PEAK ASSESSMENTS 2015 MIDDLE EAST HOTEL SURVEY. Cristina Zegrea Senior Manager. Hala Matar Choufany, MRICS Managing Partner. HVS.

Transcription

1 JUNE MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS Cristina Zegrea Senior Manager Hala Matar Choufany, MRICS Managing Partner HVS.com HVS Liberty House Building, DIFC, 7 th Floor, Office 715, Dubai, UAE

2 Introduction Tourism and travel in the Middle East region exhibited solid growth in 214. Since the start of the new millennium, key parameters of the sector registered positive compound annual growth ranging between.2 and 5. while year-on-year, the Middle East region recorded growth ranging between 3. and 8.. Furthermore, according to the United Nations World Tourism Organization (UNWTO), the Middle East region recorded roughly 4. growth in tourism arrivals bringing the total to 5 million. A glimpse at the region inspires the question; are cities realizing peak performance in the travel and tourism industry, or do these cities still require a stretch in order to return to their former levels? The Middle East performed particularly well in 214 with the total contribution of travel & tourism to gross domestic product (GDP) recording a 5.3 increase compared to the levels reported towards the end of 213. This outstrips total GDP growth of between 2.5 and 3. as reported by the International Monetary Fund (IMF) and the World Bank. The stagnation of the economy and the weaker growth when compared to initial forecasts is attributed largely FIGURE 1: MIDDLE EAST TRAVEL & TOURISM CONTRIBUTION TO GDP bn Source: WTTC Direct Contribution to GDP Growth in Direct Contribution to GDP Total Contribution to GDP Growth in Total Contribution to GDP to localized crises reducing overall growth. These localized crises include Syria as well as areas affected by the militant group IS. Heavy pressure on the oil industry as a result of falling oil prices further adversely impacted regional GDP. Notwithstanding, the growth in travel & tourism s contribution to GDP exceeded that of GDP growth itself in percentage terms, in spite of the adverse effects of the sanctions in Russia and European currency fluctuations. In 214 the Middle East region recorded roughly 4. growth in tourism arrivals bringing the total to 5 million. Regional airline capacities rose by an impressive 11.9, load factors climbed to 78.1, while overall passenger traffic growth in the Middle East was roughly 13.. The contribution to GDP is fuelled by domestic, leisure tourism and business tourism spending. Domestic spending remains relatively stable at roughly onethird of total spend, with business tourism spending equally stable at roughly 12. of total spend. The major share of annual travel & tourism spend is attributed to leisure tourism, constituting more than 5. of annual spend with year-on-year growth across all three segments between roughly 6.5 and 7.. According to the International Air Transport Association (IATA), Middle East carriers reported the strongest annual passenger traffic growth compared to other regions. While regional airline capacities rose by an impressive 11.9, load factors climbed to 78.1, and overall passenger traffic growth in the Middle East region was roughly 13.. In aggregate, the Middle East exhibited positive results, however, we look more closely into key cities within the region in order to determine where, if somewhere, pockets of negative growth exist. In order to accomplish the evaluation of peak performance, the assessment applies to destinations with track records in excess of ten years, and examines revenue per available room () as the key variable MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 2

