“Banks are being conscious about who they lend to due to the tough economic conditions. Due to the risks involved in hotel investments, banks have adopted stringent lending policies such as higher interest rates and lower loan-to-value ratios. As a result, several hotel construction projects have been put on hold, cancelled or delayed due to the lack of debt financing,” the report said.
“Another issue facing the hospitality industry is the shortage of skilled labor and high employee turnover. As demand increases, it becomes imperative for hotels to hire and retain skilled labor if they are to attract customers,” it added.
“The GCC hospitality market is anticipated to grow at an annual rate of 8.1% to $28.3 billion by 2016 compared to $19.2 billion in 2011,” Sameena Ahmad, Managing Director at Alpen Capital, said.
The report said the GCC hospitality sector was poised for a healthy growth owing to factors such as favourable economic conditions combined with infrastructure development, increased bids to host high profile global events and government support to the private sector.
“All contributing factors enabled the steady increase in tourist arrivals which in turn has facilitated the growth of the hospitality industry in the region,” she added.
Sameena was speaking as the Alpen Capital launched the GCC Hospitality industry report on Sunday, which focuses on the key performance indicators of the GCC region’s hospitality industry, such as number of hotel rooms, its trends, challenges and the industry’s outlook over the next five years.
“The GCC hospitality industry has been high on the investment radar of businesses given the macroeconomic trends and the rise in business/ leisure visitors to the region. The industry has strong fundamentals and is beginning to realize its potential. Accordingly, we believe that the industry presents itself as an excellent opportunity for all stakeholders,” Sanjay Bhatia, Managing Director at Alpen Capital, said.
Occupancy rates are expected to average around 67–73% between 2012 and 2016. As business and leisure tourism continues to grow and the up-scale hotel segment account for most of the demand for hotels, ADR is likely to average around $212–$247 between 2012 and 2016. Saudi Arabia is expected to remain the largest GCC market in terms of revenues, followed by the UAE. Qatar is expected to be one of the fastest growing markets, driven by rising business tourism and leisure tourism as the country prepares itself for the FIFA World Cup 2022, and in order to achieve its 2030 national vision.
Driven by its macro-economic fundamentals, the GCC region performed relatively better in the current economic crisis. Government support helped tackle the economic turbulence, and public sector spending on infrastructure has driven the region’s economic growth
Serviced apartments are sprouting up in the region in tandem with the rising number of expatriates and business travelers visiting the GCC region. These apartments provide the option of longer stays at cheaper rates relative to traditional hotels.
Increased awareness amongst individual and business travelers regarding personal health and well-being coupled with rising income levels have bolstered the spa and wellness industry, a component of luxury hospitality.
Hotels in the GCC region are also likely to speed up redecoration and refurbishment activities in order to stay competitive as new hotels enter the market.
Hotel room supply in the region is expected to grow in tandem with the imminent rise in demand. The oversupply of hotel rooms could be a challenge going forward as this could affect the performance of the hospitality industry by reducing occupancy rates and exerting pressure on ADRs. Over the past few years, the hotel pipeline has increased considerably to meet the growing demand. However, a fall in tourist activities during an economically turbulent environment will impact the demand for hotels by affecting occupancy levels and ADRs.
The growth of the hospitality industry is largely dependent on the travel and tourism activities, industries ancillary to it as well as directly related with the well-being of the economy. If there is a negative shift in the socio-economic and political stability of countries in the Middle East, this could severely impact revenues of the region’s hospitality industry.
On the outlook the report kept the hospitality sector as promising in line with GCC governments and private stakeholders who were expected to undertake various measures to address the current challenges.