Global hospitality consultant calls for ‘re-positioning’ of Dubai’s hotel market

Hotel business models, brands and physical assets will all require significant changes over the next 10 years, says Filippo Sona, Managing Director, Global Hospitality, Drees & Sommer

The hotel sector in Dubai will need a complete re-positioning in order to continue to be successful over the coming decade, according to the hospitality division at leading international consultant, Drees & Sommer.

Driven by the evolving economy, increased hotel supply and the consolidation of the average room rate witnessed in the Dubai market, hotel owners and operators alike will need to shift from a revenue-driven strategy to a cost-driven strategy.

This is the view of Filippo Sona, Managing Director, Global Hospitality at Drees & Sommer, who is calling for a repositioning across three main aspects of the hotel industry in Dubai: business models, physical assets and brands.

Sona, who was recently appointed a member of the International Society of Hospitality Consultants, said: “It is time for hoteliers to reposition and reinvent themselves. The main issues surround the business model. For example, staff accommodation, currently provided by hotel owners in Dubai, is a massive cost that is neither sustainable nor necessary. It will become obsolete. This is for two reasons.

“Firstly, Dubai’s residential market is stable but expanding, and there will be units coming online that hotel employees can afford to rent. Secondly, the trend towards outsourcing hotel services, from security to housekeeping, is growing and coupled with developments in technology that will make hotel operations more efficient, hotels will require smaller workforces in the future.

“However, such dramatic change to well-established business models requires a huge shift in mindset and this will take time. It will be a gradual repositioning, but one that needs to start now and take place within the next 10 years,” explained Sona.

When it comes to brands and physical assets, hotels that were built prior to 2010 will need to be repositioned in order to compete with the new supply coming online. According to STR’s latest data, there are 427 hotels accounting for 123,742 rooms in construction in the Middle East, with 54,438 (31.8%) of these rooms in the UAE.

“The repositioning of physical assets will require more than a refurbishment,” said Sona. “The consolidation of average room rate that we are seeing right now is here to stay. Dubai is a spectacular destination, with visitor numbers increasing year-on-year, but US$180-200 is going to be the new average five-star room rate and properties need to be designed accordingly. Potentially, this means hotels will need to have room sizes equivalent to those in other key global markets, such as London, New York and Amsterdam. Will the Dubai hotel of the future have 45sq m rooms? No; the investment required will be too high per square foot, which doesn’t make sense in today’s economy. Hotel brands will need to be onboard with this change too, and ensure their product meets the needs of the future market dynamics.”

Sona added that the profile of Dubai’s hotel general managers will also change over time.

“Hotel owners need to be able to rely on seasoned operators who are used to working in city hotels in markets where every dollar counts. General managers need to understand the cost structure of their operations very well.”

The call for market transformation will be central to the upcoming Arabian Hotel Investment Conference 2020 (AHIC), being held at Madinat Jumeirah in Dubai from April 14-16 and designed around the theme of ‘Transform Tomorrow’.

Sona, who will be speaking at AHIC, said: “AHIC is a platform at which hotel investors, developers, owners and operators can join forces to instigate change, challenge legacy systems and adapt to new operating environments. The 2020 theme couldn’t be more timely. At Drees & Sommer, we are looking forward to taking part in the debate on transformation and exploring how hoteliers are going to evolve both their mindsets and their businesses to adapt to the new ‘normal’.”