Effectively managing hotel assets in volatile times

Colliers | MENA Hotel Forecasts 1606 (Forecast Table)

Each month Colliers International EMEA sends out the MENA Hotel Forecasts. The key performance indicator in these forecasts is RevPAR (Revenue Per Available Room). In general, the hospitality industry finds the forecasts and analysis from organisations such as Colliers to be far more realistic than any other source, particularly the government.

The reports from Colliers show that RevPAR has been declining in Muscat for all of 2016 and is forecast to continue that decline for the next 12 months.  Often the forecast decline has been in double digits, and this year Muscat has regularly been one of the worst performers within the region.  In the most recent issue the comparative performance of Muscat has not been as bad as the other MENA areas, but this is a result mostly of the other centres performing worse than Muscat, rather than Muscat improving.  Still, Muscat maintains a double digit decline in RevPAR.

How these figures can be read: 

  • The MENA region is experiencing a decline in business.  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. 


Note:

  • The oil price might rise and the security concerns might diminish, but it is very difficult to reduce the number of hotel rooms.


9 issues confronting the Oman hospitality industry now:

  1. Muscat will continue to experience declining RevPAR until the end of 2017.
  2. For the next year a large number of uncompetitive hotels will fail.  This has already started with many hotels facing financial pressure.  In a bit of crystal ball gazing the industry will be far more stabilised and profitable in 2018.
  3. 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.
  4. Oman is better able to develop a robust tourism industry than many other countries because of its natural and cultural advantages.  In this area we are blessed.
  5. 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.
  6. 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.
  7. Market forces will demand more mid-range hotels with a greater number of rooms and more competitive prices.
  8. These same forces will ensure that quality properties will survive better in the market.  A “quality property” is not an expensive five star property, rather it is a mid-range property that has been purpose built to international standards.  
  9. 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
CEO, MMIS LLC
Mac@MMIS.co

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