Introduction

According to HVS International's 2001 Middle East survey, 2000 showed further increases in the operating performances of quality hotels in the Middle East compared to the strong growth experienced in 1999.
 

Based on a sample of 103 hotels, representing approximately 31,000 rooms, the regionwide occupancy increased by three percentage points to 68% and the overall average rate increased by approximately 4% to US$88. The overall RevPAR

Table 1: Performance of First Class Hotels  in the Middle East 1993-00 Source: HVS International

The re-emergence of the Middle East economies has continued to spur on hotel developments throughout the region, both in destinations that focus on leisure consumers, such as the Red Sea and Sinai resorts, and in the more cosmopolitan destinations such as Dubai and Cairo that are able to attract both leisure and commercial visitors. Dubai has seen large increases in supply in recent years and, according to the results of our 2000 survey, this trend is likely to continue in the foreseeable future.
 

Hoteliers are convinced about the success of the region and all of the major brands have publicised aggressive expansion plans for the coming years. Increasingly, we are seeing new international brands entering the region from Europe and Asia. The major hotel companies such

Table 2: Winners and Losers � Percentage Change in RevPAR Between 1999 and 2000 Source: HVS International

Economic Overview

Most of the economies of the main Middle Eastern countries, including Bahrain, Egypt, Jordan, Kuwait, Oman, Qatar, Saudi Arabia and the UAE, showed improved growth in GDP in 2000 compared to 1999. The relative political stability in the region for most of 2000 together with a continued increase in oil prices was the main reason for this regionwide growth.  Unfortunately, the outlook for the Middle East is somewhat mixed across the region. Fluctuating oil prices are likely to have a negative effect on the oil-dependent countries over the next few years. In addition, the current tensions in the region are likely to have a detrimental effect on the number of visitors to the region. Despite this slightly negative outlook the region is the fastest-growing region in the world in terms of visitor arrivals, and strong progress is being made globally to attract leisure visitors and increase foreign investment. According to the Economist Intelligence Unit (EIU), GDP growth is likely to take a slight downturn in 2001, from 4% in 2000 to 3% in 2001. However, growth amongst those countries in the region is likely to improve to approximately 5% in 2002.

Tourism Statistics

According to the World Tourism Organisation (WTO), the Middle East accounted for 2.9% of total worldwide tourist arrivals, and just over 2% of worldwide receipts in 2000. However, and more importantly, the Middle East region saw one of the largest increases in tourist arrivals for the last four years, with increases of 10.5% between 1999 and 2000 and 42.0% between 1995 and 2000. This strong growth and the increasing commitment of individual countries to promote tourism are encouraging continued investment in the tourism sector throughout the region.  The large increase in visitors to the Middle East in 2000 is largely due to the improved economic stability of Russia and Asia as well as improved oil prices.  Egypt recorded tourism arrivals in excess of 5 million for the first time in 2000, a growth of approximately 7.4% when compared to 1999. It is our opinion that this increase in demand is largely supply led.

Although we have been unable to obtain the visitor arrivals for 2000 for each individual country, the overall picture would suggest that there has been a strong increase in arrivals for most countries included in our study.  Strong growth was also recorded in Bahrain, which showed good growth in GDP in 2000. Despite the continuing conflict between Lebanon and Israel and a strong economic downturn, visitor arrivals in Lebanon increased by 12% in 2000.

Key Hotel Operating Statistics

Using HVS International�s extensive database of hotel operating results for the Middle East, developed with the continued support of most of the major hotel companies in the region, we have analysed the performance of quality hotels in the region�s main destinations.  This year, our survey consists of a sample of 103 first class hotels, accounting for over 31,000 rooms, in the Middle East region. International hotel chains operate approximately 90% of these hotels. The sample of hotels used in this year�s survey is slightly different from that used in last year�s and therefore may show some differences in the operating performances reported last year. However, the sample used for comparison of 1999 data with 2000 data in this year�s survey is consistent.

Overall, the region�s recorded average occupancy of 68% showed an increase in 2000 compared to 1999, and represents the highest occupancy level for nine years. The increase of three percentage points in the region�s occupancy can be attributed largely to the recovery of oil prices and continued investment throughout the region in the tourism infrastructure. Particularly noteworthy are destinations such as Manama, Amman, Abu Dhabi, Cairo Pyramids and Dubai which all showed fairly strong growth in occupancy levels in 2000. In addition, it is worth mentioning that hotel supply continues to increase strongly in many of the cities surveyed and an overall increase in occupancy levels would indicate even greater increases in hotel demand in many of the cities.

