Ishraq

Sunday, May 18, 2008
"We plan to build 20 Holiday Inn Express hotels in 3-4 years"

With the first Holiday Inn Express operating successfully at the Internet City in Dubai, Ishraq Gulf Real Estate Holding, the controlling company, has massive plans to take the brand across the region.

The company feels the sky is the limit for them as there is a huge gap in the market for branded budget hotels, which will be essential to maintain the target visitor figures for the next 10 years in the Gulf.

The growing importance of limited service hotels mark the development of tourism in the Gulf which, to date, has concentrated on iconic world-class projects.

In addition, from an operating point of view, this sector offers higher returns on investment than luxury properties, as a consequence of reduced investment and operating costs, said Sami Al Ansari CEO, Ishraq Gulf Real Estate Holding.

—What's the progress on Express hotel projects in the GCC? Are you on schedule?

—First of all, the name Express by Holiday Inn is being rebranded to Holiday Inn Express and in the next few weeks we'll be launching it. The progress has been very good when you consider that the company is less than three years old. We have already opened one Holiday Inn Express in Internet City and this summer we plan to open two more hotels in Dubai – one off Sheikh Zayed Road next to Safa Park and the other at the end of Diyafah Road known as Holiday Inn Express Jumeriah.

Next year we'll be opening two more properties, one in Bahrain and the other near Dubai International Airport. The following year we will open another three properties in Fujairah, Muscat and Dubai Studio City, which are currently under construction. Overall, we have been very successful and are actually ahead of our own development plans for the Holiday Inn Express brand in the region.

—How is the first Holiday Inn Express Hotel in Dubai performing?

—It has been doing exceptionally well. The property is less than one year old and we are already achieving above market occupancy rate. Dubai hotels sit on 88 per cent to 89 per cent occupancy rate and we are already in the 90 per cent plus bracket.

—What is the share of budget hotels in the UAE and GCC and what kind of scope do you see for growth?

—According to our research, in the UAE and the GCC, budget or branded limited service hotels have a share of less than three per cent. When you consider this figure there is definitely huge potential for growth. There is a huge demand for such hotels because we are offering quality lodgings at affordable rates.

—According to the Dubai Tourism and Commerce Marketing (DTCM) the number of hotel visitors to Dubai will rise to 10 million by 2010. Is the UAE's and the region's infrastructure – hotel rooms, roads and taxis – geared up to service this huge growth in tourist numbers?

—Yes. Currently there are nearly eight million visitors coming to Dubai in an year. So we are talking about a 20 per cent additional growth from now until 2010. We can cope with these figures as there are plenty of additional rooms coming on the market. By 2010 Dubai Metro will be ready and there'll be less congestion on the roads. For the rest of the region it is difficult to say because we don't have the expected numbers.

—By how much is the hospitality industry being plagued by soaring constructions costs and diminishing returns? What about human resources?

—This is one of the biggest challenges that developers face today. According to recent studies on construction price escalation, construction inflation for 2007 was 20 per cent higher than 2006, this year it will be another 25 per cent and it is expected for 2009 to remain at 20 per cent. If we take all this into consideration it is safe to assume a hotel developer who developed a property in 2006 would have to bear double the cost in 2009 if he constructs the same kind of property.

Construction inflation is not the only challenge that we face. Land cost inflation is a bigger worry now.Across the GCC it is very difficult to find land at reasonable rates.

For us - hotel developers and people in the real estate - it is not at all easy to find the right formula or the perfect financial model to suceed in business. And this implies to all kinds of hotels wether budget or high-end one. Ultimately these rising costs are going to affect us. It will no longer be what developers use to expect. The time of 16-18 per cent returns in the past and now we have to get used to a six-eight per cent rate. This also affects the pay-back period for us. Earlier the pay-back period for developers on their investments was within four to five years but now it has doubled.