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HOME > THE GLOBAL SERVICED APARTMENTS INDUSTRY REPORT 2011-12 > REGIONAL REPORT - MIDDLE EAST
panoramic view Dubai martinKubler
Regional Report - Middle East
Martin Kubler
Iconsulthotels FZE

Trends

In this edition of the Global Serviced Apartment Industry report we have invited industry experts in every region to provide an overview of their local market. Martin Kubler of Iconsulthotels FZE gives his analysis of the Middle East serviced apartments sector.

The year 2011, to date, certainly developed differently for the region’s serviced apartments operators from what most industry professionals expected when 2010 drew to a close.

In the aftermath of the global financial crisis, which also affected many countries in the Middle East, serviced apartment operators had just started to look ahead to improvements in occupancy levels and, to a lesser extent, ADR, when the Arab Spring of 2011 suddenly changed the game plan completely.

Unfolding at a dramatic pace, the events in Egypt did not influence the serviced apartments industry in the Middle East too much, but mainly impacted hotel operators instead, as tour groups and tourists cancelled their Middle East itineraries often at very short notice. Apartment operators in locations perceived as “safe havens”, such as Dubai and Abu Dhabi, even managed to pick up business from clients temporarily relocating out of Egypt and, later on, Bahrain.

As developments dragged on and started to affect other countries in the region, such as Syria and Yemen, some of these “temporary” arrangements seemed to become a little more permanent with international companies relocating entire offices from troubled regions to safer locations, particularly the United Arab Emirates and, to a lesser degree, Qatar.

In the United Arab Emirates, particularly in the two main business hubs of Dubai and Abu Dhabi, occupancy rates increased considerably due to an influx of guests from neighbouring countries, yet apartment rates remained very low which was mainly due to supply exceeding demand and a steep decline in residential property rents.

At the beginning of 2009, the Department of Tourism & Commerce Marketing (DTCM) in Dubai registered 165 serviced apartments properties offering 14,969 units. In June 2011, the DTCM statistics showed 189 properties with a total of 20,883 units.

Exact figures for the neighbouring Emirate of Abu Dhabi are not available, but data presented in SCAD’s Statistical Yearbook - 2010 shows that the number of Abu Dhabi hotel establishments (of which serviced apartments are an increasingly important part) increased by 5.5% to 115 establishments in 2010. This was accompanied by a growth of 10.2% in the number of hotel rooms.

At the same time, residential rental prices dropped sharply in both Dubai and Abu Dhabi – a trend which is still on-going. In Abu Dhabi, for example, rents declined by 10% in Q4 2010, while many parts of Dubai recorded declines of more than 20%.

While the global financial crisis saw the influx of international corporate clients slow down, many existing residents in the region used the decline in rental prices to trade up and moved from residential apartments and villas into serviced apartments.

This also meant that not only the demand for different unit types, but also the guest mix in many properties changed. While in previous years, studios and one-bedroom units were in high demand, mostly by corporate executives on limited-term assignments, larger units now became more desirable as regionally-based clients and their families increasingly viewed serviced apartments as a viable long-term residential option.

Unfortunately, reliable statistics on guest segmentation in the region’s serviced apartments properties are impossible to come by, but anecdotal evidence suggests that regionally-based, longterm clients now make up a good part of residents in such properties.

The market in most parts of the region is still very much controlled by smaller, independent operators, reflecting the history of serviced apartments in the Middle East, which were originally often chosen by Arab travellers who valued the extra space and privacy apartments afford over traditional hotel rooms.

Also the fact that, in the United Arab Emirates, serviced apartments properties are rarely able to obtain a license to serve alcoholic drinks (with very few exceptions, the licensing authorities will only allow properties classified as “hotels” to serve alcohol and there are hardly any stand-alone restaurants or bars), matters less to the mainly Muslim Arab guests.

During the last two to three years, larger regional and international operators, did increasingly enter the market and introduce a variety of extended-stay and serviced apartments products ranging from Accor’s SuiteNovotel (Dubai) to IHG’s Staybridge Suites (Abu Dhabi) & Intercontinental Residence Suites (Dubai), Marriott’s Executive Apartments (Dubai, Doha, Manama), and Rotana’s Arjaan Hotel Apartments. The latter is growing particularly fast and currently covers the United Arab Emirates (six properties), Kuwait, Saudi Arabia, Qatar, and Syria (two properties).

Rotana is also the only internationally branded operator with properties in emerging business destinations like Erbil (Kurdistan) and Khartoum (Sudan). Mövenpick Hotels also entered the serviced apartments market recently with mixed use developments such as the Laguna Tower in Dubai. Outside the United Arab Emirates, EWA Hotel Apartments has a strong base in Saudi Arabia (four properties) and ambitious expansion plans which include Bahrain, Sudan, and Oman.

The United Arab Emirates still lead the regional development pipeline, with brands like Rosewood, Fairmont, and St. Regis scheduled to add more than 1,800 serviced apartments units to the existing inventory over the next two years. Qatar will also see a considerable inventory increase over the next two years including the opening of the Hilton Doha Residence and the Le Meridien Doha, which is projected to feature 100 serviced apartments in addition to hotel rooms.

Saudi Arabia, long seen as mostly a religious destination, is consistently increasing its profile as a regional business destination and operators like Kempinski, Hyatt (Summerfield Suites), and Golden Tulip are planning to open serviced apartments / extended-stay properties in the country over the next two years.

The global financial crisis saw serviced apartments in many Middle East destinations increasingly being seen as a viable alternative to hotel by travellers with families, who often prefer to use the kitchen facilities to eating out in restaurants in order to stretch their holiday budgets further.