Dubai’s hospitality sector continues to offer growth potential beyond 2020

  • Investment opportunities are supported by ongoing government efforts to expand non-hydrocarbon industries and the private sector’s involvement, according to a KPMG-INHOCO study

Investment in Dubai’s hospitality industry is expected to grow well beyond the next two years, although margins are gradually converging with global norms, according to a joint report by KPMG and International Hospitality Consulting Group INHOCO entitled “Accommodating the Future: the Dubai hospitality sector beyond 2020”.

The emergence of an array of spectacular attractions and cutting-edge infrastructure ensure there is something in Dubai for everyone. The emirate has also been investing heavily in different themed adventure parks, which aim to be a major attraction, especially as there are currently no significant theme park destinations between Singapore and Paris.

Furthermore, the local government has also supported the growth of health tourism by launching initiatives such as the Dubai Portal for Health Tourism (DXH) website. The latter now allows tourists to travel to the UAE for their medical needs and choose from a wide range of specialties and services. Increasingly, investors are looking into the sector, with a mixture of joint ventures and home-developed expertise attracting regional and global custom.

“All signs point towards a maturing hospitality sector, yet there is potential for further growth. To maximize growth, both owners and operators need to address challenges, such as the rise of third-party agencies, technological disruption, changes in the regulatory environment, pricing and costs. Investors will also need to focus their efforts on creating synergies and planning for the long term,” says Sidharth Mehta, Partner and Head of Building Construction and Real Estate at KPMG Lower Gulf.

While Dubai’s hospitality industry has witnessed startling growth over the last few decades, operators have systematically faced two main hurdles: manpower and operating costs.

With a total of 100,000 hotel rooms expected in Dubai by 2020 (from the current count of around 83,000), significant employment growth may be projected for the sector, considering Dubai’s current hospitality industry where the ratio of staff to rooms is estimated at roughly one member of staff to one room. Besides the employment growth figures, management capabilities would also require a boost – globally in the hospitality sector, roughly one third of staff are managers. This implies recruitment and training potential beyond 2020. Cost structures could evolve as a result, and owners and operators will need to keep a close eye on spend and profitability.

Meanwhile, the changing technological landscape may bring new challenges for the hospitality sector, yet leveraging new technologies and turning them into opportunities may result in greater cost efficiency and improved customer loyalty for hospitality operators. Consumers expect greater personalization which in turn requires hotels to harvest increasing amounts of data – hotels must also take greater precautions to ensure that data is adequately protected so as to retain customer trust.

From the owners’ perspective, some of their main concerns include industry consolidation, price increases, volatile customer loyalty, a changing regulatory environment, and an ever increasing plethora of investment choices.

Meanwhile, for investors, a major opportunity seems to present itself. Traditionally, hotel operators would house their staff in residences within walking distance of their property, but with land becoming increasingly expensive, this may now be less economically viable. There could thus be a sound business case for building dedicated, secure residences for hotel staff.

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