DUBAI, often referred to as the growth engine of the Gulf, has been perhaps the most visibly hit by the economic crisis among the six GCC states. However, two new projects – a sparkling new metro and the world’s tallest tower could revitalise the emirate’s tourism industry.

Set to change the skyline of Dubai, the Metro launches its services this month
Set to change the skyline of Dubai, the Metro launches its services this month

Hotels were among the sectors hardest hit, with city properties reporting the biggest decline in revenue in the first half of 2009, according to a research report by STR Global and Deloitte & Touché Middle East.

Occupancy rates in Dubai, the region’s trade and tourism hub, fell 12.9 per cent compared to the year-earlier period, and RevPar plunged 35 per cent.

The emirate, which attracts hundreds of thousands of tourists to its beaches and luxury hotels, predominantly from Europe and Russia, continued to suffer as the global financial crisis bit into the spending power of those countries.

An earlier Business Monitor International report said Dubai hotels had witnessed a drop of 16 per cent in occupancy rates during the first four months of 2009, compared to the same period in 2008.

Several of the vast projects that made the emirate so attractive to foreign investors have been postponed or put on hold. According to a report published by HSBC at the end of 2008, 60 per cent of the real estate projects in Dubai, together worth approximately $75 billion, were to have been cancelled or delayed. Additionally, alliances with major players such as Universal Studios, which was to open a theme park in Dubailand, are now reportedly being reviewed.

Yet, from under 60,000 hotel rooms in 2008, Dubai is expected to have roughly 80,000 hotel accommodation units by 2012, according to a Deloitte executive report released this March. This is down from the 120,000 rooms being reported last year.

But even before the credit crunch’s global domino effect, hotel industry analysts were expecting occupancy rates to drop to around 60 per cent, with an accompanying fall in room rates. And, given the current situation, Dubai is considering revising its target of 15 million visitors a year by 2015 – almost double last year’s total.

But the two new projects could change all that.

The metro, which is scheduled to begin operations on September 9, will impact the sector both directly and indirectly. Hotels and residential apartments adjacent to train stations will see an immediate benefit, but with cheaper public transport available, more tourists will also travel to out-of-the-way sights and attractions, boosting business everywhere.

And the opening of the Burj Dubai, the world’s tallest tower, in December, should bring a further influx of travellers eager to visit this wonder of the modern world. As home to the first Armani Hotel in the world, the building will attract both the very highest class of luxury spenders and anyone with aspirations of breaking into that category.

One more positive development must be taken into account. The emirate has scaled down its ambition to be an exclusive luxury destination and is now powering ahead with economy products and services. The launch of Emirates’ kid sister airline, flydubai, has been widely reported, and the carrier has already begun operations to key regional destinations, with services to Djibouti, its sixth destination, on schedule for a September 1 launch.

Complementing that growth is a sharp rise in the number of developments of three and four-star hotels.

Dubai has also set new targets. The emirate announced plans earlier this year to make a host city bid for the 2020 Olympics. In the run up to such an event, the city will need to host several other similar events, which should positively impact the city’s growth.

While its hotels aren’t anywhere near as profitable as they have been in the last five years, the emirate is still one of the top markets for RevPar, despite declining to $203 in the first quarter of the year from $281 in the corresponding period of 2008. This still puts it ahead of several other comparable hot spots worldwide.

“Beach hotels are reporting occupancies of between 75 and 85 per cent this summer,” says one hotel insider, who refused to be quoted. “For the low season, we really are suffering!!”

By Clark Kelly