KPMG 2016-2017 international case competition Developing and Applying Expertise to Dubai’s Upscale Hospitality Industry Understanding the Luxury Hotel Industry and Leading Jumeirah Group in the Dubai Market Brian Ballou Dan Heitger Professors of Accountancy Co-Directors, Center for Business Excellence Miami University Oxford, Ohio, USA
Case Context An international professional accounting services firm creates value for clients by offering insightful accounting and advisory services on a myriad of issues. One of the most important, yet challenging, advisory services involves understanding, evaluating, and off offering ering suggestions regarding a client’s strategy and implementation. Successfully providing high-level strategic assessments often triggers considerable opportunities for additional advisory and other services. This case focuses on the luxury hotel industry and one of the market leaders based in Dubai—the Jumeirah Group (hereafter Jumeirah or the Company). Included is a description of the global luxury hotel industry, emphasizing strategies for serving customers, and how Jumeirah’’s culture best enables it to meet Jumeirah customers’ needs in the Dubai and the global luxury hotel segment. The case places you in an advisory role within an international accounting firm interested in growing its client services in Dubai’s luxury hotel industry with Jumeirah as one of its most desired clients. Your team’s charge is to understand and Jumeirah’s vision, strategy, and assess Jumeirah’s corporate culture and offer suggestions for for how Jumeirah should move forward to successfully grow its presence in Dubai and the global luxury hotel market.
An Overview of the Luxury Hotel Industry The hotel industry overall is classified into six segments: economy economy,, midscale, upper uppe r-midscale, upscale, upper-upscale, upper-upscale, and luxury (Travel & Tourism Market Research Handbook , 201 2013). 3). This case focuses solely on the luxury segment, which is further subdivided into upper upscale, luxury major,, and luxur y exclusive (World Luxury Index™ major 2014). 20 14). One way to assess performance in the hotel industry is to measure online search traffic, which is very highly correlated with the actual number of rooms sold (i.e., demand). According to renowned hotelier Jeff Klein in his January 2008 blog (“For the Moment: York Times Ti mes The Definition Defin ition of Luxury, Luxu ry,” T: The New York Style Magazine ), ), “luxury” for a hotel service provider has different meanings to diff different erent people, but it generally is thought of as making customers feel like they are the only people in the room by attending to their specific needs. Basically,, luxury Basically luxur y means customization, cust omization, which can be illustrated as follows: Some customers really enjoy having the maître d’ remembering their favorite table or bringing them their favorite drink when they sit down; others appreciate the valet remembering their name from their previous visit; and others value having chambermaids remember to avoid placing a sweet on their pillow for room turndown service because they are on a diet.
Upper Upscale
Luxury Major
Luxury Exclusive
Camino Real Hotel
Nikko
Andaz
Sofitel
Affinia
Mandarin Oriental
Okura Hotel
Bulgari Hotels
St. Regis
Dusit Thani
Omni Hotel
Conrad
W Hotel
African Pride Hotel
Embassy Suites
Pan Pacific
Fairmont
Waldorf Astoria
Anantara
One & Only
Gaylord Hotel
Pullman Hotel
Gran Melia
Angsana
Hilton
Grand Hyatt
Banyan Tree
Hotel du Vin
Radisson Blu Hotel
Orient-Express Hotel
Hotel Missoni
Four Seasons
Peninsula
Hyatt
Renaissance
InterContinental
Guoman
Regalia Hotel
Joie De Vivre
Sheraton
JW Marriott
Hospes
Regent
Kimpton
Steigenberger
ME hotel
Impiana Hotel
RockResorts
Le Méridien
Swissotel
Park Hyatt
Jumeirah
Rosewood
Mgallery
Vivanta by Taj
Raffles
Kempinski
Shangri-La
Millennium Hotel
Westin
Ritz-Carlton
Langham
Six Senses
Wyndham
Royal Tulip
Loews
Taj Hotel
Lotus Resort
The Leela
Oberoi
Source: World Luxury Index™ 2014 (Digital Luxury Group, SA;
[email protected])
To differentiate across luxury segments, Dubai’s Ritz-Carlton is considered “luxury major” and its room rates on a typical April evening are AED 1,387 (US $378) to AED 4,900 (US $1,334), whereas Dubai’s Burj Al Arab Jumeirah is considered “luxury exclusive” and
its room rates on the same April evening are AED5,905 (US$1,594) to AED35,444 (US$9,580). The case includes descriptions of what Jumeirah offers to justify this pricing in the section describing the hotel and its strategy and culture below.
