Here's why Oman's luxury hotel sector continues to grow

Hotelier Middle East explores the opportunities and challenges ahead for the Oman market

The Marriott's hotel in Muscat
The Marriott's hotel in Muscat

Despite Oman’s on-going economic struggles from low oil prices and government spending, plans are underway to boost the country’s hotel market.

Oman’s Ministry of Tourism (MoT) revealed that 31 hotels are expected to open in 2019, adding a total of 3,264 rooms. Data from the MoT also highlighted that more than 80% of the hotels to open in 2019 will be three stars and below, in order to make it more affordable and to cater to a wider market.

But as Oman’s mid-ranged hotel properties receive a boost, where do the opportunities lie for its luxury segment?

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Oman Tourism Development Co’s (OMRAN) senior vice president, Zoltan Kali, told Hotelier Middle East that the sector needed to “weather” the next two years of supply before it could concentrate on Oman’s luxury sector.

“Apart from the well represented luxury segment, last year we saw the appearance of more budget and economy brands, as well as all-inclusive destination concepts,” said Kali. “I believe there is room to grow in the latter, and also in boutique specialised leisure focused properties with a strong local cultural anchor, which is one of the unique attractions of Oman.”

Operator openings

Marriott and Fraser Suites were among the many hotel chains tapping the opportunities for Oman’s luxury segment, with an array of openings being announced.

JW Marriott revealed this month (April 2019) that it would be making its debut in the Oman market with a five-star hotel in Madinat Al Irfan in Q3 this year at the Oman Convention and Exhibition Centre, while Fraser Suites conducted its official opening in early April of 120 luxury apartments in Muscat.

Regarding the hotel opening in Q3, Marriott International’s chief development officer for Middle East and Africa, Jerome Briet, said the markets of Oman are “still strong” and they have further hotel openings coming up in the Sultanate.

“We recently opened JW Marriott in Oman and we have the St Regis coming up there,” he said. “We are genuinely open to growing more while we are heavily skewed towards the upper upscale and luxury [sector] right now. We’re also looking at midscale and upscale opportunities in Oman.”

AccorHotels is also identifying opportunities and undertaking extensive expansion plans across the region. Speaking exclusively to Hotelier Middle East at the Arabian Hotel Investment Conference in Ras Al Khaimah, the UAE, in April 2019, Accor’s vice president for development for the Middle East, Jean-Baptiste Recher, revealed that the company will be stepping up its Oman presence.

“We are extremely keen about entering the Oman market,” he said.  We have several hotels in development, mostly in Muscat and Salalah. Muscat is more of a corporate government driven market, while Salalah is mostly leisure.”

“We have around 10 hotels in development in Muscat, mostly under three-to-four star segments, but nothing in the luxury category. It’s the same with Salalah, we are entering the market with our Movenpick brand with one property.”

With one Ibis hotel in Muscat and a Mercure property in Sohar, Accor has no current plans for properties in the luxury market. Recher said, however, there were a lot of prospects to be explored for Oman’s high-end hotels.

“We think that Oman, particularly Muscat, should focus on quality luxury product. At the moment, there are only five branded quality hotels in the market,” Recher added. “We would say a brand like Sofitel or Fairmont would do very well there; we also see an opportunity for a product like Rixos in Salalah. Something similar to an all-inclusive concept that is positioned at a luxury level doesn’t exist in the country.”

Muscat’s challenges

Although there is movement from international hotel brands, the country’s capital, Muscat, is set for a challenging future according to industry experts.

Corporate and regional demand, as well as economic struggles, has been putting strain on the Muscat hotel sector, with occupancy levels slowly declining.

Hotel analysis firm Tri Consulting revealed that Muscat’s four and five-star hotel market has seen an 8.6% drop in occupancy to 61.3% since February 2018, on the back of weaker demand and increased supply. The decline in occupancy levels directly impacted RevPAR which fell by 9%.

Departmental profits are also proving to be weak, with the rooms and food and beverage (F&B) departments witnessing a 12.2% and 19.2% reduction respectively.

With such a trying year, Tri Consulting director Christopher Hewett does not anticipate improvements for the future of Muscat’s hotel industry.

