02/08/2009 00:00 AST
Hotels in Dubai continue to lead the world in profitability with net profits, or margins, of 35 per cent in 2009, according to researchers.
"We still have excellent net margins compared to other parts of the world," Amine Hamdani, Vice-President, CBRE Hotels, a hospitality consultancy and asset management firm, told Emirates Business.
Arnaud Andrieu, CBREs Vice-President, said: "Cities, such as Paris, London and New York, would have a lower net profit than Dubai. In Europe, the average net profit is about 18 to 20 per cent so far in 2009 for the five-star segment. In New York, it would be above 20 per cent this year."
Hamdani said: "Net profit of five-star hotels in Dubai was above 30 per cent in the second quarter of 2009. In 2008, the average margins for five-star properties were 35 to 38 per cent. This year, they are likely to be between 32 and 37 per cent."
Though some hotels in Dubais central business district have recorded occupancy rates of about 90 per cent, the average occupancy levels in the city have declined during the past six months, report research firms.
For instance, the Deloitte and STR Global Hotel survey in June put the decline in occupancy at 12.9 per cent, while occupancy levels for last month were around 69.9 per cent.
Hamdani said: "Net profits have not seen such a big hit because when occupancy levels go down, other costs, such as energy and amenities in rooms, also go down. All variable costs decrease while fixed costs stay the same."
Certain fixed costs such as labour are also cheaper here, he said. Many hotels in Dubai have offered their staff unpaid leave, which helps in the fixed cost. Variable costs include energy and labour.
"When the latter is contractual, savings can be made with lower occupancy rates, as there would be fewer rooms to clean.
Andrieu, giving the instance of a hotel in Paris, said: "With the high cost of labour in France and the inflexibility of the laws there, similar drops in occupancy and average daily rates would give rise to serious problems."
Talking about opportunistic funds looking for investments in the region recently, Hamdani said: "There were some, but their transactions were below what we expected. People thought things would get back to normal earlier. Unfortunately, this did not happen. So we have seen small investments from these foreign funds, especially those from India, Pakistan, Kazakhstan and other parts of Asia. We are expecting it to start picking up in Q1 or Q2 of 2010."
But the risk factor in the forecasted recovery for the hotel industry would be if the European and US economies do not do well, Hamdani added.
Andrieu said: "Dubai been positioned as an exclusive destination. The city was synonymous with an outstanding experience at luxury and high-end hotels. That is why there has been a demand for five-star properties.
"The marketing was based around the city and what it offered, and focused on five-star properties.
"After the global financial crisis began, we realised that the destination cannot be promoted with a focus on only one segment."
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