SEARCH VS. NUMBER OF ROOMS SOLD. (DEC 2012 - JUL 2014)
Correlation - search vs demand +100%
) R T S ( d l o s s m o o r f o n o-60% i t u l o v E
+80% +60% +40% +20% 0% -40%
-20%
0%
+20%
+40%
+60%
+80%
+100%
-20% -40% -60%
Evolution of online search volume (DLG) Source: World Luxury Index™ 2014 (Digital Luxury Group, SA;
[email protected])
y = 0,7672x - 0,0217 R2 = 0,542
This measure typically is referred to as the degree to which a given hotel is “sought after” (World Luxur y Index™ 2014). The following chart illustrates both the current size and year-over-year growth in the three luxury hotel market categories. Using this measure, “Upper Upscale” represents the largest market share, accounting for 56 percent of luxury hotel
online searches, followed by “Luxury Major” (25 percent) and “Luxur y Exclusive” (19 percent). While all three categories of the luxury market experienced increased interest, the “Luxury Exclusive” category enjoyed the greatest year-over-year growth at 9.6 percent.
Most Sought-After Hotel Categories (By Number Of Searches) Luxury Major 25% +5.9% Y/Y
Upper Upscale 56% +7.9% Y/Y
Luxury Exclusive 19% +9.6% Y/Y
Source: World Luxury Index™ 2014 (Digital Luxury Group, SA;
[email protected])
In addition, as shown in the following graph, while increasing generally, the demand for luxury hotels in specific geographic regions varies considerably across the globe. For instance, the United States
currently dominates the absolute luxury hotel market, but the year-over-year increase in demand in places such as United Arab Emirates is considerably higher than in the United States.
Consumer interest origin and evolution of interest
#2 United Kingdom: = #4 Germany: -9%
#3 China: +39%
#1 United States: +7%
10%
4%
#6 Japan: +2%
#5 India: +12%
2%
58%
#8 France: -1%
9% 2%
#9 United Arab Emirates: +16%
3%
2%
1% 2%
#10 Thailand: -5%
#7 Singapore: +9%
Bubble size: % of total interest for luxury hotels that originates from the country Yearly evolutions: July 2013 – June 2014 vs July 201 – June 2013.
Additionally, according to Travel + Leisure (2015), the top hotel luxury brands globally are as follows:
Name
Score
1. Oberoi Hotels & Resorts
97.50
2. Aman
94.00
3. The Peninsula Hotels
93.23
4. Rosewood Hotels & Resorts
93.15
5. Four Seasons Hotels & Resorts
92.43
6. St. Regis
92.36
7. Auberge Resorts Collection
92.14
8. Belmond
91.16
9. Mandarin Oriental Hotel Group
91.14
10. The Ritz-Carlton Hotel Company
90.15
Emerging Trends that are Shaping the Global Luxury Hotel Marketplace According to their Q1 2014 issue, the International Luxury Hotel Association notes the following seven trends in the luxury hotel industry: 1. Growing focus on boutique or lifestyle hotels – Provide customers a personalized experience with unique ambiance that creates deep emotional creativity with customers. 2. Increasing emphasis on guest engagement – Know your customers’ perspectives and wants in order to more successfully personalize their experience. 3. Reacting to a consumer-empowered environment – Strengthen brand within an environment with greater price transparency, lower barriers to entry for competitors, including substitutes, and industry-disruptive ideas. 4. Providing guests total value – Use holistic pricing and forecasting methodologies to help make decisions that maximize total guest value (e.g., room revenue, gaming revenue, food/beverage/ spa revenue, etc.).
