Dubai holiday homes give hotels serious competition

Holiday homes in Dubai are giving hotels a run for their money following the introduction of new regulations.

The Dubai Government started regulating holiday homes market in 2013, and since then there has been an increase in their numbers. In the first half of the year alone, there has been a 100 per cent growth in the number of holiday homes, a Knight Frank report released last week said.

At the end of the first half, there were around 4,200 units available in Dubai on Airbnb alone, up from around 2,000 for the entire last year.

In Dubai, residents can let out their apartments for short periods through portals such as dubizzle, Airbnb and and through holiday home operators.

Thanks to the flexibility of holiday homes and their supply, it is easier for them to come to the market.

“What this means is that when the hotel and holiday home supply is taken as a whole, hotels will find their ability to monetise from peaks in demand diluted by additional holiday home inventory,” said Ali Manzoor, an analyst at consultants Knight Frank. “In light of fixed room supply, hotel operators have traditionally been able to charge aggressively during peak periods.”

Some hotel operators expect year-round pressure from the growing number of holiday homes.

“There will be an impact from holiday homes on hotels not just in the peak season but throughout the year,” said Russell Sharp, the chief operating officer at Citymax Hotels. “Holiday homes … will see greater demand in the years to come, with more cost-conscious travellers wanting to explore the region.”

The mid-market hotel segment, which includes Citymax, is particularly vulnerable. Citymax, a Landmark Group company, is set to double its portfolio from three hotels in Al Barsha, Bur Dubai and Sharjah in the next year with three more properties opening in Dubai’s Business Bay and Al Barsha as well as Ras Al Khaimah.

“With an increase in demand for this segment in Dubai, there will be a pressure on the mid-market hotels as the holiday homes will try and grab share of the same pie,” Mr Sharp said.

At the end of the third quarter, there were 86,151 hotel rooms in Dubai, according to research and analytics company STR.

“The additional supply of holiday homes will certainly put pressure on the average daily rates and also the [revenues] especially of mid-market hotels due to similar rates,” Mr Sharp said. “Holiday homes can afford to offer cheaper rates due to the lower investment and operation costs.”

A majority of the holiday homes are located in the upscale neighbourhoods on the Palm Jumeirah, Dubai Marina, Jumeirah Beach Residences, Dubai International Financial Centre, Al Barsha and Downtown Dubai.

These are the “areas that have high concentrations of hotel supply, which may prove to be problematic for the emirate’s hospitality sector in the long run”, according to a Knight Frank report released last week.

In the first half of the year alone, there has been a 100 per cent increase in the number, Knight Frank said.

The supply of holiday homes is expected to increase in older parts of Dubai, too, as Deira and Bur Dubai get regenerated.

The affordable hotels market is already under pressure from lower room rates in the luxury segment.

While upscale and luxury hotels have many facilities that are not found in holiday homes, such as signature restaurants, spas and meeting spaces, this is not the case for mid-market hotels and serviced apartments.

“The differentiation between their product offering and holiday homes is less pronounced,” Mr Manzoor said. “For this reason, we expect that the impact of the holiday home sector will be more severe on mid-market hotels and serviced apartments than the rest of the market.”

Holiday homes form only 4 per cent of the total number of rooms in Dubai, compared to 20 per cent and 29 per cent in Chicago and Berlin respectively. In London the figure is 38 per cent, according to Knight Frank.

Follow The National’s Business section on Twitter


Sananda Sahoo

About Author

You may also like

ADFF Introduces New Award for Environmental Films

  • Sep 09, 2011
WAM Abu Dhabi, Sept. 6th, 2011 (WAM) -- The Abu Dhabi Film Festival (ADFF), organized by Abu Dhabi Authority for

DCL analyzes thousands of food and environmental samples

  • Sep 09, 2011
Tue 06-09-2011 22:08 PM WAM Dubai, Sept. 6th, 2011 (WAM) -- Food and Environment Laboratory Section of Dubai Central Laboratory