3 Key Considerations Europe reinforced its position as the most visited region globally in 214, with more than half of the world s international tourists visiting the continent. The Americas, on the other hand, was the best performing region in relative terms with growth of 7.4, welcoming a total of 181 million international tourists. In the meantime, international tourism in the Middle East showed signs of rebound with attractive results in most destinations. Unfortunately, the UNTWO provides conflicting data, indicating in January 214 that Middle East tourist arrivals were reportedly 52 million. As a result, the 213 data has been revised in order to reflect the most recent data provided, as of January, 215. FIGURE 2: WORLDWIDE TOURIST ARRIVALS (S) Change of Total World 814,47 851,321 91, , , ,518 98, 1,35, 1,84, 1,138, Africa 36,374 39,626 42,635 44,763 46,998 5,2 5, 52, 56, 56,. 5 Americas 132, ,685 14, , ,8 149,71 156, 162, 169, 181, Asia Pacific 151, , , , ,68 24,59 216, 233, 248, 263, Europe 45, , , 489, ,83 474,539 53, 535, 563, 588, Middle East 43,465 45,24 5,249 55,783 52,441 59,758 55, 53, 48, 5, Source: UNWTO In the meantime, the 215 Middle East Hotel Survey draws from a databank of 546 internationally branded hotels, representing more than 144, rooms in the region, effectively an increase of 17 and 15, respectively, over the participating hotels during the 214 Middle East Hotel Survey. Drawing upon resources in the hotel industry, the survey covers a total of 42 cities in 13 countries, and spans over a history of 21 years. The regional market leader in terms of, factoring into consideration sample size, is once again awarded to Jeddah, with a of Abu Dhabi The capital of the United Arab Emirates (UAE) has been on the upswing in terms of visitation, driving occupancy, which exhibited 1.6 growth in spite of the roughly increase in hotel supply. As a result of increased inventory, average rates exhibited a suppressive 4.3 decline, thereby posting an overall According to the Abu Dhabi Tourism and Culture Authority (TCA), guest arrivals in 214 totaled 3,494,63, exhibiting a year-on-year double-digit increase of 25., with total room nights climbing to 1,463,137. moderate decrease in. According to the Abu Dhabi Tourism and Culture Authority (TCA), guest arrivals in 214 totaled 3,494,63, exhibiting a year-on-year double-digit increase of 25., with total room nights climbing to 1,463,137. This performance was realized as a result of the improved positioning of Abu Dhabi s tourism product, with more diverse products and an expanding regional and global marketing campaign. The TCA is now focusing efforts on improving the average length of stay and the evident contraction in average rate. With total room revenue increasing by 15. to AED3.3 billion, domestic tourism to the emirate remains the primary source market, accounting for nearly one-third of total arrivals. With overall GCC visitation increasing by 25 and Chinese visitation increasing a staggering by 166, total hotel revenues in the emirate reached roughly AED6.3 billion, an increase of approximately 14. In the meantime, recent reports from the Abu Dhabi Tourism Authority indicate that China is rapidly becoming a key source market, maintaining its triple-digit growth rates in arrivals. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 3

4 Abu Dhabi peaked for the first time in 28 when it reached levels of 252. Following this particularly strong year, total rooms available increased by 36.9 in the subsequent year, a reflection of the FIGURE 3: ABU DHABI REVPAR () & OCCUPANCY () ( ) FIGURE 4: AMMAN REVPAR () & OCCUPANCY () ( ) faith existing in the destination during the preceding development years. Nonetheless, this significant increase in hotel inventory was not absorbed by the increasing demand. Rather, the first indications of a global financial crisis dawned in early 28, so that during the last months of the year, the world observed the worst financial crisis since the Great Depression of The result was a profound global impact, which had a ripple effect reaching as far as Abu Dhabi. As the emirate geared up to revive its tourism sector, a property downturn delayed any indications of a rebound. In 211, the Tourism Development and Investment Company (TDIC) announced that it was delaying three of the highest profile projects in Abu Dhabi, expected to generate considerable demand to the emirate. The Zayed National Museum, the Louvre Abu Dhabi and the Guggenheim were all placed on hold indefinitely. These projects were since reinstated, and are expected to open by the end of 215. With the opening of the Yas Mall, the existing adventure parks, and the ongoing development on Saadiyat Island, Abu Dhabi is reinforcing its presence. Although it appears the bottom has been struck, current performance levels have a treacherous road before realizing earlier peak levels. Nonetheless, reports indicate that Q1 215 performance is more than 11. ahead of the same time last year, with February alone registering 29.2 growth, ensuring that Abu Dhabi may well be on the right track. Amman Jordan s capital city of Amman is its political, cultural and commercial centre, as well as one of the oldest uninterruptedly inhabited cities in the world. It would be assumed that this would be reason enough for a city to flourish in terms of hotel performance, however, Jordan is heavily exposed to the regional conflict. To the north, Jordan has a direct link to Syria, which has been in conflict since 211 and to the east, Jordan borders Iraq, which lost key western cities in early 214 to the IS. Amid mixed reports, according to the UN Refugee Agency (UNHCR), it estimates that there are 1.5 million Syrian refugees in Jordan, which represents an astounding 25 of the Jordanian population. This places a considerable burden on the economy, but also on the resources of the country, and damages its image to potential visitors. Amman peaked in 212 when reached 18. Surrounding areas in conflict such as Lebanon, Syria, and Egypt resulted in an increase in GCC travel to Jordan, replacing the decline in North American and European visitors. During the MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 4

