Published On: Sun, Nov 15th, 2015

Oversupply woes or bustling success?

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Editor of Hotel News Middle East, Sophia Soltani reviews the colossal number of hotel rooms under construction in the Middle East and what this means for the landscape of the hospitality industry

With a reported 175, 574 rooms under construction in the Middle East according to STR Global, it is no surprise that the skeptics are out in force, raising the alarm and harping on about oversupply issues. But according Dubai’s Department of Tourism and Commerce Marketing (DTCM), we need this many rooms to fulfil Dubai’s 2020 vision of welcoming 20 million visitors to the region. So who is leading the way in the Middle East and eager to pique interest in their region by diversifying their hospitality offering? You might be surprised to hear that it isn’t Dubai alone, but in fact Saudi Arabia and the UAE combined.

Saudi Arabia is also set to become home to the world’s largest hotel, the Abraj Dubai in Makkah and will boast 10,000 rooms and 12 separate towers. Designed by Dar Al Handasah, the project has a total built area of 1.4 million square metres and will be set in the Manafia area in Makkah’s central zone. The $3.5 billion hospitality project is already on site and comprises of 12 towers with a total of 10,000 rooms, 70 restaurants, rooftop helipads, royal floors and a full size convention centre, all roofed under what will become one of the largest domes in the world.

With top projects like these it is no wonder that the UAE and Saudi Arabia are leading the hospitality industry in the Middle Easte region with a combined pipeline of more than 50,000 hotel rooms under construction according to the latest data released by STR Global. Saudi Arabia reported the most rooms under construction with 28,050 rooms in 64 hotels. The UAE then followed with 22,724 rooms in 90 hotels. Qatar closely following behind with 6,383 rooms in 26 hotel and was in fact the only other country in the region to report more than 5,000 rooms under construction.

It just goes to show the sheer number of hotels under construction in the Middle East, and how rapidly it continues to grow, considering that there were 653 hotels totalling 159,945 rooms under contract in the Middle East and Africa region in May 2015 compared to August 2015’s revelation of 175, 574 STR Global Construction Pipeline Report.

This figure represents a 16.1% increase in rooms under contract compared with May 2014 and a 40.4% YOY increase in rooms under construction. PwC’s second Middle East hotel forecast also warned that with so much new supply coming on stream across the region, the question is whether this upswing is sustainable in the future. “With over 54,000 rooms under construction and another 72,000 planned for the region, supply could well start to outstrip demand, putting ever greater pressure on both occupancy and ADR,” PwC said in a recent report.

And according to the latest figures issued by DTCM, Dubai’s hospitality industry is poised to enter a new growth trajectory with rooms predicted to surge to 140,000-160,000 keys by 2020 from 93,030 which was the figure reported as of January 2015. In 2014 alone, of the 44 new hotels and hotel apartments comprising 27 hotels and 17 hotel apartments, 13 hotels came from the four-star sector and nine of the new apartments fell into the standard classification. The boom in mid-market hotels has been spurred on by Dubai government’s incentives including 10% fee waiver.

In 2014, Dubai’s hotel portfolio grew from 611 hotels and hotel apartments to 659 a 7.8% growth over the course of the year. So by the end of 2015, it will be interesting to see how much growth and development has arisen in the region.

So with Dubai having received more than 8.2 million international overnight visitors during the first seven months of 2015, representing a 9.3% increase on the same period in 2014 according DTCM, the burgeoning pipeline of hotels under construction in the Middle East are well in line to cater for the anticipated 20 million visitors by 2020.

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