This growth is attributed to a 5.3 per cent annual rise in hotels and serviced apartment room inventory and a 6.3 per cent increase in international tourist arrivals, according to the GCC Hospitality Industry report published by Alpen Capital, an investment banking advisory firm.
The report said that Oman government’s tourism plan to double tourist arrivals by 2040 by developing tourist spots and encouraging private investments is likely to boost demand.
Thus, increase in tourist arrivals is likely to result in occupancy rates and average daily rates (ADRs) in the Sultanate’s hotels and serviced apartments to grow by 1 percentage points and 0.3 per cent CAGR, respectively, during 2015 to 2020.
The slow growth is primarily due to the decline anticipated in 2016, after which the country’s key hospitality indicators is expected to grow steadily. As a result, the aggregate revenue per available room (RevPAR) of hotels and serviced apartments is projected to grow at a CAGR of 0.6 per cent to reach $132 by 2020.
Key growth drivers
As a part of the 2040 tourism strategy, Oman’s Ministry of Tourism plans to invest $35 billion to develop the sector with an aim to double tourist arrivals to five million by 2040. The ministry is pushing on the redevelopment of Muscat International Airport and fleet expansion of Oman Air to accommodate the anticipated rise in passengers.
Further, it intends to increase hospitality capacity to 80,000 keys by 2040, of which 30,000 will be holiday homes, 17,000 smaller housing units and 33,000 hotel rooms.
With the expected launch of the Oman Convention and Exhibition Centre in the second half of 2016, the Oman government is looking to become a major regional centre for meeting, incentives, conference and exhibition (MICE) events. An increase in events hosted at the convention centre is likely to attract more business travellers, thus benefiting the hospitality sector.
Oman offers a range of cultural and sports activities like scuba diving, boat trips, dolphin watching, Royal Opera House, and the national museum. The upcoming Duqm tourist complex featuring a mall, hotels, entertainment centre, and water theme park is likely to have a large impact on tourism.
The GCC Hospitality Industry report also covers recent trends, growth drivers, and challenges in the industry. It profiles some of the renowned hospitality companies in the GCC, while evaluating their financial and market valuation metrics vis-à-vis their regional as well as international counterparts.
“Backed by an active tourism market, the GCC hospitality industry remains firm on its growth trajectory. Though drop in oil prices and currency depreciation is currently affecting demand, the sector’s long-term outlook remains strong. Government measures to bolster tourism activities in the region like encouraging private sector investments, building new attractions, expanding airport capacity, and increasing international promotion campaigns are providing impetus to the growth of the hospitality sector in the region. A thriving segment of MICE, spate of technological advancements, and brisk development of midscale hotel properties are amongst the key factors elevating the appeal of the GCC hospitality sector,” said Sameena Ahmad, managing director of Alpen Capital (ME) Limited.
“The GCC is witnessing a significant growth in hotel properties, despite the region’s macroeconomic challenges. Several international hotel chains have established significant presence in the region to capture a slice of the burgeoning tourism industry. Massive infrastructure developments and hotel projects are underway to meet the demands of the tourist inflow expected into the region for the upcoming mega events such as Expo 2020 in Dubai and 2022 FIFA World Cup in Qatar. The hospitality industry continues to present interesting opportunities to investors. We expect consolidation and M&A activity in the hospitality sector to accelerate given attractive valuations,”added Sanjay Bhatia, managing director of Alpen Capital (ME) Limited
According to Alpen Capital, the GCC hospitality market is expected to grow at a 7.6 per cent CAGR from an estimated $25.4 billion in 2015 to $36.7 billion in 2020, despite a slowdown in 2016. However, it is anticipated to recover in the long-term with upcoming events, robust fundamentals and government efforts, driving the continual rise in tourist arrivals and a robust pipeline of hotels and serviced apartments.
The key operating metrics of the sector is expected to remain under pressure in the short-term, mainly in the UAE and Qatar, but is likely to rebound in the long-term supported by growing demand.
Between 2015 and 2020, occupancy rates at hotels and serviced apartments are anticipated to grow by 3 percentage points to 70 per cent and average daily rate is likely to increase at a 1.4 per cent annualised rate during the period. As a result, the aggregate RevPARof hotels and serviced apartments in the GCC is projected to grow at a CAGR of 2.3 per cent to $133 by 2020.
From 2015 to 2020, the hospitality markets of Qatar and the UAE are expected to demonstrate the fastest annualised growth of over 10 per cent, owing mainly to tourism-related developments ahead of landmark events to be held in these countries. Bahrain is likely to deliver growth in line with the regional average backed by tourism promotion activities and recovery in oil prices. Rest of the GCC nations is likely to register growth in the range of 5 per cent to 6 per cent, below the regional average.
During the forecast period, the total room supply in the GCC is expected to grow at a 4 per cent CAGR, slower than 5.7 per cent expansion in international tourist arrivals.
Large-scale international events, upcoming tourist attractions, and a growing MICE market are likely to accelerate tourist arrivals to the GCC region. International tourist arrivals to the GCC are anticipated to grow by 5.7 per cent annually in the five years to 2020.
The hospitality industry in the UAE and Qatar are gearing up for expansion in anticipation of a huge inflow of tourists for the mega events namely – the World Expo 2020 to be hosted in Dubai and 2022 FIFA World Cup to be held in Qatar. Significant investments are being channeled into the development of tourism and hospitality related infrastructure to accommodate the expected visitor traffic and provide avenues of entertainment and sightseeing
The GCC region’s MICE market is growing swiftly, with Dubai being recognized amongst the most popular cities for meetings and events. Acknowledging the opportunity, the other GCC nations are also developing large convention centers and undertaking promotions to attract international summits.
The tourism sector is seen as one of the key enablers of revenue diversification and job creation in the GCC. Accordingly, governments have framed long-term strategies to develop the sector by building infrastructure, encouraging private investments, and conducting extensive international promotion campaigns.
The GCC countries are expanding capacity at their airports and developing infrastructure to complement the government push for boosting visitor traffic to the region, thus providing a major incentive for increasing hotel capacities.
The GCC region holds one of the largest hotel development pipelines in the world. Driven by the bright prospects of the tourism industry and government support, international hotel chains as well as domestic players have laid down robust hotel and serviced apartment development plans.
Dubai is likely to witness an addition of nearly 57,000 rooms in hotel and serviced apartments in the five years to 2020, whereas Saudi Arabia has a pipeline of over 47,000 rooms. Addition of such massive capacity is expected to extensively scale up the region’s hospitality sector.
A slump in the oil prices has slowed down the oil-dependent GCC economies, thus adversely affecting business sentiments and forcing the member countries to resort to austerity measures. Weak economic activity has reduced spending on business travel and MICE events.
Depreciation of currencies such as the pound, euro, and ruble against the US dollar affected tourism activity in the GCC region, as the currencies of most of the member nations are pegged to the US dollar. A continued weakness in these currencies is likely to have a negative impact on tourism spend in the GCC region.
Although the GCC governments have framed strategic plans to boost tourism activity, failure to attract a continuous flow of tourists prior to and even post the mega events in Dubai and Doha is likely to create an oversupply situation in the host countries’ hospitality sector.