5 first four months of 212, the number of Arabian Gulf visitors to Jordan had already increased by 19.. Consequently, the hotel sector enjoyed a positive year that was unfortunately followed by a 14 decline in tourists in 213. The fact that the government allegedly cut the budget of the Ministry of Tourism in 212 did not encourage hotel operators, and in March 213, the Ministry of Finance announced that hotel sales taxes would be raised 16. in order to improve the government s fiscal position. As a result, hotel relationships with tour operators became damaged considering the dynamics of the distribution agreements established with those operators. Although the city is experiencing troubled times, expectations for the hospitality sector are high, particularly with a St. Regis, Fairmont and a W due to open in the next years in the capital. Though it is promising to see such high profile brands entering the market, preliminary reports during Q1 215 indicate a 2 decline in levels, implying that it is unlikely the city will observe a return to peak levels at any time during the near future. Contrarily, the additional inventory will likely place further downward pressure, thereby delaying the recovery to peak levels. The upside is that levels do not exhibit a particularly steep decline between 212 and 214, indicating that recovery may be a less daunting task. Beirut Beirut s attractions include major events during the summer season, a vibrant and popular nightlife, the winter ski season, religious holidays throughout the year, corporate shoulder seasons and year-end festivities. However, the city and visitation there is particularly sensitive to the stability of its immediate political situation. This was particularly evident in 214 following the attacks reported during H1 214, which subsequently had an adverse effect on the national hotel sector. In spite of this sensitivity, Beirut fosters a unique resilience and during pockets of stability, the city almost immediately exhibits tourism surges, which was similarly reflected in 214, when the market rebounded during the third and fourth quarters. FIGURE 5: BEIRUT REVPAR () & OCCUPANCY () (-214) Historically, during 26 and 27, hotels exhibited irregular seasonality on account of the war with Israel, as well as the ensuing political stalemate. In the year prior, the assassination of Prime According to preliminary reports in the market, occupancy in Beirut exhibited double-digit growth during Q1 215, with a phenomenal 47.8 increase in January alone. Minister Rafic Hariri equally discouraged growth in the tourism sector. Thereafter, once again, a border clash that erupted in August of 21 resulted in another contraction in the levels of the hotel industry, however, 21 nonetheless exhibited record tourist arrivals, reaching 2.17 million visitors. In the years in between, Beirut peaked at 197, with 29 marking the year of the highest performance achieved, wherein tourist arrivals rose by 39 as a result of stability throughout the majority of facets within the country. Following the end of the civil war in 199, there have been notable advances in the restoration of Lebanon, and particularly its capital. As a result, the number of visitor arrivals has grown significantly over the last decade, with 29 and 21 achieving the aforementioned record arrival and visitation figures MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 5

6 According to preliminary reports in the market, occupancy in Beirut exhibited double-digit growth during Q1 215, with a phenomenal 47.8 increase in January alone, as airport passenger movements in Rafic Hariri International Airport grew by 1.2 during the first two months of the year. The WTTC reports a direct contribution to GDP of 6.9, which is expected to increase 2.1 during 215, however, with 214 levels at 86.21, Beirut s future must endure considerable growth in order to revive historical levels. Cairo Egypt has endured dramatic political turmoil and instability over the course of the last four years. Beginning in January 211, the Egyptian Revolution commenced as a campaign of non-violent civil resistance, which despite its non-violent nature, resulted in significant loss of life as well as injury. On 11 th February, 211, after persistent protest and pressure, President Hosni Mubarak resigned, resulting in administrative and legislative control of the country being surrendered to the Supreme Council of the Armed Forces. The volatile months that followed were defined by tens, and sometimes up to hundreds, of thousands of demonstrators FIGURE 6: CAIRO REVPAR () & OCCUPANCY () (-214) the hotel sector being among the hardest hit both locally and regionally. The capital city of Egypt, Cairo, peaked in 29, when it reached 112 in room revenue per available room. Whilst 21 remained a relatively strong year in terms of visitation, the 427-key Radisson Blu Heliopolis, which opened towards the end of 29, raised supply levels significantly, whilst an additional two hotels with a combined 355 keys opened in 21 and effectively suppressed key performance indicators. The years that followed were subject to the aforementioned turmoil, with plummeting occupancy levels as low as 38.. Recently, Egypt has been displaying signs of solid growth. Reports in the market estimate that hotel occupancy levels in Cairo increased by as much as 65.5 during Q During the same month, average rates improved by 11.9 with the dynamics of occupancy and rate facilitating phenomenal growth of 73.. Europe remains Egypt's primary source market, accounting for in excess of 6 of total tourist arrivals to the country. In the meantime, Russia remains the largest individual source market, with more than 1.7 million tourists protesting for action against the former regime. Demonstrations continued into 212 with ongoing demonstrations protesting the disqualification of several candidates in the then-upcoming presidential elections. Following a life sentence delegated to Mubarak in June, it was announced that Mohammed Morsi had won the presidential election. As a result of the turbulent episode between 211 and 212, the hospitality sector endured the backlash and the repercussions of the infamously entitled Arab Spring, with Reports in the market estimate that hotel occupancy levels in Cairo increased by as much as 65.5 during Q During the same month, average rates improved by 11.9 with the dynamics of occupancy and rate facilitating phenomenal growth of 73.. expected to travel to Egypt in 215. In spite of a weakening ruble, reporting depreciation of over 5 over the last few months, the relative affordability of Egypt ought to encourage more travellers from Russia to visit Egypt. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 6

