Emerging from a post-downturn period of economic instability, the Gulf’s reputation for high-end hospitality is making way for a more diverse hotel portfolio:
The emirates and wider GCC’s hospitality industry is a market constructed on superlatives. With oil-rich nations pouring funds into their tourism industries, and international operators embracing the ambience of luxury, the region bred opulent hotels, restaurants and spas — captivating the world with a penchant for the biggest, the best and the most expensive.
However, as the Middle East has steadily grown into a hub for various industries, and the world has become more cautious with its spending, so the visitor demographic has diversified.
It is no longer just about luxury leisure and top-level corporate hospitality; it’s also about quick business trips, or short stays while in transit to elsewhere – or simply travellers on tighter holiday budgets.
Witnessing the rise of this consumer, a person with standards but no need for frills, the region has had to address the budget and mid-range sector.
And it has risen to the occasion, with the United Arab Emirates leading the charge, but other markets following thick and fast.
In fact, analysts say it’s increasingly important for major hotel chains to have a budget or mid-scale offering here.
“Budget branded hotels are both perceived and proven to be ‘recession-proof’, as they are in principle high-volume/low-cost lodging products,” explains Viability managing partner Guy Wilkinson, who is based in Dubai.
He notes that there has long been a market for such accommodation in the Middle East, albeit of varying standards. But it was with the arrival of chain brands that the sector was able to introduce consistency in terms of both product and service offering, Wilkinson points out.
“Although the recession has caused many hotel users to effectively downgrade to cheaper accommodation, the offerings of brands like Holiday Inn Express, Ibis, Premier Inn, Centro, Citymax and others is in fact of a very high standard,” he continues.
“Although technically ‘limited-service’ brands, many of them actually offer almost everything you would find in a more expensive hotel, including gyms, pools and bars.”
Christopher Hewett, consultant at TRI Hospitality Consulting, adds that for operators, such brands provide an opportunity to diversify their portfolio and appeal to a wider audience.
“In addition, hotel chains can operate a greater number of budget and mid-market properties in a particular city compared to their upscale and luxury brands, as there are less stringent restrictions on the number of hotels which can operate in one particular market,” he adds.
Hewett notes that the majority of key GCC markets are still heavy on the luxury hotels side – but says operators are increasingly exploring opportunities to widen their market presence in the region by focusing on expanding in the lower-star hotel segment.
Premier Inn Hotels’ managing director for the Middle East and Africa, Darroch Crawford, agrees that “investors are waking up fast to the returns delivered by value-for-money hotel brands” – but he maintains the value sector has a long way to go.
“It’s massively under-represented in the region, particularly in Saudi Arabia, where we see huge potential for Premier Inn,” Crawford asserts.
In fact, although branded budget hotels entered the GCC market years ago, their development has been hampered, according to Wyndham Hotel Group regional vice president for the Middle East and Africa Bani Haddad.
“There are two major factors which have contributed to this,” he says. “One being the preference many owners have for developing five-star properties, and the other being the availability of land in the right location at the right price.”
Finding a suitable and affordable location is a problem that many operators cite.
Wyndham’s Haddad explains that in most cities, the land price has increased in a way that makes it very difficult for investors to generate the level of returns they may want, with a budget or economy hotel.
Elie Milky, director of business development for the Middle East and Africa with Carlson Rezidor Hotel Group, agrees: “Most owners are still attracted to the upscale and luxury segments — and with land prices increasing dramatically in prime locations, they may see it as unfeasible to develop a budget or mid-market hotel on such sites.”
In addition, running budget and limited service hotels requires a different skill-set from that needed to operate upscale properties, adds Wyndham’s Haddad.
“Managing the cost structure is a key success factor. Keeping operating costs as low as possible is also tricky, particularly in areas like sales and marketing where there’s a growing consumer trend to book through intermediaries, which incurs commission,” Haddad says.
And indeed, pricing can be tough – as Wael Turk, general manager of the Golden Tulip Khatt Springs Resort and Spa in Ras Al Khaimah, notes.
“Although the destination is interesting and has plenty of attractions for both the local and international markets, the rates among the different hotels in Ras Al Khaimah proves a challenge, especially during the low season,” he says.
This problem is also flagged up by Russel Sharpe, chief operating officer for the Dubai-based Citymax Hotels.
