Recovery in tourism propels the resurgence of the UAE’s hotel sector

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Benefitting from an influx of tourists, the UAE’s hotel sector witnessed a notable rise in occupancy in the last five months, according to JLL’s UAE Real Estate Market report for the 2022 second quarter.

Dubai and Abu Dhabi registered an occupancy rate of 75 percent and 71 percent respectively, marking an uplift in percentage from the corresponding period of last year. The upswing in performance was driven by luxury resorts and waterfront destinations that remained the preferred choice of guests over other segments.

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Dubai saw the completion of around 500 keys in second quarter of 2022, which led to the city’s total hotel stock reaching 144,000. An additional 10,000 keys are scheduled to be handed over in the second half of this year. Whilst no new stock was added in Q2 in Abu Dhabi, around 700 keys are expected to be delivered by the end of 2022.

Amr El Nady, Head of Hotels & Hospitality MEA, Executive Vice President, Global Hotel Desk at JLL. (Supplied)
Amr El Nady, Head of Hotels & Hospitality MEA, Executive Vice President, Global Hotel Desk at JLL. (Supplied)

“While we did see an uptick in positive sentiment towards the sector, hotel operators will need to be competitive in their offerings evolving from traditional models to get an edge, as the market matures further. This becomes pertinent, especially in light of managing the overall impact of inflation and the growing strength of the UAE Dirham on the purchasing power of tourists. The key will lie in adopting a balanced approach to achieving revenue targets,” said Amr El Nady, Head of Hotels & Hospitality MEA, Executive Vice President, Global Hotel Desk at JLL.

JLL is a leading professional services firm that specializes in real estate and investment management.

“When it comes to the other sectors, the current economic situation could pose challenges, but with the surge in domestic demand, the current rebound in tourism, and the slew of policy innovations introduced by the government with a concerted focus on transparency, we remain optimistic that the UAE is in a strong position to continue to pivot to an upward trajectory,” he added.

In the retail market, although there were no new completions, which caused the stock figures for Dubai and Abu Dhabi to remain unchanged, it is anticipated that approximately 333,000 sq. m. of retail space will be completed in Dubai and 203,000 sq. m. will be completed in Abu Dhabi in second half of 2022.

However, developers have shown some concern around the delivery of the planned pipeline of retail projects over the next 12-18 months, which risks tipping the demand-supply balance. To mitigate this, completions may be postponed until economic fundamentals catch-up with floorspace planned to be released across upcoming developments.

In contrast to Abu Dhabi where retail rents were stable, Dubai’s retail rents continued to soften in the second quarter with values falling by an average of almost 3 percent year-on-year.

Boosted by a combination of strong local leisure demand and a bounce back in tourism, F&B outperformed the segment while luxury and fashion continued to recover.

In the residential sector, around 6,500 units were added to Dubai’s stock in Q2 2022 while Abu Dhabi witnessed the competition of nearly 1,300 units. Demand remains strong for prime residential properties, especially across waterfront developments.

Anecdotal evidence suggests that there continues to be a large influx of investors from Eastern Europe, albeit buyers from China, India, Pakistan, and Central & Western Europe are also active. In line with higher transaction activity, residential prices in Dubai remain on an upward trajectory – rising 11 percent year-on-year in May and rents also saw a double-digit increase, of 19 percent over the same period.

In Abu Dhabi, the robust demand for new villa and townhouse developments continued to persist and year-on-year sales prices for apartments and villas increased by an average of 5 percent while rents picked up by 3 percent.

With regard to office spaces, strong demand for Grade A floorspace coupled with tight availability in the segment led to double-digit growth in rents in Dubai while rents in the capital increased by 8 percent to an average of Dh.1,700 per sq. m. per annum.

Though there were no new office projects delivered in the second quarter of the year, healthy levels of leasing activity helped exert downward pressure on Dubai CBD’s vacancy rate, which reached 14 percent in the second quarter of this year.

This can be attributed to increase in demand from tenants for quality as they resorted to spaces in single-owned, well-managed office buildings. This trend brought back the landlords firmly in the driving seat, therefore, lowering the threshold for flexibility and incentives in negotiations.

The quarter was also dictated by a considerably higher number of enquiries from new market entrants, especially for flexible office space coupled with queries from existing tenants looking to expand their footprint. In terms of absorption, the financial, technology, and e-commerce sectors continued to lead the way.

Read more: Dubai retains ranking as world’s top FDI destination for tourism

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