At the end of 2015, Hotelier Middle East quizzed industry stalwarts about the trend and developments in the hospitality sector, and found that most were looking at Saudi Arabia as a big source market, many predicted a drop in room rates, and others pointed to the growing trend of mid-market and family travel. Certainly, all of this came true. So we are back this year, investigating the predictions for, and forecast of, the year ahead.
Where is the industry as we went to print? According to STR’s Middle East/Africa November 2016 hotel pipeline, in November 2016, the Middle East reported 159,922 rooms in 560 projects under contract. The under contract total in the Middle East represents a 10.8% increase in rooms under contract compared with November 2015. Specifically in the ‘in construction’ phase, the Middle East reported 85,448 rooms in 267 hotels. Based on number of rooms, that is a 3.6% increase in year-over-year comparisons.
Among the countries in the Middle East and Africa, Saudi Arabia reported the most rooms in construction with 37,864 rooms in 83 hotels. United Arab Emirates followed with 26,889 rooms in 97 hotels. Two other countries each reported more than 5,000 rooms in construction: Qatar (8,748 rooms in 36 hotels) and Egypt (5,645 rooms in 16 hotels).
TRI Consulting associate director Christopher Hewett confirms that 2016 was a very challenging year for the hotel sector in the region, with all major markets experiencing a decline in key performance levels. “The softening of the markets was primarily due to wider economic and geopolitical issues such as the lower oil prices, weak European economic performance, currency exchange fluctuations and regional unrest. This trend is expected to continue in 2017 albeit we expect certain markets will start bottoming out as demand and wider economic activity increases,” he explains.
He adds that a number of markets in the region will be facing a significant increase in supply in 2017 and coupled with weaker market conditions, it will result in a more competitive landscape “as new hotels adopt aggressive pricing strategies to carve out their own market share, whilst existing hotels defend their existing market”.
SOURCE MARKET SAGA
This year, the Saudi Arabia source market continued to dominate, with many hoteliers telling us throughout the year about the potential of intra-GCC travel. Swiss-Belhotel International vice president operations and development Middle East Noel Massoud reveals that in 2016, in line with the predictions at the start of the year, the GCC was the operator’s best source market, with Saudi Arabia coming out on top. He tells Hotelier: “Closer to the end we have also seen an increase in the Russian market which was unexpected.”
He is not alone in the KSA prediction. IHG chief operating officer IMEA Pascal Gauvin confirms that the main feeder market for the group’s Middle East hotels in 2016 was Saudi Arabia. He adds: “However, we have a number of other feeder markets which closely follow the KSA including the UAE, the US and the UK. We’re also seeing growth coming from the Far East, particularly China. In fact, China is due to become the largest source market for international long-haul travel by 2020. We can’t predict who will be on top in 2017 but Saudi Arabia and the neighbouring GCC countries will continue to remain important source markets for this region.”
And while Mark Willis, area vice president Middle East & Turkey, Rezidor Hotel Group, agrees, he also says that the UK, USA and Germany were the three other strongest source markets in 2016 for the operator’s Middle East properties. The broader GCC and India followed. Willis adds: “In 2017 we see this group set to continue to be the key source markets for our Middle East hotels, with India continuing to grow in business every year and with the possible addition of China to our list of key source markets.”
Hewett confirms that there will be a change in source markets, and says: “The market is also expecting to see a continued shift in source markets as emerging countries and regions gain prominence within the tourism landscape. Hoteliers are going to have to react to this shift and adapt their product offering and service in order to cater to the new needs within the client base.”
Willis also believes that the competitive environment has forced hoteliers to become more creative in their offering and enlarge their reach into new source markets. “We predict growth in new source markets in the region especially from Asia, with China and India continuing to have a greater influence. The major public initiatives put in place and being planned by government and tourism authorities to promote a more complete and appealing offering means we anticipate new clientele visiting the region for the cultural sites, museums, amusement parks or simply a growth of domestic demand for some cities. We see these as extremely positive developments for enhancing the attractiveness to both leisure and business travellers.”