It is our opinion that average rates are likely to show some level of decline in 2001 as supply increases and the Middle East economies show a slight downturn. We would also highlight that the region is facing increasing competition from destinations such as North Africa and Asia where increasing supply and economic downturns have forced prices downwards.

RevPAR in the region rose to US$60, one of the highest levels in the last decade, an increase of approximately 8% on 1999 levels. The main driver of this increase has been the recovery of oil prices and relative stability in the region during 2000. It is our opinion that RevPAR levels may decline over the next few years due to increases in supply and tensions in the region; however, the longer term outlook is positive with the region committed, in the most part, to continuing to improve its image and attract increasing levels of visitors over the coming years.

Country Analysis

Bahrain

In common with Dubai, Bahrain has had to compensate for its relative lack of oil by establishing itself in other fields, and building for the mid- to long-term future. By preference Bahrain has set out to target the business travel sector, most notably the exhibition, conference and incentive travel market. The estimated GDP growth for 2000 was exceptionally high in Bahrain at 5.2%. This growth was due to the recovery in Asia and to the increasing reputation of Bahrain as a commercial centre for the Gulf. Bahrain has embarked on a 50-year plan to develop additional land area and create artificial islands. This increase in land should allow Bahrain to satisfy the requirements of the leisure and recreation sectors.

As predicted in our study last year, 2000 was exceptionally good for the hotel industry in Bahrain and annual levels of profitability for the quality hotels have increased significantly due to an increase in both occupancy and average rate. Occupancy levels in

Manama increased by three percentage points in 2000 to 59%, making some headway in recovering from the decrease experienced during the previous two years. The lower midweek occupancy has been compensated for by the influx of Saudi traffic during the weekends as Bahrain has the reputation of being an ideal family destination for Saudi nationals.  Average rates rose from US$102 in 1999 to US$105 in 2000, an increase of approximately 3%.

Bahrain has redeveloped its strategy for tourism and the general mood amongst the hoteliers is currently buoyant. The Sheraton, the Inter-Continental and Diplomat hotels (the last, following the signing of its recent management contract with Radisson SAS) are all part of the way through major refurbishment programmes. In terms of new developments, Accor has confirmed that it is to open a new 180- room Novotel near to the beach. Other operators have expressed a desire to move into the market. We have also identified some larger tourism master plans outlined for future development in Bahrain such as the Al Dana Seaside Resort, a US$26.5 million development on a 34,000 m 2 site near the Marina Club. The most ambitious plan is Durrat Al Bahrain, a new US$795 million resort development. It is our opinion that, in the short term, the hotel sector will continue to improve its occupancy and average rate performance as the country becomes increasingly attractive to both commercial and leisure visitors.

Egypt

For the first time since President Mubarak took office, the government isnow committed to increasing foreign investment and generating employment. Despite a current background of heightened regional tensions as the Middle East peace process falters, the economic outlook for Egypt is favourable. Inflation is officially recorded at below 10% with the budget deficit below 2%, largely because of cuts in subsidies.

Tourism to Egypt has continued to show strong growth with tourist arrivals in 2000 above the 5 million mark for the first time ever: a 7% growth when compared to 1999. We would comment that while growth has been positive, the air transport infrastructure is still inadequate. If growth is to continue, then major investment will be required with respect to airport facilities in addition to an increase in scheduled flights from European destinations.

Cairo City Centre, with only a limited increase in supply, continued to show strong growth, particularly in terms of average rate. While occupancy levels remained stable at 78%, the second-highest recorded in our survey, average rates increased by approximately 7% to US$86. This average rate is the highest achieved in Cairo City Centre since 1995. Furthermore, strong growth was also recorded for hotels located in the Heliopolis area. Occupancy levels remained stable at 83%, the highest recorded in our survey, and average rates increased by approximately 9% to US$68. With strong levels of demand in the city centre and increased commercial activity in Giza, hotels near to the Pyramids also showed strong growth in both occupancy and average rate. Our research indicates that occupancy levels increased six percentage points to 76%, the highest level since 1993; average rates increased by a massive 31% to US$66.

