The GCC hotel market is dominated by luxury, up-market establishments, however, with growing importance of emerging millennial travellers, global traveller trends have shifted dramatically. More and more travellers, even those who can afford luxury, are opting to stay in affordable hotels. The reason for this shift includes the rise of the affluent middle class, especially in Asia which has opened up new opportunities for investors in the GCC hotel industry. Additionally, with the region preparing for megaevents such as the Expo 2020 in Dubai and the FIFA World Cup 2022 in Qatar, it is imperative that GCC countries widen their accommodation choices to include mid-market hotels.
Dubai has spent the last decade establishing and marketing itself as a ‘luxury’ destination with a large presence of international luxury hotel brands. The city is now moving towards destination maturity attracting a diversified tourist profile and an enhanced product offering including largescale theme parks.
Opening itself to mass markets such as China and India, the development of large-scale tourism projects, the trimdown of corporate travel budgets during trying periods and the consumer behavior of the millennial traveler, it is important for Dubai to address the skew of its hotel supply towards the luxury hotel sector and open its door to welcome more budget-friendly mid-market, i.e. 3 and 4 star hotels, into the mix.
Land in the accessible prime hotel clusters across Dubai comes at a very high price rendering the development of budget properties within these clusters as unfeasible with comparatively lower returns.
To be profitable, budget hotels are generally situated in second-tier locations in Dubai. Such locations are usually not very accessibly via public transportation which could be a possible deterrent for the priceconscious consumer.
Developer perception within the region focuses on the development of “trophy assets” in the form of luxury hotels in prime locations. This trend is gradually changing with prominent developers rolling out a portfolio of mid-market and budget hotels.
There is a higher risk of developing mid-market hotels due to lower barriers to entry. Mid-market hotels also tend to be vulnerable to rate fluctuations in the 5 and 4-star market and economic headwinds.
To promote investments in the mid-market hotel sector, it is imperative that there exists a strong support infrastructure for all sizes of investors, including lending and construction support.