Dubai: Now could be an opportune moment for investors to pick up hotel assets in the UAE ... at prices they could be comfortable with.
“The recent performance decline for income producing assets has impacted hotel values negatively,” said Marko Vucinic, Senior Vice-President — Middle East & Africa, Hotels and Hospitality at the consultancy JLL. “There’s been a 10 per cent decline in RevPar [revenue per available room] in Dubai during 2016.
“But owners’ sales-price expectations have remained aligned to previous performance levels, creating a larger bid-ask spread for income-generating assets. Therefore, we expect the investment market to remain highly opportunistic for the medium term.”
Even as the deal-making negotiations on existing hotel properties get prolonged, those with ready plots keep adding to the pipeline. More than ever before, master-developers/private developers holding substantial land banks have taken it upon themselves to build up hotel assets and retain them for their leasing income. This way, they get to “make the most of the well-established developer model,” said Vucinic. “As a result, development projects will continue to remain at the forefront of investment activity in the coming years.
“As such, the pace of new development depends highly on the cost of construction and the availability of financing. The current dip in hotel performance in Dubai, coupled with the low price of oil has triggered developers/investors — those with capital to deploy — to develop hotel projects that are aligned to future market expectations.
“Since the quality mid-market segment is a relatively untapped market compared to the 5-star segment, there is certainly more focus on developing such projects.”
According to JLL’s 2016 UAE real estate review, Dubai saw around 7,000 new rooms being added, which took the total hotel stock to 79,000 keys. The current estimates account for another 14,000 rooms to open up for business before the end of this year.
“The commitment by the government for development of several large-scale tourism projects in the UAE remains on track as the country looks to strengthen its position as a one global destination with multiple ‘mini-destinations’,” said Vucinic.
“Within the private sector, committed projects that have been funded are likely to continue. However, those in conceptual stages are undergoing reviews and rigorous stress-testing to ensure feasibility. Developers and investors are increasingly looking at alternative forms of financing as traditional banks are scrutinising the viability of future development projects.
“As we come closer to Expo 2020, there will be a marked increase in investment sentiment [development projects and income-producing assets] as opportunistic investors look to capitalise on the compressed demand over the six-month period.”