5. Adhering to customer recommendations – Utilize social media and other mechanisms to boost online reputation management metrics and to maximize revenue based on customer satisfaction ratings. 6. Working with more competitive bidding for meetings and businesses – Follow the trends in the gaming industry to use more science and analytics to help set prices. 7. Ever-changing and dynamic revenue management – Hire and retain top talent in an environment with a shortage of hotel management expertise.
Ownership Models for the Luxury Hotel Industry Full ownership – This type of ownership warrants huge capital allocation and the owner undertakes higher risk. It allows the owner full control over pricing, operating expenses, and business decisions. Management contract – Individuals called operators run the hotel and receive remuneration directly from the owner as a percentage of sales (2 percent-3 percent), along with incentive payments (8 percent-9 percent of operating profit). This is also referred to in the industry as an Asset Light Strategy. Franchise – Franchisors license their brands, allowing the hotel owner to use the brand and reserve rooms. Franchisee must comply with the franchisor standards, pay an initiation fee, and ongoing royalties (percentage of room sales). Lease and license – Owner of the property leases it for a finite time period. The lease rental is deducted from gross revenue and a penalty is assessed if they fail to comply with the agreement.
One strategy luxury hotels have taken to expand their global brand presence is to enter into management contracts to operate hot els owned by other companies under their hotels’ brand name. For example, Hilton Hotels & Resorts has entered into several agreements to operate well-known luxury hotels under its luxury Waldorf Astoria brand. One example is a management contract it entered with the famed Biltmore Hotel in the United States, which is now operated as the Arizona Biltmore, A Waldorf Astoria Resort . This strategy can be effective for growing the brand but requires a company like Hilton to understand the market in which it operates such that its brand will be recognized and add value to the overall company.
– Recognition – We ensure that people’s individual needs and successes are supported and recognized. – Innovation – We are open minded, challenging conventional thinking, improving our processes and implementing new ideas faster than our competitors.
Jumeirah Vision, Strategy, Culture, and Positioning within Dubai Market Jumeirah transparently describes on its Web site that the company was founded in 1997 with the aim to become a hospitality industry leader through establishing a world-class portfolio of luxury hotels and resorts. Jumeirah hotels and resorts are regarded as among the most luxur ious and innovative in the world and have won numerous international travel and tourism awards. Jumeirah owns 6 foundation assets in Dubai while their other 16 properties are management contracts with third party owners using the asset light strategy noted above. Their growth strategy includes areas of geographic focus such as the Middle East, Africa, Asia Pacific and, on an opportunistic basis, Europe. Jumeirah currently operates two leases in Europe but no longer includes this model in their future expansion strategy. In addition, they have launched a new brand – Venu – targeted at the 4-star range. Venu is designed to appeal to the modern traveler whose expectations revolve around their own lifestyle – clean, contemporary, cool and effortless. This is also an integral part of their global growth strategy. Jumeirah uses the following vision to serve as its value proposition for the market: To be a world-class luxury international hotel and hospitality management company, committed to being the industry leader in all of our activities through dedication to our stakeholders, colleagues, customers, business partners, and owners .
Jumeirah believes that its guiding principles create its culture that differentiates the Company from others in Dubai’s upscale hospitality industry:
– Continuous Growth – We provide an environment where our colleagues and our business can flourish and grow. – People Focus – We focus on our colleagues, customers and business associates and they acknowledge us as preferred partners. Jumeirah believes that its Hallmarks serve as a credo or service philosophy for its employees to follow: – I will always smile and greet our guests before they greet me. – My first response to a guest request will never be no. – I will treat all colleagues with respect and integrity. To further demonstrate its commitment to integrity and excellence, Jumeirah follows its Business Excellence Policy (also known as their Customer Strategy in hotel operations – viewed internally as a philosophy of how they do business): Our dedication to excellence and continuous improvement is demonstrated through our commitment of resources to innovation and learning. Through our Business Management System, we deliver benefits to our customer, colleagues, business partners, owners and society by listening, building loyalty and developing mutually beneficial relationships.
