Comment: Why we need more affordable hotels in the Middle East

The new traveller: splurge your budget on a great experience, not your bedroom

Damir Boshnjak
Damir Boshnjak

The total amount of luxury hotels in Los Angeles, New York and London is 10%, 11% and 12% respectively. Moreover, Hong Kong and Paris’ total luxury hotel count is 24% and 34% respectively. These are some of the most popular cities in the world and one can’t help but wonder how long ago they figured it all out.

Let’s ask ourselves what we look for in hotels when planning the next business trip or vacation. Is it the expensive marble-floored lobbies, decorated with lush flowers? Or is it the prestige of being picked up in a grandiose limo, greeted by a well-groomed butler, wearing a uniform made out of 15 different pieces of clothing?

Instagrammable moments

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The days are gone when the likes of Sheraton and Hilton were the most prestigious and sought-after hotels, when they were setting the standard for all the others who looked on in awe.

Today, in the time of influencers and social media, more and more travellers are expected to seek “Instagrammable” experiences. Millennials prefer to save their money on a hotel stay and then spend the savings on experiences and entertainment outside of the hotel.

Let’s also not forget Generation Y, defined as consumers aged 18 to 38, who are changing the face of travel. From a workplace and a marketplace perspective, Generation Y is the fastest growing demographic in the world. According to research firm Viacom, Generation Y in the Middle East accounts for almost half (48%) of the population compared to 34% around the world. 

With 75% of the global workforce expected to be made up of this age group by 2030,  do you really think that they still believe in the hotel bellhop opening their door, or that, instead, they are led by a “carry your own luggage, tip yourself” kind of stay?

Affordable hotels

Families and business travellers also tend to book an experience. For example, they want to be engaged by the design as well as an individualised service. Travellers feel that big hotels feel cold and impersonal. They want to be free to tailor their stay, not be struck down by policies and procedures.

Here in the Middle East, and in Dubai, we are far behind the cities of Los Angeles, New York, London, Hong Kong and Paris. Strange, how can we here in Dubai be lacking behind in something? For one, Dubai doesn’t lack luxury hotels, with almost half of the current offering in this category. In fact, Dubai has spent the last decade establishing and marketing itself as a ‘luxury’ destination with a large presence of international luxury hotel brands in the offering. The emirate has always strived to be bigger and better than the competition, from building the world’s first seven-star hotel to its tallest tower.

With the growing importance of emerging millennial travellers, global traveller trends have shifted dramatically. More and more travellers, even those who can afford luxury, are opting to stay in affordable hotels.

Addressing the hotel supply

The reason for this shift includes the rise of the affluent middle class, especially in Asia which has opened up new opportunities for investors in the GCC hotel industry.

Opening itself to mass markets such as China and India, the development of large-scale tourism projects, the trim down of corporate travel budgets during trying periods and the consumer behaviour of millennial travellers, it is important for Dubai to address the skew of its hotel supply towards the luxury hotel sector and open its door to welcome more budget-friendly mid-market, i.e. 3 and 4 star hotels, into the mix.

We constantly read about more and more mid-market properties being introduced with all the big hotel chains announcing new affordable lifestyle properties. I read daily about all the positives regarding investing in mid-market properties, how they have lower investment costs, coupled with lower operational costs. I listen to all of the conferences and debates on how the mid-market properties are the future. All the analysis and scales are tipped in their favour.

However, in reality with all of the hotels in the pipeline, in the next couple of years we expect the number of luxury properties to rise to 53% from all of the hotels in the city.

Aren’t we listening to the travellers? Don’t we get them? Is the reason for building a new hotel an investment opportunity with a good return on investment or just another trophy? A recent study by Price Waterhouse Coopers (PWC) shows that the often-quoted challenge that supposedly holds back mid-market hotel development is the high price of land in prime locations of make for an attractive investment opportunity. I developing a mid-market hotel on the same plot of land can result in similar cash flows for the owners.

If we expect to welcome 20 million travellers by 2020 and 25 million by 2025, we really need to start thinking long and hard how will we bridge this gap and diversify our offering to cater to all the different guest needs.

About the author: Damir Boshnjak is the hotel manager of Studio One Hotel, Dubai. He has more than thirteen years’ industry experience in five countries. Moving to the Middle East in 2011, he has worked in hotels such as the St. Regis Saadiyat Island Resort in Abu Dhabi and St. Regis Doha, moving to Media One Hotel in 2017.

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