7 Furthermore, the Egyptian government ostensibly waived visa application costs for Russian travellers, reflecting the country's commitment to deepening its travel relations with Russia. Improving economic conditions are expected to serve as a catalyst for Western European travel to Egypt in addition to the removal of travel restrictions imposed by certain countries. Ultimately, green shoots are evident in the recovery of the Egyptian tourism industry, which contributes more than 11. to the country s GDP, and though it still has pyramids to climb, Cairo is effectively poised for a return to peak performance. Doha Qatar remains the nation with the highest GDP per capita based on 214 IMF reports, by a landslide, reportedly exceeding 143,. Despite this being the result of its natural gas reserves, the country s tourism sector has also developed over time. Doha became a focal point in the Middle East, securing the winning bid for the 222 World Cup. Furthermore, the rapid expansion of Qatar Airways positioned Doha as a global layover destination. Qatar released its national tourism strategy for 23 in early 214, and will now embark on a new phase of sustainable development, focusing on the diversification of the national economy by expanding the non-oil and gas sectors. While tourism has traditionally had a direct impact of less than 1. on the GDP, the government aims to increase this to 2.3 by the 222 World Cup, and 3.1 by 23. Qatar traditionally enjoyed occupancy levels above 7., with an exception between and 22, when occupancy levels hovered around 6.. This may be partially attributed to the oil prices crisis of and subsequently the effect of the September 11 th attacks that were carried out in 21. Several years later, Doha peaked at a of 218 in 27, on the back of sustainable occupancy and solid average rate growth. FIGURE 7: DOHA REVPAR () & OCCUPANCY () ( ) However, the years 27 and 28 were followed by a decline in the aftermath of the global economic downturn, and subsequently declined The impact of the downturn was exacerbated by an increase in the number of hotels by 2., or the equivalent of roughly 1,7 hotel and hotel apartment keys, according to the Qatar Tourism Authority (QTA). Hotels, nonetheless, staged an impressive growth in 214 with double-digit growth in levels following a reported 8.2 increase in visitation to 2.8 million Hotels,nonetheless, staged an impressive growth in 214 with double-digit growth in levels following a reported 8.2 increase in visitation to 2.8 million visitors. visitors. Currently, Q1 215 reports demonstrate year-on-year average rate increases of between 1. and 12. in the first two months, with strong occupancy growth particularly in January. Based on the 23 strategy, the QTA is geared towards increasing supply on average 2, keys annually until the 222 World Cup, and with a significant boost in the years immediately prior to 23, this average is stretched to roughly 3, keys annually. Efforts by the QTA, including, but not limited to, a piecemeal overall investment of 45 billion over the course of the next 15 years, will likely reduce any adverse effects of the supply increase. In the short-term, nonetheless, it is less likely that the peak performance of 27 will be realized, rather that the increase in supply will be sustainably absorbed by an increase in demand MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 7

