Dubai holiday homes problematic for hotel sector.
The effects of the rise of holiday homes on the hospitality market have been highlighted by Knight Frank Middle East in its latest hospitality report: Dubai's Holiday Home Market .
The research indicates that although hotel operators were initially dismissive of the short-term rental market, over time this view has been abandoned, as new research indicates positive growth trends in the holiday home market.
Knight Frank associate partner hospitality advisor Ali Manzoor commented: "One of the core appeals of the short-term rental market is not only the product offering, but also the provision of an 'authentic experience' in secondary districts which are not commonly visited by traditional tourists.
"This clearly does not apply to Dubai; holiday homes in the emirate are largely located on Palm Jumeirah, Dubai Marina, Jumeirah Beach Residences, DIFC and Downtown Dubai - all areas that have high concentrations of hotel supply, which may prove to be problematic for the emirate's hospitality sector in the long-run."
Key points highlighted in the new research included a 100% rise in the number of holiday homes in Dubai in H1 2016, 29% average premium in holiday homes' ADR over hotel ADR in H1 2016 and a total of 4,200 Dubai-based holiday home rentals listed during the same period.
Many operators have since acknowledged the impact that platforms such as Airbnb have had on the hospitality sector and in some markets have even lobbied for protective legislative measures, according to Knight Frank.
Knight Frank's head of development consultancy and research team Harmen de Jong noted: "Ultimately it is important to realise that not all hotels are affected equally - lessons drawn from other markets suggest that the impact of the holiday home market in Dubai will be more severe for: more affordable hotels; leisure-oriented hotels; hotels with fewer facilities; and hotels without international operators."
"Additionally", he noted, "holiday homes will dilute the ability of hotels to yield during periods of peak demand. Whereas hotel room supply is fixed and the incremental cost of developing supply is very high, the holiday home market can scale appropriately to demand with negligible marginal costs for additional supply. For this reason we believe they restrict the ability of hotels to price aggressively during periods of peak demand and have the highest impact in markets that are heavily seasonal."
From a supply perspective, hotels in Dubai are insulated to some degree from the effects of the holiday home market as supply is largely 'top heavy' and internationally branded.
Where potential weaknesses lie are in the ability of hotels to price during peak periods - this will become an issue in submarkets such as the Palm and Dubai Marina, which not only have volatile demand patterns but also high volumes of holiday home supply, the report added.
Recently, Dubai Tourism and Airbnb signed an agreement to strengthen short term rentals by promoting responsible hosting following the introduction of updated regulations.
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