“We have to meet guest expectations and deliver a good experience, comparable with the best names in the business, at affordable rates,” he states.
“We’ve had several instances where the customer expects more for the rate he pays – and so we’ve geared up to deliver on that. For example, we are one of the first chains of our type to offer room service, wi-fi and even a concierge service in our hotels. Still, the gap between expectations and standards is a challenge we face every day.”
Golden Tulip’s Turk suggests one way for properties to avoid competition from higher-tiered hotels offering drastic rate-cuts, is to work with sister properties in other emirates and offer package stays.
But the other issue he has experienced is that of educating the local market about what the term ‘limited service’ actually means – and that today, it is in fact of an extremely good standard.
“We try to draw them in, to come and see what we’re actually about, through offering packages to suit their tastes; so for families we offer packages with access to theme parks and safaris – other packages include spa treatments. Others are attracted by our free shuttle service going to the beach, and to shopping malls in Ras Al Khaimah and Dubai,” he says.
“You have to win their interest with the extras, then they’ll come and experience the hotel,” asserts Turk.
Perhaps it’s these sorts of issues that have deterred certain major brands from bringing their mid-scale offerings to the Gulf.
Among them is Fairfield by Marriott – which to date has no plans to expand in the GCC region, according to brand vice president Shruti Buckley.
“India and Brazil are key focus areas right now, but we are also exploring other international markets,” she says. “Marriott is currently exploring which of our select service brands to lead with, in terms of growth and development, in the GCC market.”
Despite the few issues, Amine Moukarzel, president of Golden Tulip MENA, notes that local governments in the region are doing a great deal to promote limited service brands in the industry.
“Their efforts have gone a great way to helping developers and hoteliers understand and appreciate what budget hotels are about,” he says.
“Today, travel patterns have changed – as budget airlines as well as budget hotels emerge in key destinations, on highways and even in cities. We believe that budget hotels are the next generation complementing the hotel room inventory in major cities across the MENA region.”
Other brands obviously have similar feelings on the matter – with the market showing significant growth over the past five years or so.
Golden Tulip’s Turk believes the current volume of budget and mid-market properties is very healthy – particularly now that there are new hotels and resorts spreading outside Dubai and Abu Dhabi.
“Each property is trying to innovate and upgrade their facilities and services to meet and even go beyond the clients’ expectations,” he notes.
It’s an interesting observation, in a region that has long been synonymous with luxury hotels. Perhaps the budget offerings are that little bit more plush in the Gulf?
Certainly, properties here display some differences when compared to their international counterparts – as Golden Tulip’s Moukarzel admits.
“Budget or mid-scale offerings in this region are noticeably different when it comes to the room size. For instance, a four-star hotel in Paris might have a room half the size of a lower-classified property in Dubai or Saudi Arabia.
“The key for developers is to adapt slightly to the region, without losing sight of the all the research and development carried out to define the brand,” says Moukarzel.
InterContinental Hotel Group’s COO for India, the Middle East and Asia, Pascal Gauvin, points out that every market is different — and it’s important to keep a finger on the international pulse.
“They’re all governed by their own social and economic factors. International hotel brands have a firm presence in the Middle East market, but if you look at somewhere such as India, there are only 55,000 internationally branded hotel rooms out of a total of 120,000,” he says.
“That is an incredible amount of potential for international hotel brands, especially mid-scale, and we are sure that Holiday Inn Express will be a success there. But we’re also confident that growth in the Middle East mid-scale market will continue.”
Today’s world is one that has had to learn from its mistakes – and quickly. The aftermath of the global economic downturn in 2008 quickly sorted the success stories from the cautionary tales, and the field of hospitality was no exception.
As such, even the biggest global brands have had to learn some harsh lessons over the past few years, as Viability’s Wilkinson expounds.
“The major roll-out programmes of such brands as Holiday Inn Express and easyHotel, which posited scores of new-build hotels across the region to be funded by single investors or consortiums, were not realised – simply because they were over-ambitious, involving the construction of too many hotels over too short a period of time,” Wilkinson explains.
“That the recession finally put an end to these plans only brought forward a conclusion that these developers would have had to face in any case, sooner or later,” he continues.
Meanwhile TRI’s Hewett bemoans the impact the financial crisis had on the GCC, with rising land costs making such developments economically unviable, as Haddad observed earlier.
