Dubai hoteliers are still making healthy profits due to low operating costs despite a toxic cocktail of plunging revenues, shrinking occupancy and swelling hotel oversupply, leading industry figures told Maktoob News.
Hotels in Dubai, the Gulf's business and leisure hub, were among the worst performing in the Middle East last year in terms of revenues and occupancy as holidaymakers cut back on travel amid the global recession.
Revenue per available room (RevPAR), an industry benchmark, slumped 31 percent to $163, while occupancy fell 10.2 percent to 69.4 percent, according to hospitality research firm STR Global.
The figures paint a grim picture of a sector on its knees after years of record room rates when tourists flocked to soak up year-round sun and shop in luxurious mega-malls.
Hoteliers, however, say even though revenues have dropped, profit margins are still well above what they could expect in the United States and Europe.
Hotels in Dubai, where there is no minimum wage, are able to hire cheap expatriate labour from the wider Middle East and Asia, while still charging among the most expensive room rates in the world.
A waiter at a hotel in Dubai makes around 1,000 dirhams ($272) a month, while a waiter at a hotel in London makes at least 1,000 pounds ($1,520) a month.
Dubai had the 16th most expensive room rates in the world last year, while neighbouring Abu Dhabi boasted the second most expensive behind Moscow, according to consultancy Hogg Robinson Group.
"In these economic conditions, any gross operating profit of more than 35 percent would be considered good," said Jalil Mekouar, executive vice president at a renowned hotel in the Middle East.
"The market has taken a correction last year, but even with this drop, gross operating profit in Dubai is higher than cities like London, New York, Paris and Rome because of lower payroll cost," he said.
Mekouar, however, cautioned that not all hotels in Dubai enjoy a 40-45 percent margin. "It depends on the location and a strong management brand," he said.
High profit margins have attracted hotel developers in droves with the promise of a double-digit return on their investment, sparking a wave of hotel development that has left the emirate with an oversupply of hotel rooms.
There are currently around 60,000 rooms in Dubai, with another 30,000 in the pipeline, STR Global figures show.
"Dubai still represents better return on investment than some of the other mature markets," said Sami al-Ansari, chief executive officer of hotel developer Ishraq Gulf Real Estate.
"In the UK, 8 percent return on a hotel is considered good, and it is similar in the U.S," he said, adding that hotels in Dubai offer double-digit returns even in an economic downturn.