Jumeirah’s strategy has been to ser ve its key stakeholders (by consistently following its Guiding Principles, Hallmarks, and Business Excellence Policy to achieve its vision), which they explicitly express as: – Making customers our first priority and striving constantly to exceed their expectations by applying our Hallmarks, Guiding Principles and Core Standards in our day-to-day activities.
– Integrity – We act with honesty and sincerity in everything we do. We say what we mean, do what we say, and build confidence in our team.
– Leading by example and role-modeling a culture of excellence in everything we do by providing consistently superior and innovative products and services.
– Teamwork – We work toward common goals through open communication, mutual support, and win-win attitudes. We respect our differences and build upon our strengths.
The Company intertwines its culture with the r ise of Dubai’s luxury economy and Arabian hospit ality. Jumeirah believes that it fosters the tradition of welcoming guests better than other hotel chains.
Jumeirah’s standards of service are so high that it claims to drive Dubai’s reputation of excellence as perceived by visitors. Further, the Company is expanding to bring such excellence to people all over the world. Further, Jumeirah argues that it is the reason that Dubai is considered a leader in imaginative and exhilarating experiences, pushing the boundaries of what visitors expect.
Provide Culturally Connected environments – Jumeirah embraces the cultures where it is located, bringing the region’s richness, heritage, and style to its hotels. Jumeirah provides these examples:
Further it emphasizes its Brand Promise of STAY DIFFERENT™ based on three Brand Pillars:
– Jumeirah Dhevanafushi – Guests are welcomed by the sound of traditional drums and singing, the art of Bodu Beru.
Deliver Imaginative and Exhilarating experiences – Jumeirah aims to create unforgettable moments, whether it is a once-in-a-lifetime occasion or just an unexpected little detail. The Company believes that every visit is an opportunity to inspire and excite. Jumeirah provides these examples: – Burj Al Arab Jumeirah – Adventurous guests can get married on the helipad with breathtaking views of Dubai. – Madinat Jumeirah – Guests can explore 3 kilometers of waterways with surprises around every turn. – Jumeirah Frankfurt – Forty thousand bees on the rooftop provide honey for guests to enjoy throughout their stay.
– Pera Palace Hotel Jumeirah – The guest arrival experience is enhanced with a trip in Turkey’s first elevator, which is over 120 years old.
– Jumeirah Himalayas Hotel – Guests enjoy incense and tea ceremonies showcasing traditional Chinese art forms in the culturally inspired hotel lobby. Offer Thoughtful and Generous service – Jumeirah’s employee base consists of over 110 different nationalities, all with one shared goal: to make the customer experience wonderfully different. Jumeirah provides these examples: – Burj Al Arab Jumeirah – Has an average staff to suite ratio of 8:1, – Jumeirah Creekside Hotel – Guests have access to a complimentary selection of amenities offered via a trolley passing by their room. – Jumeirah Carlton Tower – Guests are granted access to private and picturesque gardens in Central London.
