Abu Dhabi hotels feel the pressure

Abu Dhabi hotels endured a difficult first half of the year in 2010, with double digit RevPAR falls in most months up until June 2010. The poor performance was characterised by declining occupancy and average daily room rates, weighting down the UAE’s overall tourism performance.

Hotels in Abu Dhabi saw RevPAR plummet by 48.5% to US$126 in April 2010, a fourth month of double-digit decline compared to 2009.

Falling occupancy

Three key markets in the Middle East including Beirut and Riyadh experienced decreases in occupancy rates in April 2010, but Abu Dhabi was the worst hit, dropping 23.4% to 60.7%. Abu Dhabi saw occupancy rates fall 23% to 51.6% again in July 2010, compared to the same month in 2009.

However, this poor performance by Abu Dhabi’s hotels did not mean that tourist arrivals declined, in fact the Emirate expects growth of 12% by the end of 2010 on the previous year. So the factors influencing hotels are related to infrastructure rather than the number of tourists.

Oversupply a problem

The problem in Abu Dhabi is predominantly associated with the excess of supply as the Emirate upgrades its facilities, especially travel accommodation. Abu Dhabi added many new five-star hotels, including those on Yas Island which recorded a much better performance in 2009 during the inaugural Formula One event. While many hotels had close to 100% occupancy in October and November 2009, it is difficult to reach the same level. .

Delays in the completion of new tourist attractions also affected hotels in the capital, as these were expected to cause faster growth in tourist arrivals. Seeing as tourist arrivals increased at a moderate rate, supply exceeded demand. Nonetheless, investors did not back down and as they saw Abu Dhabi’s future potential, and they carry on investing for the long term.

Pipeline projects revealed

Abu Dhabi still has some 14,712 rooms in the total active pipeline and 8,460 rooms in the construction phase according to STR Global. Among these, the upper upscale segment accounts for the largest portion of rooms in the active pipeline, with 26% while luxury segment makes up 21% or 26,816 rooms. Infrastructure developments will therefore carry on despite the current market situation.

Abu Dhabi is home to some of the largest and most impressive tourism projects in the region. The world’s first Ferrari theme park opened in 2010 and is set to be a major attraction for regional and international tourists alike with 20 Ferrari attractions including rides, a 4D fantasy adventure, a racing academy, children’s play area, restaurants offering Italian cuisine and many shops. Ferrari World Abu Dhabi is the world’s biggest indoor theme park.

Other projects set for completion in 2011 are the Corniche Road development where a number of luxury hotels and resorts, private residences and commercial towers are being built; and Al Reem Island including a residential, commercial and retail spaces with hotels, spas, schools, clinics, malls and golf course.

However, the Saadiyat Island remains the most expensive and one of the most delayed in Abu Dhabi as its window of development stretches until 2018. The Island is primarily an eco-tourism development, 500m off the mainland. The Saadiyat Island’s anticipated cultural district will house the Guggenheim and Louvre, and 29 5-star hotels.

Future challenges

While Abu Dhabi’s projects struggle to become a reality, hotels will continue to open their doors and will have to fight for a share of the existing travel market. They will need to keep their prices down and therefore ADR will remain low for months to come.

Occupancy will also struggle to recover as well as RevPAR. It will not be an easy job for new outlets to establish a presence in the market, to create awareness and compete effectively in Abu Dhabi. The well established brands like Rotana and Emirates Palace will continue to perform better than new ones. Hotels will offer discounted rates to introduce guests to their properties.

The short term expectations reveal fluctuations in terms of occupancy and ADR and , yet the number of international arrivals will continue to grow thanks to increased airlift, coupled with effective promotional efforts by the Abu Dhabi government and the Abu Dhabi Tourism Authority to attract tourists from increasingly varied source markets.