These strong increases in average rates can be attributed to stable levels of supply and strong demand from commercial, meeting and conference, and leisure segments which ensure that Cairo hotels typically achieve some of the highest occupancy levels in the Middle East.

However, a number of new hotels are planned to open in the near future in Cairo City Centre, Heliopolis and the Pyramids areas. Near to Heliopolis, a 425-room JW Marriott is currently under construction. The hotel will feature extensive meeting facilities, as well as world class spa and leisure facilities, including a golf course. We are also aware of a 194-room Holiday Inn which is to be developed in the Heliopolis area. In terms of city centre hotels, the Nile Plaza Cairo Four Seasons is expected to open in 2002, the second Four Seasons hotel in the city.  Further new openings include a 513-room Hyatt hotel, an 800-room extension to Le Méridien, a 900-room Crowne Plaza and a Kempinski hotel.  Developments are also occurring in the vicinity of the Pyramids at 6 th of October City. These developments include a 220-room Mövenpick hotel, a 220-room Hilton Dreamlands Golf Resort and a Novotel.

Hotels in Hurghada recorded an aggregate decrease in occupancy levels of three percentage points in 2000, to 77%. This decrease was caused primarily by an increase in hotel supply. However, average rates in 2000 increased by approximately 20%, when compared to those achieved in 1999, and reached US$41. Supply continues to increase with the development of the 200-room Holiday Inn Amphoras (opening in 2001), a 300-room Park Plaza (2001), a 304-room Radisson SAS Dana Beach Resort (2001) and a 405-room Steigenberger Fanadir Resort (2002). This increase in supply is likely to have a detrimental effect on operating performances; however, as has been seen in the past, tour operators are likely to be able to fill these rooms, albeit at increasingly lower rates.

Occupancy levels in Sharm el Sheikh decreased dramatically in 2000 to 63% from a seven-year high in 1999 of 79%. This decline was again caused by a dramatic increase in supply, as predicted last year in our Middle East report.

Some of this supply includes hotels to be managed by Sol Meliá (two hotels), Le Méridien, Sheraton Four Points (two hotels), Four Seasons, Crowne Plaza, Swissôtel, Steigenberger and Rotana. We would also highlight Nabq Bay, a short distance from Sharm el Sheikh, where it is planned that approximately 8,000 rooms (27 hotels) will be developed over the next seven years. In addition, there are a significant number of hotel rooms being built along the coast up to Taba, including hotels managed by Steigenberger, Hyatt, Sofitel, Marriott and Inter-Continental.

At present, the facilities at Sharm el Sheikh airport are nearing capacity, and, although government officials have promised that this problem will be rectified, no discernible action has yet been taken. The continued success of Sharm el Sheikh and the Red Sea coastline rests largely on the government�s ability to implement successfully the expansion of the country�s air infrastructure and indeed to allow an �open skies� policy. We have recently been informed that plans to upgrade and expand the airport have been approved; however, no date for this work to commence has been confirmed.

Jordan

Jordan�s geographic location at the centre of the Middle East means that its fortunes are strongly influenced by regional circumstances. Therefore, Jordan suffers significantly with the continuing unrest and violence between Israel and the Palestinian Authority. Trade sanctions with Iraq also continue to have a negative effect on Jordan�s exports: Jordan has long served as a transit route for goods destined for Iraq, from where Jordan also received subsidised oil. Since the UN trade embargo Jordan has been forced to import oil from Yemen and Syria at higher prices. The service sector is by far the country�s largest, accounting for approximately 70% of GDP. GDP growth was approximately 2.5% in 2000 compared to an expected growth of 3.5% as presented in our report last year. The rate of growth is expected to improve over the coming years.

The tourism industry is widely regarded as a major potential foreign exchange earner. The Jordanian government expected strong growth of approximately 20% in terms of tourist arrivals for 2000. However, due to the development of political tensions in the region in addition to Jordan�s strategy of marketing itself as part of a multi-destination trip including Israel, the estimate for 2000 suggests a decrease of 7.5% compared to 1999.

Quality hotels in Amman showed an increase in occupancy levels for 2000 of 59%, compared to 56% in 1999, despite the significant decrease in visitor arrivals. Average rates fell by approximately 5% in 2000 to US$68, the lowest level for seven years.

