A Tale Of Two Hotels

Dubai will soon welcome two large hotels located in close proximity. But will they be able to co-exist and attract enough demand?

After a brief disappearance during the crisis, it looks like Dubai’s camera-toting tourists are back for good. In January, Dubai Airports announced that a record number of 51 million passengers passed through the international airport in 2011, an increase of eight per cent on the previous year. In December alone, the airport handled 4.69 million travellers, a 10.2 per cent rise compared to the same period in 2010.

“In a year that was characterised by economic uncertainty, political instability and high oil prices, passenger growth continued unabated driven by new routes and additional frequencies as airlines capitalised on Dubai’s attractiveness as a business and tourism destination,” said Paul Griffiths, the CEO of Dubai Airports.

The city’s hotel industry has also been reflecting the positive trend. Dubai saw RevPar [revenue per available room] rising to $168.64, an increase of 10.7 per cent over the previous year, according to STR Global. Room occupancy grew seven per cent to reach 75.4 per cent, the hospitality consultancy said.

In October last year, Dubai-based Al Habtoor Group said that it would restart work on its Dhs1 billion hotel on the Palm Jumeirah. “We are witnessing constant growth in Dubai and in the UAE’s economy, which makes it the perfect time to re-launch this hotel project,” said Khalaf Al Habtoor, chairman of the Group.

A few months later – in January – the group’s chairman announced with a “heavy heart” that the company’s landmark Metropolitan Hotel would be demolished to launch a massive new hotel structure. The Dhs4.87 billion ($1.3 billion) Habtoor Palace will include three hotels, a five-star spa, international restaurant brands and a new theatre with a hydraulic central stage.

“We decided to do this kind of a [lifestyle] hotel because in the whole of Dubai, there’s no lifestyle hotel that caters to the younger generation,” said Mohammed Al Habtoor, the vice chairman and CEO of the Al Habtoor Group. “These young people travel around the world and are big spenders; they don’t care how much they spend. You see them in Miami, in New York, in Las Vegas, in Los Angeles, London and Paris. But you don’t see them here. Here
you only see typical tourist people.”

“We don’t only want to depend on the tourists. I don’t want people to come who are very careful about what to eat and what to spend. We need people who are going to spend money here,” he added.

And what about the huge investment that will be required to construct the complex that is going to attract this clientele?

“We will fund it from our cash flows,” said Khalaf Al Habtoor. “We have whatever is required,” he said, adding that he doesn’t believe in bonds.

Scheduled for completion in 2015, the project, located at a prime spot on Sheikh Zayed road, will add 1,616 rooms and suites to Dubai when ready.

Meanwhile, not too far from the Habtoor complex’s compound, another new hotel project is ongoing.

The JW Marriott Marquis Dubai, which will have 1,608 rooms, a world- class spa, restaurants and lounges “will be the largest of its kind in the region,” said Ruprecht Queitsch, general manager of the hotel.

The hotel is hoping to cater to a different segment according to Queitsch: “[It] will fill a long identified gap in the market where groups, meetings and conventions of 1,000 people can meet, sleep and dine under one roof, in one location,” he said, adding that Dubai has not had a city centre location of this size until now.

But is it viable to expect visitors to fill 3,000 rooms located in such close proximity?

“Well, we are talking about two different products,” said Chiheb Ben Mahmoud, executive vice president and head of Hotels Advisory MENA at Jones La Lasalle (JLL) Hotels. Habtoor’s product is leisure-driven, like a ‘micro- destination’, unlike Marriott’s Marquis Towers, he said.

“There’s always room to provide something new and something different to the landscape,” he said, adding that it’s beneficial for the international operators to complement smaller operators and make sure that all the niches of the market are covered.

JW Marriott’s Queitsch is also not too worried about his upcoming neighbour.

“Once complete the city will have a mini convention hub and be able to accommodate conferences of over 3,000 people in one super location. That has to be a key selling point for the city and the more unique, first-class facilities on offer, the more attractive a proposition Dubai will be,” he said.

Not surprisingly, Mohammed Al Habtoor adopts a similar approach. “We finished our first hotel and opened it in 1979. Since then, every time we used to hear that there was a new hotel, we used to panic that there were more rooms coming into the market. But actually with more rooms, more people come.”

The idea of ‘let’s build and people will come’ is certainly not a new one. But with the hotel rooms in the city numbering around 53,600 as of December 2011- according to JLL – and a further 4,500 rooms coming on board this year, the danger of oversupply is plausible.

While demand does exist in the market, it is also “a matter of creating [further] demand,” said JLL’s Ben Mahmoud.

“The demand for hotels is different from the demand for destinations. The demand for tourism is not just here; it’s in Western Europe, Eastern Europe and Asia. For the hotel industry, it is a matter of tapping into the leisure, business and corporate markets.”

JW Marriott’s Queitsch points out that there are many factors driving demand in the city including strong government efforts to promote the emirate as a politically stable destination with attractive leisure facilities; increased intra-regional travel; and overnighters who have a stopover in Dubai en route to other destinations.

The city is also improving its infrastructure: Dubai Airports recently announced that is planning to invest $7.8 billion to increase capacity from 60 million passengers a year to 90 million passengers by 2018. And the city’s two
main airlines, Emirates and flydubai are also set to receive additional aircraft throughout this year.

As a backdrop to the positive upswing, it’s no wonder that hotel operators in Dubai are confidently adopting the traditional Arab hospitality tagline: ‘Marhaba’ (welcome).