Burj Al Arab – Jumeirah’s Flagship Hotel Jumeirah believes that the distinctive sail-shaped silhouette of Burj Al Arab Jumeirah is more than just a stunning hotel, it is a symbol of Dubai. Beyond the stunning structure, Jumeirah believes that its service within the hotel is what really makes the Burj Al Arab so extraordinary. When the hotel opened in 1999, a journalist dubbed it the world’s first 7 star hotel; it is repeatedly voted the world’s most luxurious hotel. In fact, Burj Al Arab is frequently listed as Dubai’s top tourist attraction. It describes that this magnificent destination offers the finest service and facilities throughout – right down to an optional chauffeur-driven Rolls-Royce. Further, Burj Al Arab’s suite-only accommodation offers discreet check-in within rooms, a private reception on every floor and a host of personal butlers, each a warm messenger of unparalleled hospitality. Travel Channel rated the Burj Al Arab the top luxury hotel in Dubai in 2015 (www.travelchannel.com). It describes the hotel as follows: The Burj Al Arab is a knockout from first glance with an unusual design that is built to look like a giant billowing sail reaching over 1,000 feet into the air. Come sundown, the hotel’s exterior is aglow with a light show that moves across the sail-shaped structures. The hotel’s interior is equally impressive with luxurious two-floor suites. The Royal Suite is the most opulent, and features a towering four-poster canopy bed on a rotating pedestal and a staircase built from marble and gold. Each floor of the hotel has its own reception desk and team of butlers ready to assist you with requests,
whether that’s a chauffeured Rolls-Royce to tour the town or reservations for a seafood feast of Caspian caviar, Tasmanian salmon with foie gras, and grilled Atlantic lobster at the on-site restaurant Mahara.
To illustrate to potential guests what the Burj Al Arab offers, Jumeirah collaborated with Google to launch in November 2015, Jumeirah Inside, a virtual platform comprising 360-degree video and photography that also enables users to make hotel bookings. According to Arabian Business (November 18, 2015), Jumeirah said the online tool is a hotel industry first and offers a fully immersive digital travel platform, which is accessible through the Company’s Web site. The virtual journey begins at the world’s most luxurious hotel, the Burj Al Arab, where guests can see , hear and move around like never before. Users can uncover new information and explore the vibrant colors and playful water features in the atrium through 360° video. Other experiences include the chance to dive into the Talise Spa infinity pool, take a leisurely stroll through the magnificent Royal Suite, and explore Dubai from the exclusive helipad. From there guests can continue their virtual journey and explore Jumeirah’s hotels and resorts around the world. By clicking on 360° photo spheres, which each have informative hotspots, users will uncover Jumeirah’s STAY DIFFERENT™ experiences which can be used to inspire their friends through Facebook, Twitter, Weibo, Wechat and Google Plus. Optimized for mobile and tablet users, the site will offer the opportunity to make hotel reservations at any point. The fully immersive experience is available in English, Arabic, German, Russian and Mandarin.
To access Jumeirah Inside, use the following link: http://www.jumeirah.com/en/hotels-resorts/jumeirah-inside/
The Dubai Upscale Lodging Market A Global Leader in Luxury Hotels According to Gulf News TOURISM , in 2015, Dubai was able to yield the third highest average room rates globally. According to a 2015 ranking by the Travel Channel (www.travelchannel.com) the top five luxury hotels in the U.A.E. are:
Burj Al Arab (Jumeirah): See above. Qasr Al Sarab Desert Resort by Anantara (Minor, located in Abu Dhabi)): In the midst of the world’s largest uninterrupted sand desert, the Qasr Al Sarab is a like a dreamy, luxurious mirage providing a palatial retreat in the Empty Quarter of the Liwa Desert. Rooms are decked out in subdued earth tones with intricate mosaics and jewel-encrusted accessories. All rooms have views of the expansive desert, but the Deluxe Terrace rooms have the best, with wide terraces overlooking the sandy dunes. Sample fine Middle Eastern foods at the four restaurants, including the all-day buffets and cooking stations at Al Waha. The free-form pool is a welcome respite from the hot desert sun, as is the spa where ancient elixirs get a modern update with a floral foot bath, Thai herbal compress massage, or a detoxifying green tea scrub. Shangri-La Hotel (Shangri-La): In a city that strives to be over-the-top, the Shangri-La offers first-class luxury in a more restrained and very refined setting. There are 302 guest rooms with deep soaking tubs, rain showers, and warm décor with sleek lines and local artwork. The signature restaurant, Shang Palace, serves high-end Cantonese specialties while Marrakech ser ves contemporary Moroccan cuisine in a bright and airy courtyard. Loungers circle the curved swimming pool where guests can relax after a game of squash or a workout in the fully equipped fitness center. And the hotel’s location on the storied Sheikh Zayed Road puts it right in the center of Dubai’s action with shopping, entertainment, and wild skyscrapers just a few blocks away. Jumeirah Al Qasr (Jumeirah): Al Qasr translates to “the palace,” and its posh, classical architecture and ornate embellishments are designed to invoke the feelings of an upscale sheikh’s summer residence. Al Qasr is part of the larger Madinat Jumeirah resort complex with sprawling facilities and a gorgeous stretch of sand at Jumeirah beach. There are 292 guest rooms decorated with classic Arabic flair and private patios, many with perfect ocean views. Hotel guests have full reign over the resort facilities,
including an impressive health club with a 25-meter indoor lap pool, water sports on the beach, a decadent spa and, for the youngest guests, Sinbad’s Kids Club and water park fun at Wild Wadi.