Amman has experienced an increase in supply over the last few years, including new Hyatt and Holiday Inn hotels and an extension to the Inter-Continental. Further development in the quality hotel sector is likely to occur in the next three years with the opening of the Sheraton, Crowne Plaza and Four Seasons hotels, which are all under construction. The continued tension between Jordan�s neighbours and this increase in supply are likely to have a detrimental effect on performance levels in the coming years.

Additional areas for development in Jordan include the Dead Sea coastline.  Openings over the next few years include the 212-room Marriott Dead Sea, a 240-room Novotel hotel and a 170-room Inter-Continental hotel.  Furthermore, there are a number of projects being developed in Aqaba, including a 300-room Marriott (planned to open in 2004), a 250-room Mövenpick and a 1,000-room resort.

Kuwait

For the last half-century, oil has dominated the Kuwaiti economy, and, with current reserves estimated at around 10% of the world�s total, this domination does not look like changing in the near future. Due to the huge level of investment still required to rebuild the country and despite the highest oil prices for nearly ten years, Kuwait still has one of the slowest-growing economies in the region.

The Kuwaiti economy, on the surface at least, looks to be in very good shape, with the budget surplus up and rising oil prices. The economic indicators in 2000 unfortunately mask sluggish progress in necessary economic reforms.

In 2000, it was reported that 80-90% of arrivals in Kuwait were still business-related. Some modest attempts have been made to try to promote Kuwait as a leisure destination, but the facilities and entry procedures are very much geared towards the business visitor.

Occupancy levels in the five-star properties decreased by one percentage point to 46%. Average rates increased quite significantly from US$169 to US$178, the highest in our survey.  Although occupancy levels in the five-star hotels remain very low there are a number of different projects under construction in the four-star and five-star sector. A 150-room Hilton located on the beachfront is under construction near Ahmadi, where most of the oil companies are located. In the city centre a 150-room Four Points, an 80-room Taj Hotel and a 300-room Courtyard by Marriott are currently under construction. We have been informed that the redevelopment of the Messilah Beach is currently on hold.

With a 20% increase in hotel room supply and limited prospects for demand growth in the near future, occupancy levels are likely to suffer further.

Lebanon

Lebanon experienced a significant economic downturn in 2000 following the strong growth experienced in the early 1990s. The downturn was caused by a decrease in private spending with consumers waiting to see the outcome of reforms in Lebanon in addition to regional peace prospects. The outlook for Lebanon is somewhat better and forecasts estimate GDP growth at approximately 1.5% and 2.5% in 2001 and 2002, respectively. This growth largely depends on the new Prime Minister Rafiq al-Hariri and his ability to impose the government�s reforms on the country�s restless parliament.

Despite the subdued economic growth, tourism has proved to be one of the few sectors to show continued growth over the last ten years. Visitor arrivals increased annually by approximately 20% between 1992 and 2000 (albeit from a low base). The proportion of leisure visitors within these arrivals has increased from approximately 26% in 1996 to 32% in 2000.

Occupancy levels in quality Beirut hotels increased slightly in 2000 by one percentage point to 57%, despite a large increase in supply over the past few years. Nevertheless, average rates in the market decreased by approximately 15% to US$110, attributable largely to the poor economic conditions and the increase in supply with the opening of the Holiday Inn Martinez and the Phoenicia Inter-Continental. Furthermore, these declining operating performances have meant increased pressures for those international hotel companies managing properties; several hotels previously branded are now being independently operated.

As mentioned last year, the Phoenicia Inter-Continental, the first hotel in recent times to have large, modern meeting facilities, has indeed begun to generate a number of regional conferences, which have increased the exposure of Beirut and generated demand from within a market segment that, historically, has been relatively weak in Beirut over the last 30 years.  Several hotels are under construction and are due to open in the near future, including the 280-room Mövenpick Hotel (2002), the 115-room rebranded / refurbished Sheraton Coral Beach (2001), the 198-room Crowne Plaza (2001) and the 225-room Metropolitan Hotel (2001). A Four Seasons hotel, which is to be located opposite St George�s Marina, is projected to open in 2005. We have also been informed that the former Hilton hotel is to be pulled down and reconstructed with a total of 460 rooms.  As this new supply becomes operational, operating performances are likely to decrease. However, at present, there are only a few international branded, quality hotels in Beirut with facilities to attract commercial, meeting and incentive, and leisure guests. The development of these projects in the medium to long term should ensure that Lebanon becomes a more desirable destination for both commercial and leisure demand. However, if regional tensions are not eased, this growth is likely to be severely curtailed.