8 Dubai Dubai remains a global city and business hub, drawing international attention and acclaim. Realizing the implications of a finite resource, the leaders of Dubai facilitated a shift in economic dependence from the oil industry to a more diversified industry, which it has been monumentally successful in accomplishing. Aside from diversification into real estate, finance, construction, and multiple other industries, during the first half of 214, restaurants and hotels contributed 5.5 to the economy, realizing growth of 4.4 to over AED9.3 billion. This compares to a contribution of roughly AED9.6 billion in 27, albeit for the full year, when restaurants and hotels contributed 3.4 to the economy. Similar to several markets in the region, Dubai peaked in 27, when reached 225. The downturn in the global economy that was experienced towards the end of 28 enforced a correction in the hotel sector, with certain hotels significantly reducing rates in order to stimulate demand. Although hotel occupancy improved in the subsequent year, indicating a limited impact on the national economy, rates declined for one additional year as hotels competed over existing demand. In the meantime, it is apparent the Dubai exhibited another crest in 213, whereafter the result of growth in hotel supply, and the impact of source markets resulted in declines in occupancy and rates. FIGURE 8: DUBAI REVPAR () & OCCUPANCY () ( ) Notwithstanding, Dubai is largely sheltered from the impact of the regional turmoil, contrarily, it is benefitting therefrom. Following the unrest in neighbouring countries, a significant portion of leisure travellers opted to travel to Dubai instead. Moreover, financial sectors in neighbouring countries suffered an exodus as businesses moved towards the more centralized and stable Dubai. Recent reports in the market indicate that Q1 215 performance is roughly behind same time last year on a basis. The majority of this decline is attributed to average rates, while occupancy struggled less significantly. The implication of this fluctuation in performance indicators is that whilst the growth in supply is absorbed by the moderately lower growth in demand, that demand is facilitating more competitive rates. The impact of Eurozone currency fluctuations has had an impact on the hotel industry in Dubai as European currencies translate into fewer dirhams. Notwithstanding, the greatest impact was exhibited by the general economic condition of Russia, particularly the sliding Russian ruble. By Q4 214, hotels in Dubai reported more than a 5. reduction in visitors from Russia, who constitute one of the leading five source markets. According to Visa, Russian tourists spent an estimated 82 million during the 213 Dubai Shopping Festival. Actual figures are potentially considerably higher as a significant number of Russian travellers pay with cash. It is concerning to imagine the impact that reduced visitation from Russia has on the hotel sector, as well as the inherent economic benefits to the overall economy. Recent released data indicate that Q1 215 performance is roughly behind same time last year on a basis. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 8

9 Jeddah The coastal Red Sea city of Jeddah exhibits among the strongest key performance indicators in the region as a result of several variables. With a population of roughly 3.6 million, Jeddah is one of several major commercial centres in Saudi Arabia, and the third largest industrial district after Jubail and Yanbu. More importantly, Jeddah is a major gateway to the holy city of Makkah, which during the Hajj season in 214 alone received more than two million visitors, 1.4 million of whom arrived through Jeddah s King Abdulaziz International Airport. Finally, the city is particularly leisure-oriented as the most liberal and ethnically diverse city in the country, attracting local families who book weekend excursions. The number of rooms under construction in Jeddah remains particularly high and constitutes a significant portion of the existing supply. However a number of hotel are witnessing signifiant delays. Saudi Arabia as a country forecasts a population of roughly 31.5 million inhabitants by 215, which ranks fifth in the Middle East accounting for roughly 7.7 of the total population. Furthermore, Saudi residents travel frequently, and are therefore a key source market for cities within region. FIGURE 9: JEDDAH REVPAR () & OCCUPANCY () ( ) Following the unrest in key travel destinations, domestic tourism in Saudi Arabia accelerated and remains strong in recent years, particularly in regards to Jeddah. As a result of the growth in domestic tourism, while many cities realized peaks between 27 and 28, Jeddah peaked in 213, when it reached 194. The result of the growth in domestic tourism, limited additions to supply, and increasing discretionary income translated into impressive double-digit growth in average rates in 213, in spite of the 4. decline in hotel occupancy. Whilst levels reached in 214, as stability returns to the region, it is likely that domestic tourism may decline. Moreover, with over 7,4 new rooms expected to open in the market over the next seven years, an increase in competition may suppress rates as operators compete over market share. Notwithstanding, the unprecedented growth expected in Makkah will likely mitigate any undesirable shifts in the market, and reinforce Jeddah as a transit city for the near-term spike in religious tourism to the holy city. As a result, Jeddah is expected to sustain performance levels. Kuwait City Kuwait flourished prior to the Gulf War, however, following the Iraqi invasion in 199, an alarming number of institutions relocated to Dubai and Bahrain. Prior to the war, the Kuwait Investment Authority was valued at 1 billion, which was subsequently halved following the Gulf War. Kuwait does regardless, maintain its status as the largest foreign investor in the region, investing heavily in the UK and China. Kuwait City peaked as far back as 23, when it reached 196. This was due in part to the military and the media who frequented the During the first quarter of 215, Kuwait City reportedly exhibited declines in of up to region. In 22, as the pending war in Iraq approached breaking point, the majority of US military forces in the region were based in Kuwait. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 9