“But now that prices have returned to an attractive level, these developments are starting to recommence – which is a key factor in the segment’s growth over the past few years,” he says.
Hewett goes on to cite the emergence of mid-scale and budget hotels near key demand generators, such as airports, shopping malls and convention centres.
But an improving industry is by no means a perfect one – and there are things Hewett expects to see change, as the sector continues to progress.
“There is still a huge potential for expansion, especially as key markets like Dubai, Abu Dhabi and Doha continue to push their position as key transit hubs in the region,” he explains.
“We anticipate operators will shift their attention to secondary cities, as there’s currently a lack of supply in quality mid-scale and budget hotels; particularly in Saudi Arabia where domestic tourism is a major driving factor of the hospitality and tourism industry in the Kingdom.”
Viability’s Wilkinson is similarly bullish on the future of mid-scale and budget brands in the UAE and wider GCC.
“I would expect the number of even more affordable hotels to increase,” he asserts. “The existing examples, which are generally at the two- to three-star level, have proven how popular budget branded hotels can be.
“The only ‘ultra-budget’ hotel to open to date, the easyHotel in Jebel Ali, Dubai has also been a success – despite having no facilities to offer apart from clean rooms and a restaurant,” continues Wilkinson.
“Like the other branded budget hotels, this property regularly has a car park full of luxury cars, from BMWs to Porsches, illustrating the fact that even guests who can afford the best hotels in town recognise a bargain when they see one.”
This theory appears to be borne out by the imminent arrival of other genuinely low-cost offerings including Accor’s Ibis Budget and Super 8 – along with a host of other limited-service brands plotting their entry into the Gulf.
The GCC may traditionally have been a luxury market, but today’s consumers are a savvier breed, and not ones about to miss out on a good deal.
The demand for simple, affordable quality isn’t going anywhere – which means the budget and mid-scale sector is.
Breaking down the brands:
Premier Inn currently has four hotels open in the region – three in Dubai, one in Abu Dhabi – with a portfolio of more than 1000 rooms. The brand’s fifth UAE property, located at Abu Dhabi International Airport, will open in May 2013, adding a further 300 rooms. Construction is just about to begin on Premier Inn’s first foray into Qatar, a 219-key hotel in Doha’s Education City; and the first of two hotels planned for KSA should be announced soon.
Fairfield by Marriott
This mid-scale offering from Marriott currently operates 700 units worldwide, and has a pipeline of 125 hotels approved or under construction. Ambitions for the long term are to grow to 1000 properties by 2016 and expand presence in key international markets. It’s yet to announce a hotel in the Middle East.
Days Inn and Super 8
Already present in Jordan and Bahrain, with three Days Inn hotels across the Middle East, Wyndham Hotel Group recently announced an agreement with Riyada International Hotels and Resorts to develop 10 properties in Saudi Arabia over the next seven years. Meanwhile Super 8 has more properties than any other economy lodging chain in the world. Wyndham’s research decided KSA was the most suitable location for the brand launch. Partnering with Saudi Automotive Services Company, Wyndham plans to develop 20 Super 8 hotels in KSA in five years.
Park Inn by Radisson
There are currently five Park Inn by Radisson city and resort hotels across the region, with more on the cards. Targeted locations include Dubai, Abu Dhabi, Riyadh and Jeddah, among others – with latest signings securing locations in Saudi Arabia and the UAE.
Holiday Inn Express
The first Holiday Inn Express opened in the Middle East in 2007, at Dubai Internet City. Today there are five such hotels in the Middle East, four in the UAE. The latest addition to the brand in the region was Holiday Inn Express Bahrain, which opened in August 2012. A whopping 37 Holiday Inn and Holiday Inn Express hotels are due to open across the Middle East and India within five years.
Citymax Hotels, part of the US $4.5 billion Landmark Group, has three properties located in Al Barsha, Bur Dubai and Sharjah. The hotel group has aggressive regional expansion plans, with 10 hotels slated to open over the next five years.
Golden Tulip MENA
The Golden Tulip Hotels, Suites and Resorts brand has a strong representation worldwide, with properties in 43 countries. In the MENA region, it’s represented in Bahrain, Jordan, Lebanon, Oman and Saudi Arabia – as well as having 10 properties in the UAE. Golden Tulip plans to open one hotel every month in 2013 and in 2014.