Oman

Despite continuing uncertainty surrounding the successor to Sultan Qaboos bin Said al-Said, there are no significant threats to the political order and Oman is expected to remain stable throughout 2001. Oman has remained within the Arab mainstream on the region�s most contentious foreign policy issues, and there are unlikely to be any moves to restore commercial ties with Israel even if violence in the West Bank and Gaza recedes. The official net budget deficit will widen as spending picks up and oil revenue eases, but the domestic position will remain one of surplus. Growth should accelerate in 2001 despite softening oil prices, as domestic demand picks up and non-oil exports rise.

Data on visitor arrivals to Oman in 2000 are not yet available; however, informed reports suggest that these numbers have remained largely stable.  Occupancy levels for Muscat�s quality hotels have decreased marginally to 55% in 2000, due to the increase in supply experienced over the last two years in the city. In addition, the general instability in the region and the increase in supply have caused average rates to decrease by approximately 5.5% to US$86.

There are a number of new hotels expected to be developed in the next five years, including a 150-room Marriott, a 300-room Hilton, a 250-room Le Méridien and a number of smaller projects.

In general, Oman�s economy should continue to expand at an impressive rate, with forecasters envisaging average real GDP growth of 5.8% in 2001 and 4.5% in 2002. The primary driver behind the spurt in growth this year will be exports of liquefied natural gas (LNG), which are expected to double in volume.  This increase in GDP should have a positive effect on the overall economy and on the tourism sector in particular.

Qatar

As the Qatari economy is heavily dependent on fluctuating revenues from oil exports, the increase in oil prices during 2000 certainly helped the government. Recognising the importance of investment for economic growth, the Qatari government is developing an increasingly open attitude to foreign investment. During the last two years, Qatar managed to achieve a balanced budget despite huge debt repayments for different investments in gas refinement projects.  Forecasts indicate a significant growth in GDP for the next few years (7.2% in 2002) as net revenues from LNG exports start to affect the economy significantly. In fact combined revenues from oil and LNG should result in Qatar being among the wealthiest nations, per capita, in the world in the next few years.

Doha has seen a significant increase in visitor arrivals over the last four years, and these are set to continue to increase in the future. In 2000, due to an increase in supply, occupancy levels in Doha decreased by three percentage points to 58%. This decline in occupancy was only compensated for by a small increase in average rate of 2% to US$115, one of the highest average rates in our survey. Despite these figures, the quality hotels in Doha are still seen to be performing relatively well.

Doha saw the addition of a 300-room Inter-Continental in October 2000. The opening of the 369-room Ritz-Carlton planned for earlier this year has been postponed until the fourth quarter of 2001. These two hotels are located in the West Bay area, which is currently receiving huge investment. In addition, there are also plans for a 376-room Four Seasons hotel, a 300-room Grand Hyatt and a 270-room Doha Rotana. These additions to supply are expected to cause the occupancy level to dip in the coming years. The extent of the decrease in occupancy levels will be dependent on how well Qatar manages to market itself to a wider audience, especially considering the current absence of a formal ministry of tourism, and on the effects of the continuing regional conflicts.

The forecast for the next few years is positive as Qatar continues to invest in order to attract visitors. There are plans for an extension of the airport and also for the construction of a new retail mall.  In addition to this, Qatar will host the 2006 Asian Games. This project will spur further investment, including a US$700 million sport city just outside Doha.

Saudi Arabia

The government of Saudi Arabia is restructuring its economy away from its reliance on oil exports. The windfall in oil revenue in 2000 due to high oil prices helped to balance the budget and will allow the government to continue with its plan to foster private sector activity. The financial sector is healthy and the role of local banks is growing to finance private enterprise, develop the domestic capital markets, and build financial retail services. The key to further diversification efforts and the expansion of Saudi Arabia�s industrial base lies in the hands of the Kingdom�s able private sector. In addition, economic reforms and the relaxation of visa requirements are likely to further improve the environment for foreign direct investment.