10 FIGURE 1: KUWAIT C. REVPAR () & OCCUPANCY () (-214) FIGURE 11: MANAMA REVPAR () & OCCUPANCY () ( ) This induced significant levels of demand for quality hotel accommodation, particularly during the third quarter of the year. During 23, the hotel market effective prospered from the outbreak of the Iraq War, with occupancy levels soaring to roughly 84. This performance was realistically unsustainable, and as a result, the hotel sector declined from this peak. Kuwait continues to struggle with driving average rates as a result of the low occupancies achieved by hotels in the capital. During the first quarter of 215, Kuwait City reportedly exhibited declines in of up to It is unlikely, and potentially undesirable given the circumstances that facilitated the peak performance, for Kuwait City to return to those levels exhibited towards the beginning of the millennium. It is more realistic for the city to exhibit similar levels with moderate fluctuations in performance, however, any additions to supply will likely upset the status quo and negatively impact performance levels. With that said, if 215 continues on a similar path as during the first quarter, both 214 and 215 will register declines and effectively continue a downward trend. Manama Revered as a banking and financial services hub, particularly for Islamic banking, Bahrain benefited from the regional boom driven by the demand for oil as the first Gulf state to discover and begin refining the resource. In 24, Bahrain became as well the first country in the Middle East to host the Formula One Grand Prix. Bahrain was another country subject to the revolutionary wave of protests sweeping the region at the start of the second decade of the millennium, albeit commencing locally in mid- February of 211. As a result, the Formula One Grand Prix during 211 was cancelled following driver protests, reducing potential movements of 1, visitors to zero. Although the race resumed in 212, visitor numbers were reportedly down by 3.. The impact of the protests had a detrimental impact on the Nonetheless, four- and five-star hotels in Manama enjoyed a recovery in the leisure segment in 214 as stability returned to the political sector, thereby driving occupancy levels. hotel sector, contracting hotel occupancies to roughly half of preceding years. Manama peaked in 28, when reached 195, which was followed by the adverse impact of the global downturn. Although a shortage existed in five-star hotels in the city in 21, expected developments in the hotel industry shortly thereafter were either temporarily halted, or cancelled altogether. Nonetheless, those developments reaching fruition since then have contained any indication of a solid rebound, with hotel occupancies remaining under 5.. Nonetheless, four- and five-star hotels in Manama enjoyed a recovery in the MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 1

11 leisure segment in 214 as stability returned to the political sector, thereby driving occupancy levels. The corporate segment in the meantime was driven as well by the revival of key infrastructure and mixed-use developments by the government. As a result of these indications of growth, sources in the market believe that performance will remain buoyant, which is supported by Figure 11, wherein the rebound after 211 appears to be sustained. Muscat The easternmost country on the Arabian Peninsula, the Sultanate of Oman is a middle-income economy with notable oil and gas resources. Nonetheless, Muscat, the capital of Oman, has positioned itself as a contending destination for tourism with its natural beauty and its hospitable environment. The industry predicts that Oman s hospitality sector will grow at an annual rate of 12.1 until 218, while the WTTC estimates that capital investments in travel and tourism will rise by 6.7 annually over the course of the next ten years. The council reported that Oman s direct contribution to its GDP grew by 1.2 in 214, ranking third in the world behind Montenegro and Cambodia in terms of growth, reinforcing the aggressive growth strategy in implementation. Notwithstanding, the Omani Ministry of Tourism is focused on developing a more authentic FIGURE 12: MUSCAT REVPAR () & OCCUPANCY () (-214) Arab experience, particularly on the splendor of its local traditions and heritage sites, as opposed to the sun, sand and shopping experience on offer by competing regional destinations. Muscat reached its peak in 28, when levels hit 227, and reportedly achieved the highest levels in the region in 27. These years also happen to be the only successive years during which airport passenger movements declined. Although movements at Muscat International Airport have grown at 11.5 compounded annually since 23, movements between 27 and 28 declined as a result of Oman s withdrawal from the struggling Gulf Air airline. In Q1 26, Shangri-La s Barr Al Jissa Resort & Spa opened its doors, positioning Muscat as a key player in the regional hospitality market, and likely giving aggregate rates in the city the necessary push in order to achieve peak levels between 27 and 28. In the years that followed, Muscat became another victim of the global recession that rocked the world, as well as the Arab Spring that rocked the region. performance since the crash rebounded in 21, and is exhibiting the sustainable growth necessary in order to recreate former market conditions, albeit more realistically in the long-term. On the other hand, with the persistent regional turmoil, current market conditions in the Eurozone, and the pipeline due on the horizon, the outlook may remain rather moderate in the short-term, particularly considering the double-digit declines reported in during Q Riyadh The capital city of Saudi Arabia, Riyadh s skyline is rapidly transforming as it enjoys remarkable growth on the back of an expanding economy. As the geographic and cultural centre of the Kingdom, as well as the largest city in the country, Riyadh has developed into a dynamic metropolis in recent years. As the political 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 11

