Tuesday, May 26, 2009

Gulf builds hotels worth US$140b amid crisis: study

Just 19% of 893 projects surveyed have been cancelled or suspended

(DUBAI) Gulf Arab countries have more than US$140 billion worth of hotel projects under construction, with just 19 per cent being suspended or cancelled as the industry faces a global slowdown, a survey showed on Sunday.

Of 893 hotel projects surveyed in the Gulf, 5 per cent had been cancelled, 14 per cent put on hold, and 42 per cent were under execution, showed the survey by research house Preloads Global. The rest were under study, planning, bidding, design, or had been completed.

The Gulf Arab region had 306 new hotels, with 108,600 rooms under development, and cash flow is expected to recover in most of the region next year after falling this year, it said.

The United Arab Emirates (UAE), which includes Dubai and Abu Dhabi, hosted 62 per cent of the projects. The country saw the cancellation of almost 5,000 planned rooms during the month of May, and 6,500 since the beginning of this year.

Dubai, the Gulf's trade and tourism hub, faces a sharp slowdown in its property sector, with real estate prices tumbling 41 per cent in the first three months of 2009, according to property consultant Colliers. The slowdown has led to project cancellations worth billions of dollars.

Active cash flow, or money available for project construction, in the Gulf is estimated at US$30.4 billion for 2009, and is projected to increase to US$31.6 billion in 2010, the survey showed. But cash flow in the UAE is expected to fall to US$18.4 billion in 2010, from US$19.9 billion in 2009.

The economic downturn had impacted the region's cash flow negatively, said the survey, resulting in 'much more cash flowing out of the hotel construction sector than into it'.

This has led to a fall in cash flow in 2009, compared with 2008, it said, without giving a figure for last year. A recovery is expected by late 2010, and more cash flowing into the industry than out of it by 2011.

Hotel occupancy levels have remained relatively stable throughout the Gulf since 2003, but the economic slowdown has had a negative impact and 2009 is expected to be a 'challenging' period for the hotel industry, the study said.

UAE hotel occupancy levels are expected to drop to 61 per cent in 2009 from 79 per cent in 2008, while the rest of the Gulf could see 45 per cent to 55 per cent occupancy levels in 2009. A pick-up in occupancy levels, to 2008 levels, will occur by the end of 2010, followed by accelerated 'real growth' by 2013.

'Given projected increases in demand from 2013 onwards, more hotels will be required if relatively high occupancy levels are to be maintained,' Emil Rademeyer, director of Preloads, told reporters. 'With an average completion period of two to three years, 108,600 rooms should come online by 2011.'

The region will need to increase its construction activity starting in 2010 in order to satisfy the projected growth in demand to follow, the paper said, especially with the area's population and visitors expected to grow. Visitors to the Gulf region are expected to reach just below 40 million in 2010, Mr Rademeyer told Reuters by telephone. -- Reuters

Source: Business Times, 26 May 2009

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