Bab Al Shams (Meydan): Plan a romantic Arabian getaway at the intimate Bab Al Shams, a desert retreat just outside of Dubai. Even though there are just 113 rooms, the hotel has all of the amenities of a larger resort with 8 restaurants and bars, a stellar spa, and 3 swimming pools. Rooms look out over the vast desert or perfectly landscaped gardens, while suites also boast private sun terraces. The signature restaurant, Al Hadheerah, is an open-air dining extravaganza that resembles a classic Arabic market with a bevy of belly dancers, roaming henna artists, live music, and even falcon displays. Put the perfect end to your Arabian nights with a cocktail at the rooftop Al Sarab lounge with spectacular desert views and shisha, or hookah pipes, with a variety of flavors. Impact of Global Economy on Dubai’s Luxury Hotel Industry One potential disrupting force in the econo mic industry is the weakening global economy, especially in key source markets such as Russia and E urope. The global drop in oil prices in early 2016 is also a cause for concern. According to the Economic Intelligence Unit in January 2016, the sluggish oil economy could negatively impact tourism into the region during the upcoming year. To show the correlation between oil prices and the hotel industry, below is a chart comparing the stock price for upscale and luxury hotelier Starwood (which, at the time of writing this case, is in an acquisition battle between Marriott International and Anbang of China) with global oil prices on a per-barrel basis. 80 70 60
Actual Share Price Jan 2000 to November 2014
50 40 30 20 10
0
10
20
30
40
50
60
70
Model of Starwood Monthly Average Share Price (HOT) with {S&P 500} and {Oil-Price} as Explanatory Variables Source: The Market Oracle, December 2014
80
While the weakening economy is expected to negatively impact the general lodging industry in Dubai, where supply is outpacing demand, the luxury market expects to remain strong. For example, Gerald Lawless, former president and chief executive officer of Jumeirah, noted that occupancy of the Company’s Dubai properties stood at 79 percent for 2015 and believed that, “the hotel industry is in a very robust state and we expect that our (key performance indicators) will continue to rise in 2016.” Lawless also noted that, “additional supply of hotels in Dubai will encourage more guests to visit the Emirates, coupled with increased airlift from Emirates and Flydubai” (as cited in Gulf News TOURISM , www.gulfnews.com, September 2015). However, there has not been the expected rise in key performance indicators as of yet in 2016.
The Impact of Seasonality on Dubai’s Luxury Hotel Market Given the location of Dubai in a dry, desert climate, temperatures vary throughout the year, with summer months from May through September averaging temperatures at or above 100 degrees Fahrenheit. As shown by the two charts below, the percent of Dubai’s gross domestic product (GDP) determined by restaurants and hotels correlates with quarterly temperatures.