12 centre of Saudi Arabia, Riyadh receives predominantly corporate visitors from within the region and internationally. Riyadh peaked in 29 when it reached 199. During this year, although rates continued to grow impressively, occupancies began declining as a result of the global slowdown as well as the gradually increasing supply in the market. This increase in supply became even more pronounced towards the end of 211 as it considerably FIGURE 13: RIYADH REVPAR () & OCCUPANCY () ( ) outstripped the growth in demand. The result was a decline in in 21 as hotel 25 operators revised rate strategies in order to capture additional market share, and the 2 market has not yet fully recovered since then In spite of the growth in supply, the decline in was less pronounced than other markets in the region, and during 214, Riyadh recorded double-digit growth in revenue per available room. Moreover, reports released during Q1 215 suggest further double-digit growth has surfaced, indicating renewed optimism. However, if occupancy rates remain the same, the additional supply due to open, combined with unstable oil prices, may have an undesirable effect on growth rates in the hotel sector. Development Pipeline Regardless of the peaks and troughs, development in the region is inevitable and remains ongoing. Based on an existing database of roughly 13, rooms currently operating in the region, leading hotel operators are expecting to release a further 86, rooms between 214 and 22, with a further 11, rooms that remain to be assigned definitive completion dates. The majority of this inventory is under the various phases of development in Saudi Arabia, where reportedly 38, rooms are expected to increase the existing inventory to roughly 59,. The UAE boasts the second largest pipeline, with roughly 26, in planning and construction. As operators compete to increase their market share and market presence, the pipeline for Hilton Worldwide is currently leading the development scene in the region, with a purported 2, rooms under development. Rotana Hotel As considerable new supply enters the market, tourism officials will need to work even harder in order to ensure that demand grows in line with supply.. Management Corporation, Accor, Marriott International and Starwood Hotels and Resorts are equally aggressive in expected growth, each contributing in excess of 1, rooms to the total development pipeline based on database figures made available. Figure 14 provides an indication of additional brands in the region, as well as their contribution to the future room supply. As new supply enters the market, tourism officials will need to work even harder in order to ensure that demand grows in line with supply, keeping ahead of, or at the very least up with, the considerable additional room nights expected over the course of the forthcoming years. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 12

13 FIGURE 14: BRANDED SUPPLY PIPELINE BY OPERATOR (ROOMS) Dubai, for example, is already 2, 18, well under way in developing 16, 14, additional leisure facilities 12, including, but not limited to, 1, 8, theater districts, leisure park 6, 4, and recreation districts, with 2, retail expansion continuing to shatter record after record. Doha is also well under way towards realizing its tourism vision with the clear strategy it established, the Hamad International Airport is operational and persistent niche focus on sporting events expected to facilitiate the growth in demand required in order to absorb the new supply. Forecast The WTTC forecasts that direct contribution to GDP will experience a contraction of 1.8 in 215, likely on the basis of the aforementioned regional conflict(s), as well as the impact of the European currency fluctuations and macroeconomic events such as Russian sanctions. In spite of this minor correction, the forecast for the next ten years is roughly 6.4 compound annual growth in direct contribution to GDP. Similarly, the total contribution to employment is expected to exceed 8. within seven years, while regional travel & tourism spending is expected to exceed 2 billion within ten years, exhibiting compound annual growth of marginally under 4. up until 224. FIGURE 15: TRAVEL AND TOURISM CONTRIBUTION TO REGIONAL GDP FORECAST( ) US Bn As stability returns to sub regions, the tourism in those areas that are currently in turmoil will rebound slowly as the market tracks the evolution of its stability. The first segment that will likely resume travel to any unstable area is corporate travel, followed by FITs and ultimately wholesale tours and groups, who typically bear greater liabilities. 5 Cycles will undoubtedly exist, as forecasts are merely expectations for Source:WTTC Direct contribution to GDP Total contribution to GDP performance under ideal or indefinitely improving conditions. Several markets in the region have proven their resilience before so that any marginal improvements in macroeconomics, local political or local economic conditions will likely stimulate the local tourism sector to peak anew. In the meantime, tourism officials are encouraged to continue developing both natural and artificial demand generators in order to ensure that once conditions become ideal, the infrastructure is already in place to accommodate the pending growth in demand. 215 MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 13

