Construction

The Middle East hospitality industry in focus

Angitha Pradeep speaks to Bastien Blanc, VP operations – ME, InterContinental Hotels Group (IHG), about the region’s hospitality boom

According to the 2018 GCC Hospitality Industry Report from Alpen Capital, the GCC hospitality market is expected to grow at a 7.2% compound annual growth rate (CAGR) from an estimated $22.9bn in 2017 to $32.5bn in 2022. The report also states that recovery in oil prices, upcoming mega-events like the Expo 2020 Dubai, positive regulatory initiatives and an increase in government investment are strong sources of growth for the entire GCC hospitality sector.

Meanwhile, JLL’s Hotel Investment Outlook report claims that global economic and real estate markets are expected to move towards slower growth in 2019. Increasingly volatile equity markets, US-China trade tensions, political uncertainty in the EU and slower economic growth projections are some of the reasons for the decline in growth. However, the report emphasises that hotel occupancy and underlying property performance are expected to remain strong.

This is mainly due to new investors and investment strategies emerging in recent years, enabling investors to enter hotel real estate in ways beyond direct acquisition of assets. Prevailing trends seen in 2019 will be debt investments, strategic joint ventures, recapitalisations, and real estate and brand mergers and acquisitions (M&A) activity.

In order to better understand the impact of these changes, Big Project ME spoke to Bastien Blanc, vice president Operations – Middle East, InterContinental Hotels Group (IHG).

“The UAE has fast emerged as one of the most exciting destination for leisure and business travellers from across the globe,” Blanc says. “In order to further broaden the country’s destination appeal, the government has launched various initiatives such as streamlining visa requirements, infrastructure development and investment in destination marketing, which are set to have a positive impact on the tourism sector.

“Additionally, Dubai’s Tourism Vision 2020 is a strategic plan with the objective of attracting 20m visitors per year. This translates into a world of opportunities for the hospitality sector, as there will be a high demand for quality accommodation in the coming years.”

Beyond Expo 2020 Dubai, a growing segment of gen Z and millennial travellers also have a considerable influence on conventional design and build concepts in the hospitality industry. JLL’s Outlook states that modern-day customers are placing more importance on experiences while seeking fewer material goods. Around the world, hotel markets are seeing strong demand for high-end experiential luxury travel; in 2018, luxury hotel transactions in the US increased by 76%.

“As guest needs evolve, both developers and operators must work together closely to stay relevant and offer guests what they need,” says Blanc, adding that guests today expect technology to inform and enrich their stays.

“From intuitive booking apps, chatbots and mobile check-ins to smart AI assistants and seamless Wi-Fi, today’s guests expect technology to be integrated into many areas of the travel experience. A trend that is shaping the hospitality industry is the integration and increasing use of technology in the entire guest journey.”

Lodging Econometrics’ Global Construction Project Trend Report adds that hotel construction projects globally increased by 7% in 2018, with 13,573 projects currently in the works. Closer to home, Dubai has a pipeline of 168 hotel construction projects with 49,950 rooms in 2018, putting it in the second place globally behind New York City, which reported 171 hotels with 29,460 rooms.

Blanc’s analysis is that the hospitality industry in the region is going through a period of supply expansion which has put a temporary strain on the market. However, in the long term the market will do well and see strong, sustained growth with an anticipated increase in the number of tourist arrivals.

Additionally, hotels have begun offering co-working spaces in response to evolving customer needs, he says, backing up JLL’s Outlook, which highlights strong demand for communal workspaces for the new generation of consumers to socialise and work.

“There is also strong interest in lifestyle- and design-led brands that provide guests with unique experiences underpinned by solid fundamental service and product deliverables,” Blanc explains.

JLL’s Outlook projects that hotel investment volume will reach $67.2bn in 2019, nearly equal to 2018’s total of $67.7bn, but states that growth patterns are changing for global hotel companies. Alpen Capital’s report also predicts that mid-market hotels and Airbnb-type renting models will become more popular and increase market penetration by 2022, noting that this is largely driven by millennial travellers on the lookout for experiences, authenticity and resource optimisation.

“We believe that technology, as well as new designs and concepts, will play a significant role in catering to the needs of gen Z and millennial travellers. Moreover, technology will continue to evolve in the years to come and play an even bigger role in the growth and advancement of the hospitality sector. At the same time, availability of quality accommodation catering to varied guest profiles is essential for the success of a tourist cluster,” Blanc concludes.

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