Growth in GCC's mid-market sector to continue
Upside investment potential continues for region's mid-market sector with supply to match luxury by 2021, say industry experts at AHIC 2017
The mid-market hotel segment continues to be identified as presenting significant opportunities for hotel owners and operators alike, so revealed the Arabian Hotel Investment Conference 2017 (AHIC) held from 25 to 27 April at Madinat Jumeirah in Dubai.
During his presentation, STR managing director Robin Rossmann provided insight into mid-scale hotels’ pipeline and performance in the GCC, revealing that mid-market supply is set to match luxury in the GCC by 2021. According to STR, the ‘Midscale’ has out-performed the ‘Upscale & Upper Mid Classes’ and ‘Luxury & Upper Upscale’ classes since 2011 across the GCC. Rossmann observed that mid-market hotels are under-penetrated and pointed to significant growth potential underpinned by growing intra-regional travel and demand for affordable travel.
“The mid-market has been discussed at AHIC for several years, but in 2017, we have witnessed a significant shift as the compelling investment model for lower development costs and higher, quicker returns has put the mid-market in favour. It was fascinating to explore the long-term view, looking at costs, rate strategy and returns with our many speakers and sponsors,” said Bench Events chairman, STR board director and AHIC co-founder Jonathan Worsley.
“Testament to the potential for the mid-market in the Middle East is the launch of US-based hotelier Choice Hotels International in the UAE and Saudi Arabia, with a pipeline of seven signed hotels already and many more to come,” he added.
Commenting on his company’s expansion, Choice Hotels International president and CEO Stephen P. Joyce said the growth of the middle class and demand from travellers for quality, midscale accommodation had fueled Choice Hotels International’s entry to the Middle East with three of its brands: Clarion, Comfort and Quality.
“We think the timing’s now finally right for a company like Choice to enter the market in a fairly significant way and establish a strong moderate tier lodging component which is purpose-built, value-oriented, but high quality,” said Joyce, during his live-on-stage interview with Jonathan Worsley.
Joyce added: “Historically when you look at this region and what people considered moderate, they kind of pull the chandelier and pull the marble and they don’t change the operating model. Our operating model is there should be 20-25 employees in the hotel; it should run very high margins; it should be relatively low capex to get in; relatively high margin production and low cost to operate, but at the same time, satisfy the guests’ needs in a way that isn’t being done currently.”
This viewpoint was echoed by the Rezidor Hotel Group vice president business development MEA Elie Milky during a dedicated panel discussion focused on investment in the mid-market.
“We are very active in the midscale market in the Middle East, with 20 % of our properties within that bracket. However, we have more in the pipeline along with serviced apartments. Operational efficiency starts at the development of the product; you may not need a comprehensive back of house and you can reduce the staff-to-guest ratio,” said Milky.
In the same panel, Kempinski & Shaza Hotels vice president development Middle East & Africa Christian Nader said the company’s new venture, Mysk by Shaza, is carefully positioned in the upper-midscale bracket.
“While Shaza is five-star, we studied the ROI to position Mysk above the four-plus star rating,” said Nader.
“Owners are taking a different approach than previously, moving away from the need to have a luxury five-star property. However, they tend to demand add-ons such as ballrooms. We are managing their expectations by explaining that the Mysk brand and offering is sufficient for the market,” Nader added.
Now in its 13th year, AHIC, which is organised by Bench Events and MEED. attracted more than 700 delegates to Madinat Jumeirah in Dubai.