Quarterly Report Dubai Q1 2020: Hospitality Market Overview
The shutdown of hotels due to COVID-19 drastically diminishes hotel revenues
Following the outbreak of COVID-19 in early March 2020, the UAE has taken significant measures in the tourism and hospitality sector to contain the outbreak of the virus. These include grounding all passenger flights and the closing of hotels, spa and wellness facilities, amusement parks, theme parks, playgrounds, electronic games centres, and fitness centres for an indefinite period. These measures will severely affect the hospitality market for the remainder of the year.
Dubai has also postponed Expo-2020. The new date of the event is October 2021. This step came after participating countries expressed their need to delay the Expo’s opening to overcome the challenges posed by the COVID-19 pandemic.
Authorities have issued four relief initiatives for the tourism sector, including the reduction of municipality fees imposed on sales at hotels from 7% to 3.5%. The second initiative exempts companies from fees charged for postponement and cancellation of tourism and sports events scheduled for the year 2020. The third initiative freezes charges for the rating of hotels. The fourth initiative freezes the fees charged for the sale of tickets, issuance of permits, and other government fees related to entertainment and business events.
Despite the gradual increase in tourist arrivals over the past decade, estimates showed tourists visiting the city declined by almost 30% in Q1 2020 compared to Q1 2019. Tourist arrivals are expected to fall dramatically over the remainder of 2020 as a result of restrictions on individuals’ movements and flights. We expect the market to experience a resurgence next year after the most significant measures to restrict the spread of COVID-19 ease internationally.
The STR Global hotel records showed total hotel stock in Dubai was 86,348 keys at the end of 2019, with 52% of all keys categorized as luxury or upper-upscale. Hotel room supply has continued to grow, with around 767 keys delivered in Q1 2020. C&W estimates total hotel keys (3-5 star) stands at 89,000 keys at the end of Q1 2020. New hotel launches in Q1 included AVANI Hotel – Ibn Battuta (372 keys) and Crowne Plaza Dubai Marina (300 keys). 7,640 keys are in the pipeline for the remainder of 2020; however, we expect new supply delivered to be lower, given into impact of COVID-19.
As the introduction of restrictions didn’t come into force until late March, the Coronavirus pandemic had little impact on hotel revenues in Q1 2020. We expect income to reduce sharply over the remainder of the year as the majority of hotel establishments close temporarily or see business curtailed. Revenues in Q1 marginally softened compared to the same period last year with ADRs at AED 560 per room, while RevPAR was down to AED 410 as per STR’s latest figures.