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Investors circle to buy trophy Emirates hotel assets

Four Seasons Dubai Four Seasons
Demand is strong for landmark luxury hotels such as the Four Seasons Dubai
  • Rise in enquiries from overseas as hospitality thrives post-Covid
  • Particular demand for ‘landmark’ luxury and five-star hotels 
  • Final sales price 15-20% below valuation, experts note

The UAE’s relatively quiet hotel investment landscape will pick up this year as foreign buyers join local investors in competing for a slice of the resurgent, post-pandemic hospitality sector. 

“The region is registering such high levels of occupancy at the moment that there is a lot of international money ready to invest in hotel assets,” said Sachin Kerur, Middle East managing partner of law firm Reed Smith. 

The firm in January published a report examining opportunities in global hospitality, identifying the UAE – where average hotel occupancy levels have returned to pre-Covid levels of above 70 percent – as a notable investment market. 

“What you’re seeing at the moment is the convergence of business travel, long-term stays, sustainability travel, experiential travel, so interest in the sector as a result of all this is extremely high,” Kerur told AGBI.

“My sense is that we’re entering a very strong growth market.” 

Hala Matar Choufany, president of hotel valuation agency HVS Middle East, Africa and South Asia and managing partner of HVS Dubai, said: “There are a lot of enquiries from international buyers right now, with particular interest from Singapore, the US and Europe and I expect more foreign capital to enter the market.”

The annual volume of sales transactions in the UAE is rarely high, both because of the long-term nature of hotel investment and because the sector has historically been dominated by local family businesses, which tend to keep assets in their portfolios longer than other investment groups, often for decades. 

Just two major hotel transactions were completed last year and both were in Ras Al Khaimah by Aldar Properties, based in Abu Dhabi. The first was the Rixos Bab Al Bahr for AED770 million ($210 million at the time) and the second was the DoubleTree by Hilton for AED810 million (£220.5 million), from local owners.

A third deal is nearing completion: Five Holdings’ purchase of an under-construction hotel (formerly due to be the Corinthia Meydan) at Dubai’s Jumeirah Beach Residence for an undisclosed sum. 

However, experts predict an increase in transactions this year, driven by rising appetite among global investors to add luxury UAE hotel assets to their portfolios amid a buoyant hospitality market.  

Aldar Properties
Aldar Properties bought DoubleTree by Hilton in Ras Al Khaimah last year. Picture: Hilton

Real estate consultancy JLL’s Global Hotel Investment Outlook, published last year, said the wider Europe, the Middle East and Africa region accounted for almost a third of global hotel transaction volumes in 2021. Sales rose 60 percent year-on-year to reach almost $20 billion from the sale of nine luxury hotels for at least $1 million each. 

“Investors around the world are beginning to zero in on new assets, with resorts, limited service and luxury hotels best positioned to benefit as markets reopen,” JLL said. 

Well-resourced private equity buyers are among those at the front of the queue as the sector recovers from a tough few years impacted by the pandemic, it added. 

In the UAE, the average hotel occupancy rate from January to November 2022 increased by 5.4 percentage points year-on-year to 72.5 percent, according to CBRE’s 2022 real estate overview.

In Dubai alone it was 76.6 percent – only 2 percentage points below 2019 levels, according to preliminary data for December from hospitality research firm STR. 

Other metrics for the Dubai market, including average daily rate (AED892.84) and revenue per available room, or RevPAR (AED684.03), now sit well above 2019 levels, according to STR.

In March 2022 UAE occupancy rates were the highest in the world at 85 percent, driven by Expo 2020 Dubai, which has since ended. 

Tourism inflows are continuing to rise, bolstering UAE hotels’ investment appeal. Dubai received 12.82 million overnight visitors between January and November 2022, according to Dubai Economy and Tourism.

“Although still 15 percent below pre-pandemic levels, this represents a significant increase from 6.02 million in the equivalent period of 2021,” CBRE noted. 

While visitors from Dubai’s top 10 source markets were broadly approaching pre-pandemic levels, China was an exception last year, the report added, and the recent relaxation of Covid rules should boost the number of Chinese tourists.

Hotel stock in Dubai rose to 148,000 keys (rooms) in 2022, with around 6,800 completed last year and around 13,000 more expected in 2023. 

HVS’s Choufany told AGBI that until 2019 there was a “huge disconnect” in the UAE between a hotel’s valuation and its sales price. There was only a limited number of transactions because sellers valued their properties at 30-40% more than people were willing to pay for them.

“The reason is that owners probably overspent on their original investment, and now, with high supply, there is little room to grow average rates despite strong occupancy,” she said.

“Rising operational costs, licensing, taxes and inflation have all put a lot of pressure on net operating income.”

The price gap has closed to 15 to 20 percent now, but there is still a disconnect. “I believe that with some price correction, more transactions will occur,” said Choufany. 

Demand is strongest for “landmark”, or trophy, hotels in the luxury segments – hotels such as the Four Seasons and Mandarin Oriental, as well as four- and five-star hotels such as The Address, Mövenpick, DoubleTree by Hilton, Four Points by Sheraton and others. 

Reed Smith’s Kerur added: “Historically, a lot of hotel ownership in the region resided in local conglomerate families that had a long history of dealing with each other.

“With more international, institutional interest in the sector, the nature of transactions will take on a flavour more reminiscent of the manner in which they are done globally.” 

Due diligence requirements may change, the UAE’s hotel licensing regime will be closely studied by any market newcomer and deals could take longer to complete, he said. 

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