.

Ahmad Al Sharif, the council’s secretary-general, told OBG, “Future plans include bringing in cycling [as part of the World Tour] and more water sports. Sport is like oxygen to Dubai. In 2012 the emirate saw 41.9% of the population actively participating in terms of sport on a regular basis, up from 37% in 2011 and 24% in 2009. The goal is to reach 45% in 2015.”

Dubai hosts upwards of 400 events annually, from local and national to regional and international. “Dubai is already on the map, and therefore we have become more selective in which events we host,” Al Sharif said. “When determining whether or not to take on a new international event, we really have to scrutinise whether it rounds out the emirate’s overall offer. The aim is not to attract just one generation of sports fans but a much broader and diverse audience, which Dubai’s current and increasingly wide offering has done well in recent years.”

Infrastructure

Apart from the events and star names that automatically generate publicity, the staff at Dubai Sports City (DSC) wants to build a “back office” with an overall infrastructure for sport, as well as hi-tech training facilities. Khalid Abdulrahim Mohammed Al Zarooni, the president of DSC, told OBG.

He also said, “There are several government bodies working together to develop sport infrastructure with an emphasis on investment in high-tech programmes and facilities. The arrival of various athletic teams along with world-class trainers speaks to the level of quality of the ‘back-end’ sport infrastructure being established. Dubai is attempting to position itself to become the training location for the region’s top athletes, and appropriate facilities will be required for the region to maintain a competitive edge.”

Culture

Dubai has also gained renown for a wide range of cultural activities, ranging from arts fairs and film festivals to living museums that showcase Emirati heritage. Saeed Al Nabouda, acting director-general of the Dubai Culture and Arts Authority (Dubai Culture), told OBG, “Mandated with developing the culture scene and encouraging its integration into daily life, Dubai Culture is a strong facilitator of the arts.” Integrating art and culture into daily life enables creativity to play a larger role in business development, Al Nabouda added. Culture is not a recent arrival to the city, however, with Al Nabouda citing the 50th anniversary of the first public library in Al Ras Dubai, held in December 2013, as one example. “The library was the result of public-private partnerships, underlining the government’s committed role in strengthening Dubai’s cultural scene,” he said.

Dubai Culture collaborates with the private sector on major events like Art Dubai, Dubai International Film Festival and Emirates Airline Festival of Literature, while also holding its own events, such as the Dubai Festival for Youth Theatre and the SIKKA Art Fair. Non-governmental organisations currently account for around half of all local cultural and artistic activities. Commenting on the vast range of cultures in Dubai, Al Nabouda said, “While Dubai is home to over 200 nationalities and cultures, due to its high expatriate population, the city is not a typical melting pot. Our hope is that each community is able to preserve its unique heritage, while fostering intercultural communication.”

Medical Tourism

 Although many countries receive medical tourists and have grown it into a thriving business, Dubai is a relative newcomer. Often patients en route for treatment transit the emirate but ultimately take advantage of facilities in other countries. In a bid to make Dubai more attractive place for potential patients, Dubai Health Authority (DHA) and the General Directorate for Residency and Foreigners Affairs (GDRFA) signed an agreement on the issuance of three-month medical tourism visas, which can be extended twice giving a maximum consecutive period of nine months. Marwan Abedin, the CEO of Dubai Healthcare City (DHCC), the free zone health care provider, said 15% of patients were medical tourists and the DHA estimates that the number will increase by at least 10% a year.

Although no source for the figures was given in press reports, approximately 1500 people were said to fly into Dubai on a daily basis via Emirates Airline before catching onward flights to destinations such as India, Thailand, Malaysia or Singapore. The plan is to try to get at least some of this number to stay in Dubai for their treatment.

In pursuit of increasing medical tourism, several different government agencies came together to simplify procedures for getting treatment in Dubai. This involved cooperation between the DHA, DHCC, GDRFA and the DTCM. Under the resulting Dubai Clinical Services Capacity Plan 2020, the DHA is working to identify gaps in services, increase investment in the sector and identify the specialities where investment is needed. Another move to cut red tape has been the introduction of short-stay visas for specialist doctors to make it easy for hospitals to bring in experts for consultations and special procedures.

Cruises

Full figures for the number of cruise passengers expected to sail into Dubai in 2013 was expected to be 420,000 on 110 ships docking at the Dubai Cruise Terminal. The DTCM estimate shows an increase of 13,000 on the 2012 figure, when there were 105 vessels calling at the terminal.

Hamad bin Mejren, the DTCM’s executive director of business tourism, told the local press that cruise tourism’s contribution to Dubai’s economy between 2010 and 2015 is estimated to be around Dh3.5bn ($952.7m). Dubai will host a unique double in 2014 when both the Queen Mary II and the Queen Elizabeth will call in Dubai on the same day. The DTCM said it was “the first time ever that the two Cunard Cruise liners have arrived in Dubai simultaneously for a full passenger turnaround”.

Pet Hotels

 Humans are not the only creatures to benefit from the emirate’s hotel boom; Dubai Municipality intends to open an air-conditioned hotel for pets in March 2014. Hussain Nasser Lootah, the municipality’s director-general, said the Dh54.1m ($14.7m) development, including an attached birds and pets market, was designed to house pets while their owners are on vacation or out of the country.

Khalifa Hareb, the municipality’s director of assets management, said the 835-sq-metre hotel would have “dressing and grooming rooms, therapy sessions, laundry services, playgrounds, supervisors and vets.” Pet owners will also be able to monitor their pets via the web, according to reports in the local press. The ground-level floor will house dog rooms that will have doors that allow pets to “step out into a spacious area”. Hareb added, “The hotel has 30 separate rooms and can accommodate 50 dogs at a time.”

Outlook

One other project – the world’s largest artificial lagoon – demonstrates that Dubai has lost none of its energy or imagination. And if that is not enough, the upscale, $7bn Mohammed Bin Rashid City – District One that houses the 40-ha lagoon will also have a public park larger than London’s 142-ha Hyde Park. With so much demand, the current situation brings to mind the dangers of a property bubble and an uncontrolled price spiral. Yet, the Dubai of 2014 is not the same place as the emirate of 2007. The hotels, the airport, the restaurants, roads and Metro have not seen a resurgence of activity by accident. The 2020 Expo win was not a fluke.

There was a salutary lesson learned from sailing too close to the wind in 2008. The current building boom will see a repeat of a seeming monopoly of construction cranes and will almost certainly result in some private investors trying to capitalise on the present excitement to maximise the value of their investments. However, it is highly unlikely that the same problems that struck in 2008 will arise. It will, however, need an early start on solving many possible shortages – of building materials, construction workers and trained staff to run the new facilities.