The Baker's Dozen | Changes Within the Hotel Industry 

Colliers | MENA Hotel Forecasts 1801 (Jan-18 Cover)

The Sultanate of Oman consistently receives positive international media coverage with more attention being drawn to the unique features that separate Oman from many of the other cookie-cutter destinations. A common theme through many of these media reports is the relative safety of Muscat and Oman.

In its 2017 Travel & Tourism Competitiveness Report (TTCR) the World Economic Forum (WEF) places Oman in the top 10 in terms of Safety and Security, and at #4 Oman is five positions higher than 2015, when the previous edition was published.

And earlier this year CNN published a list of Metropolises on the up: 7 design-savvy cities to watch in 2018 in its CNN Style section. In the opening paragraph CNN stated “the overarching specter of uncertainty made for an erratic 12 months. And 2018 doesn’t look much clearer or calmer.”

“That makes it all the more important to identify the right markets when investing in property. For many it will be a case of the safer the better. Even those taking more of a risk will likely be erring on the side of calculated caution. With that in mind, here are seven of the cities you should be eyeing in 2018.”

Muscat was listed as #2 in the worldwide list of seven cities. 

Colliers | MENA Hotel Forecasts 1801 (Jan-18 Table)

Last year Newsweek published a positive article about Oman under the heading “How Much Longer Can Oman Be An Oasis of Peace in the Middle East?” that emphasised the relative safety and stability of Oman. This article went out to a global audience of more than 15 million people.

In today’s world safety and security issues take on added significance and relevance. And as the tourism industry in the Sultanate of Oman matures and expands, such positive and high profile articles and reports are exposing Oman to a potential new market of millions. These articles clearly support the international marketing efforts of His Majesty’s Government, particularly the Ministry of Tourism.

Recent trends

Everyone who has visited Oman is aware of the many and varied attractions that clearly establish Oman as a premier tourist destination. At the same time the commercial realities of life in a region so dependent on a high oil price are being felt by everyone living and working in Oman. 

The hospitality industry in particular is experiencing one of the worst periods in the past decade. With more than 1,200 new hotel keys in the past 12 months (Cluttons | Muscat Property Market Outlook) and a drop in corporate and leisure tourists in the same period, hotels have experienced declining occupancy levels. To compete in such a market hotels have been offering significant discounts which has led to a major drop in RevPAR (Revenue Per Available Room), a common industry indicator.

According to a recent presentation from STR Global RevPAR in Muscat has dropped 20 percent in the past year and is at a level not seen since 2007.

Looking forward

Each month Colliers International EMEA sends out the MENA Hotel Forecasts. The key performance indicator in these forecasts is RevPAR. In general, the hospitality industry finds the forecasts and analysis from private and industry organisations such as STR Global, Cluttons and Colliers to be more attuned to the industry than any other source.

Since February 2015 these forecasts from Colliers have highlighted a significant decline in Revenue Per Available Room (RevPAR), with an overall decline of 34 percent in those three years. In the report from Jan-18 the 12 month YOY forecast was for an increase of 4 percent in RevPAR. While it is not a trend, this is the first increase over that period. The positive improvement in the RevPAR was solely due to a significant increase in the forecast for occupancy, while Average Room Rates (ARR) continue to fall.

How these figures can be read

  • The hospitality industry in the MENA region is clearly in a cycle of declining RevPAR. To compensate for the loss of business, the industry is reducing room rates, which simply compounds the drop in RevPAR.
  • This regional decline in business is a direct result of the lower oil price and the ongoing security concerns for the region as a whole.
  • Muscat is negatively impacted by the same issues. Further complicating matters in Muscat has been a substantial increase in the number of hotel rooms. So an increase in rooms at a time of less tourists (business or leisure) clearly leads to a drop in RevPAR. 
  • On top of this, it is standard business practice for new hotels to enter the market with lower room rates. This is designed to promote their property and to generate immediate interest. All this puts strong downward pressure on RevPAR.

Hotels in Oman must take on board these 13 industry changes

  1. Declining RevPAR
    While occupancy might be increasing, the ARR continues to drop, leading to an overall decline in RevPAR. Muscat will continue to experience declining RevPAR until the end of 2018.
  2. New revenue streams
    It is vital for the ongoing survival of many hotels that they consider new feasible revenue streams that will add to the bottom line. These could include corporate centres, catering businesses, restaurant takeaway service, meeting room facilities, training room facilities etc.
  3. Distressed hotel properties
    Over the next few years a large number of uncompetitive hotels will fail. This has already started with many hotels facing financial pressure. By 2020 the industry will be far more stabilised, profitable and competitive.
  4. Diversification of the economy
    All countries in MENA need a vibrant and growing tourism industry, both as a source of future employment for the youth of the country and as a logical attempt to diversify away from a dependence on the petroleum industry. This will lead to future healthy growth for the industry.
  5. Promote - Natural and cultural attractions
    Oman is better able to develop a robust tourism industry than many other countries because of its natural and cultural attractions. In this area we are blessed - but we need to promote ourselves a lot more.
  6. Promote - Safety and stability
    As highlighted in the recent CNN listing of Muscat as one of the seven cities “you should be eyeing in 2018” and the Newsweek article promoting the relative safety and stability of the Sultanate, Oman is one of the most stable and safest countries in the world. This is reinforced by the World Economic Forum which ranks Oman as #4 in the world in terms of Safety and Security. Click here to see the full report and analysis.
  7. Lower room rates
    For the tourism industry in Oman to compete internationally, Muscat has to embrace the lower room rates and accept them as the norm. There will be no returning to the higher rates once enjoyed.
  8. Rooms too large
    The current focus of developing large hotel apartments (and the resultant fewer rooms) will need to stop. Operating hotel apartments will face increased financial pressure to compete in this new commercial reality.
  9. Competitive pricing
    Market forces will demand more mid-range hotels with a greater number of rooms and more competitive prices.
  10. Quality will be rewarded
    These same forces will ensure that quality properties will survive better in the market. A “quality property” is not necessarily an expensive five star property, rather it is just as likely to be a mid-range property that has been purpose built to international standards.
  11. OTAs are not a threat
    See the Online Travel Agents (OTAs) as a marketing tool that will get your property known by a wider audience, not as a threat that is cutting into your revenue.
  12. Focussed social media
    Social media is important, but only when it is focussed and leads to direct sales.
  13. Professional management
    The ongoing shakeup in the industry will mean that all hotels need to be professionally managed and marketed. Essentially, the industry will need to become more competitive and professional.

Mac Thomson

© 2019 MMIS