Average Daily High/Low Temperatures in Dubai Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
High °C
23
24
27
32
37
38
40
41
38
35
31
26
High °F
73
75
81
90
99
100
101
106
100
95
88
79
Low °C
14
15
17
20
24
26
29
29
30
23
19
16
Low °F
57
59
63
68
75
79
84
86
81
73
66
61
Source: http://www.holiday-weather.com/dubai/averages/
Hospitality Sector (Restaurants and Hotels) as a Percentage of GDP 5.5
5.4
%GDP 5.0
5.4
5.4
5.0
5.0
5.0
4.9
4.6 4.5
4.5 4.3 4.1
4.1
4.0
3.5
3.9
Q1
Q2
Q3
2011
Q4
Q1
Q2
Q3
2012
Source: Dubai Statistics center (DSC), Emirates NBD Research
Q4
Q1
Q2
Q3
2013
Q4
Q1 2014
According to the 2015 Dubai Hospitality Report (www.knightfrank.com), sites for prime hospitality assets are becoming scarcer, Dubai is seeing a shift toward the development of midscale and uppermidscale properties, underpinned by government incentives, a growing middle class in key source markets, and the rise of a younger, more cashconstrained guest profile. The advantages of developing midscale and upp er-midscale hotels generally revolve around the notions of price stability and less volatile demand trends, which have proven to hold true at the local level.
The hospitality market lifecycle
Mature
Development of branded budget hotels typically in tertiary locations and along major travel routes Branded supply well represented in the market accounting for the majority of supply
Emergent
Development of branded mid-market hotels and serviced apartments. International operators well represended with the exception of the budget sector
Developing
High influx of internationally branded luxury and upper upscale hotels Market bifurcated between internationally branded luxury hotels, and low quality standalone properties
Infancy
Market primary characterized by local stand alone development with no consistency in terms of product or service offering
U n i t e d S t a t e s D u b a i R i y a d h O m a n M o z a m b i q u e
Little to no international brand penetration Source: Knight Frank Research
the demand for hotels in operation, it suggests that luxury hotel companies should consider expanding to other luxury markets outside of Dubai (which has been a key part of Jumeirah’s growth strategy) or develop new brands targeted to the midscale or upper-midscale consumer base. According to a July 2015 Arabian Business article, a new report has revealed that Dubai is seeing a significant shift away from luxury hotels to midscale properties with almost 50 percent of new rooms to open in 2015 as having a three-star or lower rating. The study published by Jones Lang LaSalle (JLL) for The Hotel Show Dubai 2015 shows that 44 percent of the 3,600 new hotel rooms to enter the Dubai market in the final months of 2015 are midscale. Its report showed that the near-saturated luxury market is set to be rivaled by a supply of lower-graded properties with more competitive room rates, 44 percent of which are forecast to be graded 3-star or less and a total 69 percent at 4-star or less. However, the high land cost in Dubai acts as a barrier to entry for private developers trying to enter the midscale and budget markets. The large developers with land banks do not have this same challenge. During Q1 of 2015, the hospitality market in Dubai exhibited strong performance in relation to other major markets in the Middle East, despite a dip in key performance indicators, which were primarily attributable to global currency fluctuations and a declining Russian market. During this time, occupancy levels fell by 1.5 percent while average daily rates fell by 12.6 percent to AED588 in annual terms. Although this resulted in a year-on-year revenue per available room (RevPAR) decrease of 7 percent, Dubai remains among the leading markets in the Middle East both in terms of average rate and occupancy. While the hotel industry in Dubai is far more developed than other Middle Eastern destinations, it still has some ground to cover before it can be considered a fully mature market. The current push toward mid-market development will reinforce Dubai’s standing as an emergent hotel market through the provision of a more diverse product offering. As internationally brande d midscale hotels increasingly grow in market, the next asset class to see rapid growth will likely be the economy sector.
As the exhibit above shows, this shift from luxury to midscale and upper-midscale hotels follows the path of a hotel market life cycle as it shifts from infancy to maturity. While this trend does not lessen
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