Dubai hotel developers cash in by adding apartments

• Midscale brands investing
• Diversifies developers’ risk
• Slows hotel room supply

Hotel operators in Dubai are increasingly being asked by their developers to add apartments to their properties, or do away with hotel rooms altogether, as owners look to cash in early on their investments and tap into a buoyant property market.

While this may meet rising real estate demand from rapid population growth in the emirate, it will not help the UAE’s tourism sector, which actually requires more hotel rooms.

More common among luxury marques, branded residences are built with a partner brand, often a hotel, and offer high-end design, standards and services. For hotel operators, they have become an easy way to earn a licensing fee without having to run a standalone hotel. For the owners of the building, they are a way to add an additional premium onto Dubai’s already hot property market, as well as free marketing through brand association. 

“Branded residences start from Novotel brand and go all the way up. Most of them we’re doing are upper upscale and luxury, but we do Swissotel, Movenpick and Pullman as well,” said Camil Yazbeck, Accor’s global chief development officer for premium, economy and midscale brands. 

According to Accor’s brand hierarchy, Novotel is classified as midscale, while Pullman, Swissotel and Movenpick sit a tier higher in the “premium” segment —above budget brands but below lifestyle and luxury labels.

“You’d be surprised how many people are interested [in Novotel residences]. They know what to expect with the standards, but they don’t have the purchasing power to get a Raffles or a Fairmont [two luxury Accor brands],” he added. 

At Novotel Jumeirah Village Triangle, where residences can be bought, the cheapest unit currently for sale on PropertyFinder is AED932,000 for a 359 sqft studio, or AED2,600 per sqft. The average for that area, according to Dubai Land Department Data, is AED1,330 per sqft. 

“Here is why branded residences are hyped: Hotels used to be ranked around 11th for investment [of a real estate class] because you’re taking risk, you don’t know your returns. But today, investors want a hotel element with a living component attached,” said Yazbeck. 

“Branded residences can also be sold in advance [of a project’s completion] and that money can be reinvested into the project. Today, cost of construction is very high, inflation, depending on the region, is very high. You need to diversify your risks to the maximum,” he added. 

When comparing data for hotel development in Dubai and branded residential development, one has decreased as the other has increased.

Dubai’s population has been growing faster than the city’s tourism sector as well, meaning, in simple terms, new apartments are more important than new hotels.

Since 2019 international tourism arrivals have increased by 12 percent, according to data from the emirate’s tourism department. Meanwhile over the same period the population has increased by 26 percent.

However, new hotels are required for the sector to grow, and in October the Dubai government announced a new initiative to spur their development. 

Dubai has stalled at about 820 hotels for the past three years, with an average occupancy rate of around 80 percent in the city. For the UAE as a whole, the country wants 40 million hotel guests by 2030, of which Dubai will contribute the most. Last year Abu Dhabi had 5.8 million hotel guests.

Knight Frank said in its hospitality report this year that Dubai total supply is forecast to reach 165,339 rooms by 2030, a 8.6 percent boost over today’s supply.