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Welcome to the GCC The forecast for both hotel demand and supply growth remains strong By Dunia Joulani, Manager at Deloitte Financial Advisory within the Travel, Hospitality and Leisure (THL) division in the Real Estate team.
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conomic headwinds such as the decline in oil price and currency fluctuations in the US Dollar, geopolitical tension and tightening liquidity are placing pressure on governments in the GCC to prioritise strategic projects. As diversifying the economy and improving the tourism sector comes to the forefront of government agenda and with two major upcoming events in the region; the 2022 World Cup in Qatar and the 2020 World Expo in Dubai, there is no doubt that hospitality development is a clear priority across the GCC and the forecast for both hotel demand and supply growth remains strong. There are a significant number of hospitality projects under various stages of planning, design and construction in the GCC. According to MEED, there are over 550 projects worth over $55bn that have been announced in the pipeline representing approximately 156,000 rooms (STR estimate). Approximately 50 percent of the planned projects are in the UAE, followed by 24 percent in KSA, 12 percent in Qatar, 7 percent in Oman, 4 percent in Kuwait and 3 percent in Bahrain. The UAE clearly dominates in terms of the number of projects in the pipeline, made up of 280 projects primarily within Dubai followed by Abu Dhabi, Sharjah and Ras Al Khaimah. KSA has over 130 projects in planning across 16 22
different cities with the largest concentration of planned projects being in Jeddah, Riyadh, Khobar and Mecca. Downward pressure on performance In terms of the performance of the hotel market in the GCC, no two countries, or even cities, are alike. The nature of these markets, the performance and drivers of performance within each city are markedly different. Despite the continuous growth in Dubai’s hotel supply, it still achieves the highest average daily rate (ADR)
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and occupancy compared to any major GCC city with 86.2 percent occupancy and an ADR of $216 recorded for the YTD March 2017. This signifies a slight increase in occupancy from 84 percent YTD 2016, but the rise in occupancy in 2017 has been achieved at the expense of a 6 percent decrease in ADR from $231 representing a decrease in RevPAR of 3.9 percent. Dubai’s leading performance is followed by Abu Dhabi achieving 75 percent occupancy and an ADR of $130 and Sharjah at 84.5 percent occupancy albeit at a much lower ADR of $78 for YTD March 2017. Muscat and Doha have achieved 68.7 percent and 68 percent occupancy and ADRs $181 and $180 YTD March 2017 respectively. The lowest occupancies over this period were recorded in KSA with Al Khobar / Dammam at 49.2 percent followed by 54.2 percent in Jeddah and 57.2 percent in Riyadh. In addition, it indicates a drop from 62.5 percent and 66 percent for Khobar / Dammam and Jeddah respectively for the same period in the previous year. Future outlook - A strong foundation to endure unpredictable market conditions Existing market conditions and the planned growth in supply may cause