Abu Dhabi hotel demand drops

Hotel demand in Abu Dhabi dropped 22 per cent during the first five months of the year, compared to the same period in 2009, the latest report from Jones Lang LaSalle has revealed.

The report, Abu Dhabi Real Estate Market Q2 2010, said average occupancy rates for quality hotels in Abu Dhabi declined from 80 per cent in the first five months of 2009 to 58 per cent for the same period this year.

While established hotels on Abu Dhabi Island retained occupancy levels of around 70 to 80 per cent between January to May, the report said city centre hotels are expected to perform better than those located in new master developments.

Average hotel rates dropped 35 per cent to AED830 for the first five months of 2010 due to supply entering the market, said the report. As further supply enters the market rates are expected to fall further.

An additional 7,5000 rooms are expected to enter the hospitality space by the end of 2010, increasing the current supply by almost 75 per cent, with the opening of The Rocco Forte Hotel, Jumeriah Etihad Towers and Hyatt Capital Gate.

The report also said that Abu Dhabi’s residential rental market will continue to be under-supplied in the coming years as a result of project cancellations.

Despite 251,000 residential units expected by 2013, the report has concluded that there is a “mismatch between supply and demand” in the capital’s residential housing sector for middle market segments. It said project cancellations and construction delays have decreased future supply estimates by around 60 per cent since Q2 2008.

It added: “For affordable and middle market segments, there is a significant under-supply, whereas the upper segments of the market are becoming over-supplied. Forthcoming over-supply in the upper segment of the market is expected to result in a continued decline in average rentals. Lower and mid-market segments will remain expensive relative to affordability due to an overall shortage of supply in these segments.”

However, it continued: “New supply of affordable to middle income housing will be quickly absorbed.”

The report also said the retail market is under-supplied, forcing many consumers to shop in Dubai resulting in a loss of opportunity for the Abu Dhabi retail sector. However, it added: “With increasing supply, the retail market will become more competitive and the market will separate between high and low quality product.”

Office rents in the capital are expected to fall inline with increasing vacancies creating opportunities for tenants to upgrade their space without increasing cost. The report said despite many developers scaling back or delaying their proposed developments, total office stock is expected to reach 3.6 million square meters by the end of 2013.