Leisure projects ‘spur development’
LEISURE and tourism are emerging as two of the most exciting investment opportunities in the Middle East as many countries in the region are making efforts to tap tourism’s potential as part of their economic diversification programmes.
Improved product development, enhanced funding for tourism and an increase in marketing and promotion have all facilitated the task and helped secure good return on investment, according to a speaker at the two-day Leisure Invest Middle East 2006 Conference.
“Tourism activity in the region was expected to continue to grow at over 4 per cent per annum, with some countries like UAE and Qatar registering higher growth rates,” said Mohammed Dahmash, partner in charge of Hospitality Real Estate Middle East, Ernst & Young, in his keynote address on ME performance overview.
The growth has been stimulated by the inflow of funds from Europe and North America, post 9/11, high oil prices and increased liquidity, low interest rates and easy access to finance, public sector investing in infrastructure. Other key factors include major reforms in property ownership laws, high population growth rates and the changing consumer leisure spending patterns.
Intra-regional travel also got extra push as ME and GCC travelers were reluctant to go to the west.
Quoting WTTC figures, he said the regional travel and tourism industry was expected to generate $147,565.4 million of economic activity in 2006. With capital investment around $21.1 billion the industry will employ 4.59 million people. The sector’s contribution to the ME GDP will be around 9.6 per cent.
Tourist arrivals to the region is anticipated to increase annually by 4.3 per cent between 2007 and 2016. In 2005, Saudi Arabia registered highest number of tourist arrivals at 8.5 million followed by Egypt at 7.5 million and UAE at 6.5 million. Jordan, benefiting from the Iraq crisis, received 5.5 million tourists.
On public and private capital investments in the region, he said the UAE was on top with 45 per cent, followed by Saudi at 19 per cent and Egypt at 17 per cent.
Commenting on its effect on the hotel industry Dahmash said, “Hotel occupancy has been on the rise since 2003 for the majority of ME countries. Beirut was doing very well before the Lebanon war.
Apart from Kuwait and Lebanon, average room rates have also gone up, particularly in Dubai, Abu Dhabi and Doha.”
Starwood, Intercontinental and Accor have strong representation in the regional hotel market followed by Hilton, Movenpick, Marriott and Rotana.
On performance of hotel industry in Dubai he said, “The emirate represents an outstanding example of visionary leadership.” Last year Dubai hotels registered 88 per cent occupancy, nine per cent increase over the previous year. Average room rates have also increased from $98 in 2003 to $142 in 2004 and $195 in 2005. RevPAR also went up by 38 per cent at $ 175.
Healthy operating margins can be attributed to less reliance in room revenue, greater F&B revenue opportunities, low cost of labour and no real estate taxes.
The retail sector in Dubai represents 30 per cent of the projected development in the GCC. Shopping malls in the Emirate are doing well with annual rental rates ranging from Dh200 ($54.4) to Dh500 per sq ft and most of the space being pre-leased prior to opening.
The UAE also led in terms of investments in mega leisure projects like Dubailand ($18 billion investment) and Al Bawadi ($27 billion).
Tourist arrivals to Dubai were projected at 10 million in 2007 and 15 million by 2010. With 15 million tourists, hotel occupancy levels would be 90 per cent and even if the arrival figures go down by 35 per cent the occupancy figures will be close to 58 per cent. Similarly for the retail sector, with 15 million tourists the occupancy will be 75 per cent and at minus 35 per cent occupancy will be 66 per cent.
There were also some risks to the leisure and tourism boom, Dahmash noted. These include the perception of being too expensive destination, increasing competition within the region, international exchange rate fluctuations and regional instability. The risks are being minimized by overseas promotions, hosting international high profile events, increased airlift capacity, innovation and diversification of product.
With massive developments underway in all over the region, a bright future lays ahead, he concluded.
Organized by Terrapinn, Leisure Invest ME 2006, held in Dubai last month, was organised to help investors, developers, operators and financiers take advantage of the tremendous potential across the region. A full spectrum of projects from multi-use resort developments to large-scale theme parks and space stations to ski centres were examined.