At the time of writing, tourism figures for 2000 were not available.  However, we can report that in 1999 arrivals increased by approximately 2%. A vast majority of visitors to the Kingdom are pilgrims visiting Mecca and Medina who, historically, were allowed to visit only these two destinations. However, the government has recently relaxed its restrictions and visitors may now visit other destinations in the Kingdom. This relaxation may help visitor numbers to increase.

Occupancy levels in Jeddah increased by four percentage points to 65%; Riyadh showed a decline of two percentage points to 60% in 2000 when compared to 1999. Despite increases in supply, with the opening of the 284-room Le Méridien and a 196-room Westin, average rates in Jeddah increased by 7% to US$119 in 2000, the highest level since our survey began in 1993. Average rates in Riyadh decreased slightly to US$115 in 2000.

Hotel supply in Jeddah is set to continue to increase over the next few years with the opening of a 465-room Hilton (2001), a 102-room Royal Méridien (2002), a 170-room Ritz-Carlton (2003) and the 322-room Al Amir Tower in 2005. This large increase in supply will undoubtedly have an adverse affect on operating performances in the future. However, continued fiscal liberalisation and economic growth will help to increase demand and will therefore help to absorb this supply. Additionally, the Four Seasons development programme continues in the Middle East with a 242-room hotel planned to open in Riyadh in 2002 as part of a large mixed-use complex.

While we are positive with respect to the economic growth of Saudi Arabia and its capacity to implement some fiscal reforms, the strong religious beliefs and, therefore, restrictions such as a ban on alcohol will undoubtedly hinder any significant progress in terms of tourism growth in the Kingdom.  Nevertheless, a strong base level of demand will always be present from pilgrims making hajj and perhaps from Gulf visitors coming to the Red Sea, who do not want to go to the other Gulf states where there is a more liberal attitude to tourism and alcohol is more freely available.

Syria

In March 2000, the government made a modest start in the implementation of free market reform with the help of the new president Bashar Assad, who is reportedly keen to move the country into the twenty-first century. By all accounts, this reform has continued in 2001 with the early passing of the 2001 fiscal budget and a package of financial measures intended to stimulate an inflow of investment capital. Foreign policy issues continue to be dominated by relations with neighbouring Israel, Syria�s support for the Palestinian cause, and the situation in south Lebanon.

Syria is highly dependent on the international price of oil, with oil accounting for an estimated 70% of export revenue in 2000. The forecast decline of oil prices, combined with Syria�s unsettled political situation, is likely to affect the country�s growth outlook. The government may come under pressure to reconsider expenditure pledges as lower oil prices reduce revenue, resulting in an easing of government consumption. However, growth in private consumption, the main component of GDP, should accelerate in 2001, remaining above 2000 rates throughout the year.

Meanwhile, investment spending is likely to see some modest growth. Although the number of visitor arrivals for the full year is not yet available, the last estimate for 2000 was approximately 2.5 million visitors, a decrease of 6.8% compared to 1999, largely due to the political situation in Israel. This figure is likely to continue to decrease further as long as the situation does not improve. Recovery after the conflict has eased should be quite fast as Syria is fortunate in its cultural heritage and can offer a unique product compared to other destinations in the Middle East such as Dubai and Bahrain.

Our research indicates that operating levels in Damascus in 2000 have decreased compared with those achieved in 1999. At 66%, the average occupancy level has fallen by three percentage points. Average rates have also decreased, by approximately 7%, to US$97. The result is RevPAR of around US$65, a decrease of approximately 10% when compared to 1999.

As reported last year, the development of the 305-room Damascus Four Seasons hotel is still planned, although this is likely to be delayed. In addition, hotel developments are planned for other destinations in Syria, including a 196-room Sheraton Hotel due to open in two years time in the city of Aleppo and a further 70-room hotel and 30-chalet development in Saydaniya.

After years of isolation, Syria is making efforts to join the free Arab economic zone and to reach an association agreement with the European Union, which has committed nearly US$100 million to help Syria in its reforms. In addition some plans unveiled at the end of 2000 included legislation to allow foreign investors to own land and set up joint ventures. The government has promised to speed up its response time for tourism project permits. So there are hopes of better times to come in the next few years.

