Property

Mid-market Dubai hotels outperform luxury segment

Cheaper hotels proved more resilient in the first quarter, recording a slight increase in average revenue per room, says Knight Frank report

PHOTO: Despite a decline in overall occupancy levels, Dubai's hotel sector still performed better than many other Middle East markets. Credit: Shutterstock

Dubai’s mid-market hotels outperformed the luxury segment during the first quarter, recording a 0.5% growth in average revenue per room (RevPAR), according to a Knight Frank report.

While the mid-market hotel segment edged up, the luxury and upper-upscale hotel market declined in RevPAR compared to the corresponding period last year, the UK estate agency said.

The two factors contributing to the RevPAR growth of mid-market properties in Dubai were found to be the growing middle class in key source markets – including the rest of the Gulf region, China, India and Africa – and a younger guest profile with limited income.

“From an investment standpoint, the advantages of mid-market hotels over luxury and upper upscale properties are significant,” Knight Frank said.

“Lower capital investments and higher design efficiency, smaller construction period and quicker revenue recognition, and lower land requirements” are some of the benefits of a mid-market product, according to the report. Others included lower staff costs, higher EBITDA margins, and less seasonal volatility.

Overall key indicators in the Dubai hotel market showed occupancy levels fell by 2.2% in the first quarter, average daily rates fell by 5% to Dh984 in annual terms, and RevPAR decreased 7% year-on-year.

Despite this decline Dubai still managed to perform better in relation to other Middle East markets, the report noted.

“Demand levels are set to increase in the next five years and the number of internationally branded mid-market properties will grow alongside as well,” said Knight Frank. “In the medium term, the next asset class expected to see rapid growth will be the budget sector.”

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