Occupancies and revenues plummeted in recent years in Dubai as demand failed to keep pace with rising supply. As the market struggled, many hotel companies delayed projects in the emirate, including Kempinski, which last week said it was further pushing back the opening of its 253-room hotel on the Palm Jumeirah by two years due to oversupply concerns.

Dubai tourism officials had forecast that 10,000 new hotel rooms would open in the emirate this year, but that figure is likely to be much lower. A recent report by Jones Lang Lasalle predicted that just 3,400 rooms will be added to the sector this year, down 55% from the 7,700 that came on stream in the emirate last year.

Hotel performance on upswing

The consultancy believes the hospitality market in Dubai will ‘stabilise’ in 2011, and so far that has proven to be the case. Dubai’s hotels recorded a 7.9% rise in occupancy to reach 76.6% in January, according to data from STR Global. Dubai hotels also recorded a 2.6% in revenue per available room (RevPAR) to reach $178 for the month.

As the influx of new supply slows, experts say demand will play an increasingly important role in determining how well hotels perform. “The number and pace of new hotel rooms entering the Dubai market is becoming less important in affecting general hotel performance,” said Chiheb ben Mahmoud, the senior vice president at Jones Lang LaSalle Hotels Middle East and Africa.

“Hotel performance in 2011 and beyond is more likely to be affected by the capacity of and possibility for Dubai, as a destination, to maintain and grow the leisure tourism momentum, especially in the wake of what’s happening in the region and the perceived turbulences.”

While pointing out that there are ‘a number of hotels which are not open despite being close to completion’, Chiheb said he does not believe that Dubai’s hotel sector is saturated. “There is not such a thing really as a ‘saturated market’ when it comes to a leisure tourism destination,” he explained. “There could be bottlenecks in the tourism supply chain linked with the infrastructure such as airports, but this is not the case of Dubai. Most of the bottle necks have been addressed.”

From an investment point of view, interest in Dubai remains strong among hotel operators, he claims. “As some management agreements are reaching their terms and properties are ageing, a number of properties are expected to change ‘hands’ not in terms of owners but in terms of operators,” he noted. “One example is the new Crowne Plaza in Deira, which was operated by Marriott under the Renaissance brand and which was for a long time an FB landmark for Dubai residents.”

Regional unrest boosts demand

Hotels that forged ahead with their plans as the market struggled and opened their doors in recent months are getting a boost from the unrest in the region. Michael Nugent, the general manager at Movenpick Deira, said his hotel has seen strong demand since opening in mid-January.

“February was an extremely buoyant month for hotels across the city. We managed to close just short of 80% occupancy for the month, which is a big figure for a hotel open just 10 weeks,” he told AMEinfo.com. “I think there is still a lot of confidence,” he added. “March is turning out to be quite a healthy month. Everyone is still doing well.”

He acknowledged that the influx of supply poses challenges for hotels in the emirate. “There is a lot of inventory coming in and the customer is benefitting from that,” he said. “They are getting five-star products in a number of key locations at prices you could not get in Europe. So it’s not easy, there is no doubt about that, but the city can absorb it.”

But for now, the new supply provides ‘healthy competition’ for the market, he maintains. “We are achieving results that my European colleagues would be extremely happy with,” he said. “Most properties are sitting in the low to mid-70s. Those are good figures. Hotels are still making money. The customer is getting a much better deal.”

He added: “I think it is healthier for the city to be in this scenario. And I think most businesses would not want to go back to the situation in 2008. It wasn’t sustainable, and it was detrimental to the destination and to the tourists. If we have our product, service, and marketing right, we have nothing to worry about,” he said.