United Arab Emirates

Economic diversification began at an early stage and the UAE was never quite as dependent on oil as other Gulf states. The oil sector accounted for around 25% of GDP in 2000, while non-crude oil goods now represent over 50% of total exports. At the end of 2000, the overall level of economic activity was boosted by the increase in oil prices, although domestic oil output itself does not usually contribute strongly to growth. These higher oil revenues, however, have filtered through the economy by increasing government and personal expenditure and by promoting investments.
Current high oil revenues are welcomed by the UAE government but are viewed as a windfall rather than perennial. Economic policy will therefore continue to promote non-oil industries, private sector activity, rationalisation of state-owned assets and a favourable, enabling business environment.

The UAE showed strong growth in visitor arrivals for 2000 of 8.1%. This gain is understood to be largely due to the recovery of world economies including those of Asia, the Middle East and Russia, as well as an increase in hotel room supply and the increasing reputation of Dubai as a leisure destination. Visitation is expected to continue to increase in the future as hotel development continues both in Dubai and in other destinations such as Abu Dhabi, Fujairah and Sharjah.

The rapid development of hotels in Dubai along Jumeriah Beach has had a somewhat negative impact on hotels downtown. Dubai as a whole showed a significant increase (4%) in occupancy levels to 74% despite the increase in supply. Average rates decreased by around 1% in 2000 to US$105. The growth of Dubai�s hotel supply has been well publicised as operators and the government attempt to fill the ever-increasing number of rooms in the city and, indeed, the country. Some of the more recent projects to open in Dubai include the all-suite Burj al-Arab, the Emirates Tower Hotel and the Royal Mirage, in addition to a 100-room extension at the JW Marriott hotel downtown. The additions to supply forecast for 2001 are the 174-room Dusit Hotel and the 156-room Hilton International. During the course of 2002, hotels planned to open include a 180-room Four Seasons hotel, a 674-room Grand Hyatt Dubai, a 300-room Shangri-La hotel, and a 264-room Sheraton Plaza, as well as a number of extensions to existing properties.

While this large increase in supply may suggest poor future operating levels, the development of ancillary products and services, including a conference centre, golf courses, water parks, shopping promotions, a cruise ship terminal, planetarium and, possibly, a Formula 1 racetrack has enabled and is likely to continue to enable demand to grow in the future.  We would draw particular attention to the Palm Tree Islands development to be built off the coast of Jumeirah Beach near to the Royal Mirage Hotel. The first of the two islands will feature 2,000 residential villas and 40 luxury boutique hotels. In addition, the islands will feature a marine park, multiplex cinemas, health spas and a number of marinas providing a total of approximately 600 berths and 200 �mega� yachts.

Abu Dhabi�s quality hotels saw an increase in occupancy from 64% in 1999 to approximately 67% in 2000. Average rate performance amongst the quality hotels in 2000 showed a significant decrease of 11%, to approximately US$88, when compared to 1999. The dampening of the economy and an increase in supply can be said to be largely responsible for this decline. The government has recently directed its attention to the hotel sector. This new trend enables the Emirate of Abu Dhabi to diversify its income sources and to enlarge the contribution of the hotel sector to the Emirate�s GDP. There are plans to develop a luxury shopping mall and the biggest marina in the Middle East on reclaimed land just off the corniche. In addition, there are currently plans to develop a 292-room Marriott hotel, a 250-room Hilton on the beachfront, a 300-room Sheraton, and to expand the Abu Dhabi Grand (formerly the Forte Grand) hotel, which is now managed by Rotana Hotels, by 126 rooms.

Further development is also expected to take place in Fujairah with several projects identified as starting shortly, including one by Rotana Hotels and a 300-room Westin hotel.

Hotel Development

Last year we reported that many of the countries featured in our survey felt that tourism was an important source of revenue for the future in light of the decreasing oil revenues in 1999. Many of the countries reported rapid changes to promote investment in 

tourism; however, financially and structurally, they were not in a position to implement these changes. The improved oil prices have now enabled countries to increase their tourism budgets and many of the countries in our survey are now

Table 10: Room Supply by Country Source: HVS International

Egypt continues to be keen to expand its hotel supply throughout the country; however, development is still concentrated along the Red Sea coastline which is in danger of becoming similar to the Spanish Costa del Sol in years to come. Visitor arrivals were again at record levels in 2000, and by all accounts the supply-led demand is proving to be successful for the country. Nevertheless, the continued lack of improvement in terms of infrastructure in Egypt is likely to have some negative repercussions in the future. In particular there has been a severe lack of investment in Egypt�s air infrastructure, specifically in terms of improving and expanding airport capacity. In addition, there is still a lack of scheduled flights, which will severely limit the Red Sea resort areas and their ability to promote themselves to conference and incentive demand (especially in the low season) and to higher-end leisure demand.