“Hotel performance in Muscat is expected to see further pressure on performance as the economic forecast remains muted,” said Hewett. “The main pressure on performance will be driven by not only lower demand but also the entry of new properties which will further increase the supply and demand imbalance.”

In terms of the whole Omani market, Oman’s Tourism Development Co (OMRAN), Zoltan Kali, added that 2018 levels grew for the region, driven by occupancy with a slight softening of the rates.

“Oman has been relatively undersupplied with a wide range of hotel offerings for a couple of decades, which resulted in higher prices and few very successful hotels,” said Kali.

“In the last five-to-seven years, this trend has reversed and many new projects have materialised.”

Hotel performance

To meet targets for Oman’s tourist sector, the country’s government has compiled a long-term plan for economic diversity through the Vision Oman 2020 initiative that aims to grow its GDP from 6.7% in 2010 to 9.2% by 2020 through tourism related activities.

Plans are in place to increase regional tourism numbers to the Sultanate through a new e-visa system. Set up by Oman’s MoT, the system is designed to hit the government’s 11 million mark for tourist arrivals by 2040.

Latest figures from the National Centre for Statistics and Information (NCSI) showed that total revenues of the Sultanate’s hotels in the three-to-five-star category rose by 13% to OMR46.7 million ($121.3m) till the end of February 2019 compared to OMR41.3 million ($107.3m) for the same period of the previous year.

Meanwhile, the total number of guests in the Sultanate’s hotels showed a significant increase by 10% in the two-month period of 2019, reaching 308,397 from 280,274 guests for the same period of 2018.

According to Tri Consulting’s Hotel Market Report for Q1 2019, Muscat’s hotels were driven by room revenues, but the decline in in RevPar was compounded by a 7% decrease in F&B revenue per available room.

The report also showed that corporate demand remained the prominent segment in 2018, but strong leisure and group demand helped offset declines in corporate and conference activity. Additionally, departmental profits also fell by 13.7% to 54.8% in Oman’s capital.

Commenting on the data from the report, Colliers International’s head of hotels for the MENA, Christopher Lund, said there is a clear difference in performance for the high-end luxury hotels with the business four star hotels in its major cities.

“Looking firstly at the four star business hotels, it’s right that the rate and the RevPar has come down in the past year. They are struggling slightly, more partly due to the low oil prices,” said Lund. “There is a lot of demand and corporate business related to the oil price. What’s interesting is that if you single out the luxury hotels, such as the newly re-opened Ritz Carlton’s Al Bustan Palace, and a lot of the luxury ones that are on the beach, these are targeting more of the leisure tourists.”

Lund added that the luxury hotels in the Oman has increased their RevPar by 5.7%, which has been driven by strong average daily rates.

“There is a slight drop in occupancy, but they have been able to maintain their average rates,” Lund explains. “The Chedi and Shangri-La hotel, those sort of resort properties in Muscat have been doing well.”

“The rate is very high, it is about 110 OMR, which is around 1,100 AED ($299.47). This means that corporate demand is a bit down or not growing as fast as the supply for corporate type of hotels in Muscat.”

What lies ahead?

For Muscat alone, Hewett believed that the main pressures for Oman’s capital would be driven by not only lower demand but also the entry of new properties, which would further increase the supply and demand imbalance.

“As Oman continued to face economic headwinds on the back of low oil prices and lower government spending, the hotel sector in the capital saw demand levels fall, driving lower revenues and profits,” Hewett told Hotelier Middle East.

While OMRAN’s Zoltan Kali admitted there were some operating efficiency challenges to be addressed. “The costs structure of hotels in Oman is relatively heavy compared to some other Gulf Corporation Council (GCC) markets,” said Kali. “The new airport and the Oman Convention and Exhibition Centre facilitates the opening of new market segments that were less present before. This will yield some healthy demand trend which will give some momentum of sustainability for the sector and increase private sector appetite in hotel investments.”

Muscat is expected to witness another 2,200 keys enter the market in 2019, with the majority of new properties positioned as upscale or higher. Potentially a resurgence in Oman’s hotel market.

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