14 FIGURE 16: AVERAGE ANNUAL OCCUPANCY ( ) AVERAGE ANNUAL OCCUPANCY ( ) 1994 Bahrain Manama Egypt Al Gouna Al Quseir Alexandria Cairo Dahab Hurghada Luxor Marsa Al Alam Sharm El Sheikh Taba Iraq Erbil Jordan Amman Aqaba Dead Sea Petra Kuwait Kuwait City Lebanon Beirut Oman Muscat Salalah Qatar Doha Saudi Arabia Al Jubail Al Khobar Dammam Jeddah Makkah Medina Riyadh Taif Yanbu Syria Damascus Latakia Turkey Istanbul Izmir UAE Abu Dhabi Ajman Al Ain Dubai Fujairah Ras al-khaimah Sharjah Yemen Sana'a Average Change MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 14

15 FIGURE 17: AVERAGE ANNUAL RATE () ( ) AVERAGE ANNUAL RATE ( ) Bahrain Manama Egypt Al Gouna Al Quseir Alexandria Cairo Dahab Hurghada Luxor Marsa Al Alam Sharm El Sheikh Taba Iraq Erbil Jordan Amman Aqaba Dead Sea Petra Kuwait Kuwait City Lebanon Beirut Oman Muscat Salalah Qatar Doha Saudi Arabia Al Jubail Al Khobar Dammam Jeddah Makkah Madinah Riyadh Taif Yanbu Syria Damascus Latakia Turkey Istanbul Izmir UAE Abu Dhabi Ajman Al Ain Dubai Fujairah Ras Al Khaimah Sharjah Yemen Sana'a Average * Or the earliest year for which data are available Change CAGR 1994* MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 15

16 FIGURE 18: AVERAGE ANNUAL REVPAR () ( ) ANNUAL AVERAGE REVPAR ( ) Change Bahrain Manama Egypt Al Gouna Al Quseir Alexandria Cairo Dahab Hurghada Luxor Marsa Al Alam Sharm El Sheikh Taba Iraq Erbil Jordan Amman Aqaba Dead Sea Petra Kuwait Kuwait City Lebanon Beirut Oman Muscat Salalah Qatar Doha Saudi Arabia Al Jubail Al Khobar Dammam Jeddah Makkah Madinah Riyadh Taif Yanbu Syria Damascus Latakia Turkey Istanbul Izmir UAE Abu Dhabi Ajman Al Ain Dubai Fujairah Ras al-khaimah Sharjah Yemen Sana'a Average * Or the earliest year for which data are available CAGR 1994* MIDDLE EAST HOTEL SURVEY PEAK ASSESSMENTS PAGE 16

17 About HVS HVS is the world s leading consulting and services organisation focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. Established in 198, the company performs more than 45 assignments per year for hotel and real estate owners, operators and developers worldwide. HVS principals are regarded as the leading professionals in their respective regions of the globe. Through a worldwide network of more than 3 offices and 45 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. For further information regarding our expertise and specifics about our services, please visit HVS.com Superior Results through Unrivalled Hospitality Intelligence. Everywhere. HVS DUBAI has a team of experts that conducts its operations in the Middle East and Africa. The team benefits from international and local cultural backgrounds, diverse academic and hotel-related experience, in-depth expertise in the hotel markets in the Middle East and Africa and a broad exposure to international hotel markets. Over the last seven years, the team has advised on more than 5 hotels or projects in the region for hotel owners, lenders, investors and operators. HVS has advised on more than 55 billion worth of hotel real estate in the the region. About the Authors Cristina Zegrea is a Senior Manager with the HVS Dubai Office. After practicing law, Cristina redirected her focus to hospitality sales & marketing. Performing in various managerial roles for multiple established international hotel chains, Cristina developed a solid foundation and in-depth understanding of hotel demand, rate positioning strategies and hotel operations overall. While at HVS, Cristina has conducted multiple highest and best use and feasibility studies, valuations, operator searches and operational assessments throughout the Middle East. czegrea@hvs.com Hala Matar Choufany is the Managing Partner of HVS Dubai and is responsible for the firm's valuation and consulting work in the Middle East and Africa. She has worked on several mixed use developments and conducted numerous valuations, feasibility studies, operator searches, operational assessments, strategy advice in Europe, the Middle East, Africa and Asia. Hala has in-depth expertise in regional hotel markets and a broad exposure to international markets and maintains excellent contacts with developers, owners, operators, investment institutions and government entities. Before joining HVS International, Hala had several years of operational and managerial hotel industry experience. Hala is an official Member of the Royal Institution of Chartered Surveyors (MRICS) and also holds an MPhil from Leeds University U.K., an MBA in Finance and Strategy from IMHI (Essec-Cornell) University, Paris, France. hchoufany@hvs.com HVS.com HVS Liberty House Building, DIFC, 7 th Floor, Office 715, Dubai, UAE