How the hospitality sector is evolving from the impact of COVID
A quick fire Q&A session with Bruno Trenchard, Senior Consultant, CBRE Hospitality Consulting division on how the hospitality sector in the UAE is adapting to the impact of COVID-19.
04 Aug 2020
How severe is the impact of COVID-19 on the hotel sector in the Middle East and Africa region?
Different markets have been affected at different levels. In the Arabian peninsula, capital cities tend to perform slightly better than other markets, especially in terms of occupancy rates. Markets like Abu Dhabi, Doha and Riyadh have managed to maintain relatively strong performance at around 60% occupancy in YT May (respectively 61%, 59% and 57% according to STR). We understand that some of these markets have benefited from a number of quarantine stays and long-term guests that helped boost occupancy rates. Generally speaking, across the MEA region the markets that are the most affected are the ones relying heavily on leisure tourism.
As of now we have not witnessed a significant drop in hotel construction per se but rather a slight slowdown in the construction or planning process as investors are more cautious and want to spend their cash wisely. Projects that were planned to start during H1 2020 are the most likely to have been delayed. In addition, delay in some projects might also be caused by restrictions in the construction sector (manpower or sourcing of materials). We have not witnessed a single major factor creating construction delays but rather a large number of smaller factors which when happening in conjunction can be expected to impact project deliveries.
With the COVID-19 hitting the hospitality industry hard, how is it going to impact new hotel supply in the region? Are hotel owners/operators reworking on their development/expansion strategies?
The pipeline of new hotel in the region is still strong, especially in countries where tourism is a key diversification factor identified by governments (for instance KSA or UAE). What can be expected is maybe a longer phasing of the planned deliveries on the market depending how much time the tourism sector will need to fully recover.
But overall operators and investors still have a positive view of the region as it comprises a high number of untapped opportunities and growth corridors. We cannot exclude that some investors will delay their projects, however we see this as a delay rather than pure cancellation, especially if the asset is already under construction.
With the EXPO 2020 being postponed to next year, how will this impact hotel construction pipeline/deliveries in the UAE?
The postponement of the Expo only a few months before it was initially planned to start is expected to benefit to the hotel construction sector in the sense that it can act as a breath of fresh air allowing developers not to rush through the last stages of construction and hence delivering products of better quality.
Expo 2020 has never been an end goal for developers nor for the government; hotels were built to sustain the long-term growth of tourism in Dubai rather than one-off demand for the Expo. Despite the covid-19, Dubai and other emirates are still investing heavily in their future and hence we don’t foresee a steep downward revision of planned hotel supply in the long term.
What are the other trends/strategies foreseen to be implemented in the region?
The trend for reflagging or rebranding of hotels in the gulf was already on its way before covid-19 as performance was under pressure and many properties were reaching the expiry of their management agreements. We expect this to continue but this is mostly linked to market maturation rather than to covid-19. The operators in MEA are very strong, with a lot of bargaining power and we don’t foresee a strong, rapid change as this model – overall – is the most adapted to the Region. We expect to see gradual changes with more and more franchise in established destinations with either owners or third-party managers in charge of operations.
Different markets have been affected at different levels. In the Arabian peninsula, capital cities tend to perform slightly better than other markets, especially in terms of occupancy rates. Markets like Abu Dhabi, Doha and Riyadh have managed to maintain relatively strong performance at around 60% occupancy in YT May (respectively 61%, 59% and 57% according to STR). We understand that some of these markets have benefited from a number of quarantine stays and long-term guests that helped boost occupancy rates. Generally speaking, across the MEA region the markets that are the most affected are the ones relying heavily on leisure tourism.
As of now we have not witnessed a significant drop in hotel construction per se but rather a slight slowdown in the construction or planning process as investors are more cautious and want to spend their cash wisely. Projects that were planned to start during H1 2020 are the most likely to have been delayed. In addition, delay in some projects might also be caused by restrictions in the construction sector (manpower or sourcing of materials). We have not witnessed a single major factor creating construction delays but rather a large number of smaller factors which when happening in conjunction can be expected to impact project deliveries.
With the COVID-19 hitting the hospitality industry hard, how is it going to impact new hotel supply in the region? Are hotel owners/operators reworking on their development/expansion strategies?
The pipeline of new hotel in the region is still strong, especially in countries where tourism is a key diversification factor identified by governments (for instance KSA or UAE). What can be expected is maybe a longer phasing of the planned deliveries on the market depending how much time the tourism sector will need to fully recover.
But overall operators and investors still have a positive view of the region as it comprises a high number of untapped opportunities and growth corridors. We cannot exclude that some investors will delay their projects, however we see this as a delay rather than pure cancellation, especially if the asset is already under construction.
With the EXPO 2020 being postponed to next year, how will this impact hotel construction pipeline/deliveries in the UAE?
The postponement of the Expo only a few months before it was initially planned to start is expected to benefit to the hotel construction sector in the sense that it can act as a breath of fresh air allowing developers not to rush through the last stages of construction and hence delivering products of better quality.
Expo 2020 has never been an end goal for developers nor for the government; hotels were built to sustain the long-term growth of tourism in Dubai rather than one-off demand for the Expo. Despite the covid-19, Dubai and other emirates are still investing heavily in their future and hence we don’t foresee a steep downward revision of planned hotel supply in the long term.
What are the other trends/strategies foreseen to be implemented in the region?
The trend for reflagging or rebranding of hotels in the gulf was already on its way before covid-19 as performance was under pressure and many properties were reaching the expiry of their management agreements. We expect this to continue but this is mostly linked to market maturation rather than to covid-19. The operators in MEA are very strong, with a lot of bargaining power and we don’t foresee a strong, rapid change as this model – overall – is the most adapted to the Region. We expect to see gradual changes with more and more franchise in established destinations with either owners or third-party managers in charge of operations.