First with Financial Comment from Arabia

Recession and new capacity hits Abu Dhabi hotels

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The United Arab Emirates hospitality sector is suffering a double whammy from the local recession and increasing capacity as the hotel projects of the boom years are completed.

New data from STR Global shows that the industry benchmark revPAR fell by a thumping 53 per cent last November in the capital city Abu Dhabi with revenue per available room down from $367 to $171. Occupancy fell from 89.3 per cent for the same month a year earlier to 58.9 per cent.

UAE recession

In 2009 the UAE fell into a mild recession due to plunging oil revenues and the real estate crash in Dubai. Abu Dhabi was less affected than Dubai but business activity and construction projects slowed noticeably.

But the real culprit is over-investment in hotel capacity. Last year 4,000 hotel rooms were added to inventories in the capital, bringing the total to 17,000.

The big boost to numbers came as seven hotels opened on Yas Island in time for the first-ever Formula One event last October. Yas hotels enjoyed a splendid October but have been largely empty since then.

Business is unlikely to improve for the Abu Dhabi hospitality sector in 2010. The Abu Dhabi Tourism Authority says another 5,000 rooms will be added to inventories.

Ferrari World

The Ferrari World theme park will open on Yas island this year, boosting its appeal for visitors. But this does underline a big problem in Abu Dhabi: there is very little for the leisure traveller to do apart from see the Sheikh Zayed Mosque and Emirates Palace Hotel.

One day Saadiyat island will host the regional editions of the Louvre and Guggenheim museums but completion of these projects is at least five years away. That leaves cheaper room prices as the only way to lure visitors who can at least bank on guaranteed sunshine and no snow.

But the days when owning a hotel in Abu Dhabi was a license to print money seem to be over. Only another oil boom can bring the business back, and even then it will be spread around many new hotels. Yet these things run in cycles, and the world’s wealthiest city will bounce back.


Written by Peter Cooper

January 6, 2010 at 10:43 am

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