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Nakheel boss dismisses talk of Dubai hotel oversupply

The Nakheel chief executive Sanjay Manchanda dismissed concerns about a potential oversupply of hotel rooms in Dubai as the company announced an agreement with the UK budget hotel chain Premier Inn for a new 250-room hotel at its Dragon City project.

The new hotel is set to open in 2018 and is one of nine planned by the developer to be completed over the next five years. Only one of these – The Palm Tower Hotel and Residences – will be a luxury property, with the rest aimed at the three- and four-star market.

Mr Manchanda said that five years ago Nakheel did not have any substantial interest in the hotels market, but he believes “there is an opportunity” in budget hotels. “The luxury and ultra-luxury sector is very competitive. It requires a very focused attention.”

He said that the budget sector was an attractive one and that was the reason why a number of other players have come in and were continuing to grow their portfolio.

“I don’t think oversupply is going to be an issue, or that there is an oversupply,” he said. “If you look at how the hospitality sector has panned out over the past three to five years, the stock has increased and occupancy is still in the 80s and high 90s. ADR [average daily rates] and REVpar [revenue per available room] have been increasing – apart from the past six months.”

The Dragon City hotel follows on from a deal for a 372-room Premier Inn Hotel under construction as part of the extension of Ibn Battuta mall, which will open late next year. Mr Manchanda said that another budget hotel on the same site, an Ibis Styles by Accor, could open by the end of this year.

Nakheel also has deals with Thailand’s Minor Hotels Group for a 500-room property and with Spain’s RIU Group for a 750-room hotel. Both of these will be at Deira Islands.

Mr Manchanda said that new attractions such as Meraas Holding’s Bluewater Island and the Dubai Parks and Resorts site would bring in more visitors.

“I think there will be enough room for this sector, and hopefully we will never have this situation, at least in the near future, where we are saying that there is oversupply and we should stop.”

Khalaf Al Habtoor yesterday said that he believed banks and tourism authorities in Dubai should seek feasibility studies from independent, international advisers before they gave the green light to hotel projects to prevent the possibility of bankruptcies in the sector.

The London-based analyst Capital Economics has also expressed concern that tourism numbers after 2020 could fall back from the 25 million or so tourists expected. The emerging markets economist William Jackson said: “If Dubai is to really achieve the targets for visitors in 2020, it could subsequently be left with an oversupply of hotel rooms, office space and transport infrastructure.”

John Stevens, the managing director of Asteco Property Consultants, said that although occupancy levels in Dubai hotels were “not as good as they were”, they are still much higher than in most mature markets.

“In the western world they would kill for anything close to the occupation levels we are achieving here,” said Mr Stevens.

Figures from STR Global for June and July combined, both of which include a full Ramadan period, show that ADR for the UAE dropped 4.5 per cent to Dh523.8, while REVPar dropped 3.2 per cent to Dh310.60.

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