Serviced apartment operators in Dubai are bracing themselves for a fall in room rates as investors attempt to convert commercial office space into short-term let apartment blocks to take advantage of potentially high returns.
According to experts at the global banking group HSBC, property investors in Dubai are putting their money back into hotels and serviced apartments as the sector benefits from the emirate's recent tourism boost.
At a round-table meeting yesterday, HSBC officials said investors were especially drawn to Dubai's serviced apartment market where assets are producing double-digit yields - something Nicholas Levitt, HSBC's head of commercial banking in the UAE, says is unsustainable over the long term.
"If you've got a double-digit yield on any real estate asset, either prices have to go down or the rental rates have to go up because you can't sustain that over the long term and if you have a whole bunch of investors moving in to that type of asset class you soon create an oversupply that becomes an issue if the yield becomes that high," Mr Levitt said.
"If you've got a large commercial complex which was massively overstocked in Dubai at the moment it makes more sense to convert it into serviced apartments. Is that sustainable in the long term? There's not many markets in the world where double-digit yield curves are achievable in the long term."
Susan Potter, the group director of hospitality services for MKM Commercial Holdings, the hospitality group behind Raffles Dubai as well as three-star and serviced-apartments, said her company was expecting a fall in serviced apartment room rates although it had not noted any evidence of an oversupply.
HSBC estimates that last year the UAE ranked about fifth in the world in terms of the number of new hotel openings behind the United States, India, China and the United Kingdom, which was staging the Olympic Games.
"That's a significant amount of assets arriving on to the market, which is already very concentrated with assets," said Mr Levitt.
He added that the number of requests his bank received for major hotel financing in the UAE increased last year from "virtually none" the year before to about 12 properties.
The bank added that 12 to 18 hotels were set to open in Dubai this year while another eight were scheduled to open in the Northern Emirates - of which four were located in Fujairah.
Hotel operators report that room rates increased by about 8 per cent last year but still remain about 25 per cent lower than their pre-financial crisis level when supply was much lower. Occupancy levels, they report, have returned to pre-crisis levels.
However, operators report that much of this growth has come from the lower budget end of the market, driven by consumers cutting back on spending, improved technology enabling customers to get a better deal online and on an increase in the number of tourists visiting the UAE from developing markets.
The change in demographics is encouraging budget hotel operators to operate in the emirates. Premier Inn plans to open 50 hotels across the Middle East over the next decade and Holiday Inn Express has also said it plans to expand in the region.
"Clearly there is a commitment by many of the international brands such as Premier Inn and Holiday Inn Express to increase their portfolio in this region. So I am concerned about the supply line in terms of hotel rooms in the sector in the medium to long term. I do feel that revenue per available room will be affected in the long term," said Ms Potter.
However, hoteliers said they remained optimistic about the industry's prospects and did not think there was a wider oversupply of hotels in the market.
"There are more hotels coming, and every time there are more hotels, people thought is the market going to be able to handle it. But we've seen that business has grown as much as the rooms have grown. It's just gone hand in hand," said Sanjay Luthra, the general manager of the Metropolitan Palace hotel in Dubai.
lbarnard@thenational.ae
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Other workplace saving schemes
- The UAE government announced a retirement savings plan for private and free zone sector employees in 2023.
- Dubai’s savings retirement scheme for foreign employees working in the emirate’s government and public sector came into effect in 2022.
- National Bonds unveiled a Golden Pension Scheme in 2022 to help private-sector foreign employees with their financial planning.
- In April 2021, Hayah Insurance unveiled a workplace savings plan to help UAE employees save for their retirement.
- Lunate, an Abu Dhabi-based investment manager, has launched a fund that will allow UAE private companies to offer employees investment returns on end-of-service benefits.
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At a glance
Global events: Much of the UK’s economic woes were blamed on “increased global uncertainty”, which can be interpreted as the economic impact of the Ukraine war and the uncertainty over Donald Trump’s tariffs.
Growth forecasts: Cut for 2025 from 2 per cent to 1 per cent. The OBR watchdog also estimated inflation will average 3.2 per cent this year
Welfare: Universal credit health element cut by 50 per cent and frozen for new claimants, building on cuts to the disability and incapacity bill set out earlier this month
Spending cuts: Overall day-to day-spending across government cut by £6.1bn in 2029-30
Tax evasion: Steps to crack down on tax evasion to raise “£6.5bn per year” for the public purse
Defence: New high-tech weaponry, upgrading HM Naval Base in Portsmouth
Housing: Housebuilding to reach its highest in 40 years, with planning reforms helping generate an extra £3.4bn for public finances
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How much sugar is in chocolate Easter eggs?
- The 169g Crunchie egg has 15.9g of sugar per 25g serving, working out at around 107g of sugar per egg
- The 190g Maltesers Teasers egg contains 58g of sugar per 100g for the egg and 19.6g of sugar in each of the two Teasers bars that come with it
- The 188g Smarties egg has 113g of sugar per egg and 22.8g in the tube of Smarties it contains
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Most sought after workplace benefits in the UAE
- Flexible work arrangements
- Pension support
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- Insurance coverage for optical, dental, alternative medicine, cancer screening
- Financial well-being incentives
What is Reform?
Reform is a right-wing, populist party led by Nigel Farage, a former MEP who won a seat in the House of Commons last year at his eighth attempt and a prominent figure in the campaign for the UK to leave the European Union.
It was founded in 2018 and originally called the Brexit Party.
Many of its members previously belonged to UKIP or the mainstream Conservatives.
After Brexit took place, the party focused on the reformation of British democracy.
Former Tory deputy chairman Lee Anderson became its first MP after defecting in March 2024.
The party gained support from Elon Musk, and had hoped the tech billionaire would make a £100m donation. However, Mr Musk changed his mind and called for Mr Farage to step down as leader in a row involving the US tycoon's support for far-right figurehead Tommy Robinson who is in prison for contempt of court.
COMPANY PROFILE
Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
Based: Tunisia
Sector: Water technology
Number of staff: 22
Investment raised: $4 million
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The biog
Favourite hobby: taking his rescue dog, Sally, for long walks.
Favourite book: anything by Stephen King, although he said the films rarely match the quality of the books
Favourite film: The Shawshank Redemption stands out as his favourite movie, a classic King novella
Favourite music: “I have a wide and varied music taste, so it would be unfair to pick a single song from blues to rock as a favourite"
SNAPSHOT
While Huawei did launch the first smartphone with a 50MP image sensor in its P40 series in 2020, Oppo in 2014 introduced the Find 7, which was capable of taking 50MP images: this was done using a combination of a 13MP sensor and software that resulted in shots seemingly taken from a 50MP camera.
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Killing of Qassem Suleimani
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