News analysis: Mid-market beach hotels in Dubai

Land costs remain a barrier, but beach hotels could diversify sector

Dubai’s beachfront is dominated by five-star hotels, but there could be space for the mid-market segment in the future.
Dubai’s beachfront is dominated by five-star hotels, but there could be space for the mid-market segment in the future.

Prohibitive land costs remain a barrier, but mid-market beach hotels could help to further diversify the sector

Since the end of 2013, there has been renewed focus on mid-market hotels, with Dubai’s Department of Tourism and Commerce Marketing (DTCM) introducing incentives as it looks to add 35,000 rooms to the segment by 2020.

With more than a year passing now since the introduction of the DTCM incentive for the development of mid-market hotels - a concession on the standard 10% municipality fee - the industry has reacted well, with a number of midscale hotels planned. One of the major beneficiaries of the surging interest in this segment, Premier Inn, is now considering making a play for a beach-front hotel.

Having a foothold in Dubai already, the UK hotel operator, which runs a joint venture in the region with Emirates, has conducted preliminary studies into the possibility of developing such a property.

While the company is currently undergoing a major growth phase in the Middle East — with a pipeline of 12 properties opening over the next three years — most of these are close to international airports away from town centres, in commercial and industrial areas.

However, in India and countries in Southeast Asia, the company’s two other areas of focus for international expansion, beachfront hotels have already become a core part of Premier Inn’s growth story.

Speaking to Hotelier Middle East, senior vice president development, Middle East, Africa & South Asia David Vely floated the possibility of developing one in Dubai.

“It’s something we’ve not done so far, but we could,” he said. “It makes sense. A lot of people come to Dubai on leisure trips, and the beach hotels are not only full, they are charging very high rates. Five-star beach hotels charge a rate that is 30-40% higher than five-star hotels downtown.

“So why not do something also on one of the new beach developments, where land is a little bit more affordable? The problem that we hit quite often is the cost of land. The one thing that is hitting the pace of development is the cost of land at beachfront locations.”

Christopher Hewett, senior consultant at TRI Consulting, agreed that the cost of land would be a major stumbling block to the development of any mid-market beachfront hotels in Dubai.

However, he explained how operators such as Premier Inn could find a willing partner in a forward-thinking developer, saying: “It’s about the overall developer having a vision to incorporate a range.

“If they were simply just selling off the plots, you would not get that, because the prices would not be conducive.

“But if you have an overall development strategy, it does make sense to have a range of accommodation offerings to help diversify the visitor base you are going to get. That’s the appeal for development.”

Premier Inn’s Vely said that the idea of a beachfront hotel had recently come up in discussion with one of its partners in the region, who was keen on developing one.

“Initially we discarded that idea because it was so expensive. The land on the traditional beachfront is way too expensive for a midscale hotel. Then we looked at the new destinations — Deira Islands for instance — which is a little bit more reasonable. Preliminary studies make us think that it could work.

“No doubt about it — the demand is there. There is not a single midscale beach hotel and there is need for that.”
While these hotels may be lacking in Dubai, Hewett pointed out that tourists do have options in other parts of the UAE.

“If you look at Marjan Island in Ras Al Khaimah, you have a Doubletree hotel there on the beach, and that property has a midscale offering. Then you have some locally-branded properties around the beach that are of three- to four-star.”

Nevertheless, while he has not directly worked on such a project so far, Hewett said a midscale beach hotel is something he would be keen to get involved with.

“We think there are opportunities and in the past we have recommended them.

“However again it comes back to the developer’s ultimate vision and their decision on what they want to do with that particular plot,” Hewett commented.

“There’s a lot of positivity in the market,” he said. “The developers have appreciated the incentives and you can see from the announcements that there is a good range of budget and mid-market hotels that are going to come into the market in various areas, like Ibis styles in Business Bay and recently-announced projects around Dubai World Central.

“So you have seen that opportunity where they can benefit from developing within this segment with the incentives they are being offered,” Hewett added.

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