On the other hand, the expansion of Dubai as a destination continues unabated, and plans are underway to dramatically increase the area�s hotel supply further in the coming years.  However, this increase in supply is coupled with ancillary developments, as opposed to stand-alone hotel developments, as are typical in Red Sea destinations such as Sharm el Sheikh and Hurghada.

The lack of real progress in the peace process has had some negative impact on tourist arrivals in the region. However, Dubai and countries such as Egypt have successfully marketed themselves as being somewhat removed from the day-to-day tension and sporadic conflicts between Israel and the Palestine Authority.

Hotel development does not seem to have slowed down since our report last year and hotel management companies are confident that the region will achieve substantial growth over the medium to long term. Although this rapid development in the region is encouraging, close attention will have to be paid to such issues as infrastructure development, human resource training and relaxation of visa controls, including multiple country visas, to encourage cross-border tourism. The countries that pay attention to these issues will ultimately benefit most in the future.

Hotel Development by Chain

Typically, the major brands such as Bass (6 Continents), Starwood, Le Méridien and Marriott continue to show the most aggressive expansion plans in the Middle East and most are looking to achieve multiple brands in some cities; Dubai, for instance, has a Ritz-Carlton, JW Marriott and Renaissance. Reports have suggested that competition for management contracts amongst hoteliers is extremely strong thereby ensuring that management fees are slowly but surely decreasing and that contract terms are becoming less favourable to operators as owners search for the best deal.

The emergence of high-quality brands such as Ritz-Carlton, Four Seasons and Kempinski will hopefully help in attracting high-end European, Asian and American travellers to the region not only for business but, equally importantly, for conference, incentive, and leisure trips. However, the continued regional tensions, together with difficulty in obtaining multi-destination visas and poor infrastructures, will hinder some of this progress in the future.

Rotana Hotels, a regional brand, is continuing to increase its reputation throughout the Middle East and has recently introduced a loyalty programme. It also has plans to expand into new countries such as Syria and Egypt.

Conclusion

The economies of most countries in the Middle East region improved in 2000, and economic predictions for the next few years are generally positive for the most part. Most of the countries featured in this survey have pledged to increase foreign direct investment and privatisation, improve fiscal policy and to encourage diversification of their revenue sources.  However, many Middle Eastern governments are still slow to allow economic reform and encourage privatisation and foreign investment.  This stifling of economic progress is in turn restricting investment in infrastructure such as airports, where capacity has in some cases already been reached and is no longer sufficient to accommodate the demand for hotels in the area.

Other issues that will need to be addressed in the future include the development of ancillary services such as marinas, golf courses, retail outlets and leisure parks, such as is currently taking place in Dubai. Furthermore, the relaxation of visa restrictions to allow visitors to move more freely between countries, and training of and investment in local human resources, will greatly enhance the region�s ability to realise its full potential.

Operating performances for hotels in the region were generally much improved in 2000 compared to 1999, largely assisted by the improvement in oil prices and the relatively stable peace process. RevPAR for the region was at one of its highest levels for seven years with both occupancy and average rate increasing. Demand in the region is expected to continue to increase; however, increasing supply levels are likely to have a detrimental impact on operating levels in some destinations.  The Middle East, in general, has realised that tourism is likely to become an increasingly important source of national revenues in the next few years.  Many countries have followed the lead of Egypt and, more importantly, Dubai in encouraging investment into this sector. Unfortunately, although this investment has been taking place in some countries, it often lacks the commitment and national backing that it has enjoyed in Dubai. Nevertheless, it is likely that demand for hotels throughout the region will continue to increase significantly in the future.

HVS International is also grateful for the assistance of Yannick Simonart in the research and preparation of this report.

© 2001 HVS International. All rights reserved.