Did Dubai’s dreams of grandeur vanish when the rescaling of debts of the Dubai World conglomerate was announced? Nothing is less certain, even if the bursting of the real estate bubble tolled the bell of excess. Many Pharaonic projects intended to sustain tourism growth in the emirates will be significantly postponed, or even cancelled. And yet, for those hoteliers that are already established such news is almost good as it is synonymous with less frantic growth. And, even down, hotel results remain among some of the highest in the world.
A grain of sand slipped into the clockwork of the Dubai Inc machine. But this speck of sand is not so small, and amounts to 59 billion dollars! Last November 25, the announcement of the rescaling of the debts of the conglomerate Dubai World and its real estate subsidiary Nakheel was like a bomb. Indeed, even a Gulf emirate can have cash flow problems… since the beginning of the millennium, since Dubai focused its development strategy on services and tourism in order to compensate for its low oil revenues, observers grew accustomed to discovering increasingly insane projects imagined by the Al Malktoum family. But behind admiring gazes, were also hidden sometimes mocking interrogations of those who predicted the fall of a small State that wanted to grow too big, too fast.Like the city overall, hotel results, which have been stratospheric for several years, have also regained some measure. “I can confirm that despite the drop in the RevPAR, Jumeirah continues to be very profitable,” emphasizes Robert Kunkler. And, despite current problems, several observers are counting on a future that will perhaps be less glitzy but nonetheless brilliant for the destination, like Jean-Gabriel Pérès, CEO of Mövenpick (see interview). “The emirate has become one of the most popular and most soughtafter/ popular/recherchées destinations with exceptional equipment, very upscale hotels and a year-round calendar of sports events and entertainment,” depicts Robert Kunkler. At the same time, the Business segment is sustained by several jewels for commerce such as the cargo port Djebel Ali and its airport, which is one of the biggest in the world, and a market that is growing, at least until recent events. These solid foundations should enable it to surmount difficulties, especially since local tourism players - with the DTCM, the Emirates company and hoteliers such as Jumeirah in the lead - are working together to stimulate occupancy.The world discovered - or pretended to discover - the extent of real estate speculation that that was rife in the emirate. Promoters and banks long accepted a role in a dangerous game, motivated by their fine returns on investments. “The speculative bubble reached a fairly spectacular level because the output was incredible since property rights were introduced in Dubai, a decade or so ago,” concedes Pascal Maigniez, director France and Benelux of the Dubai Department of Tourism & Commerce Marketing (DTCM). Buyers greedily bought assets off plan, selling them rapidly to produce fine capital gains. A property could change hands several times even prior to construction, thereby encouraging the launch of new projects.When the real estate bubble burst, even prior to the financial crisis, this system ended with a clamor. Coming back down to earth is brutal. “Investors will have to adjust their expectations downward. Returns will never be the same as before,” warns Pascal Maigniez. Today, land prices have been severely corrected, by around -40%. And yet, does this mark the end of a dream for Dubai? Should the emirate renounce becoming a turntable for the global economy? The representative of the DTCM tempers the media’s enthusiasm that had already condemned the Middle East’s powerhouse: “there is certainly exaggeration, but it is comprehensible since communication was poor. The moratorium was announced without giving much information to the media and that on the eve of bank holidays, which increased the feverishness of markets. But the problem must be put into context. It is only about stretching out a loan, and Dubai World is not the Dubai State.” Bankruptcy is not on the menu. Perched high upon its immense oil reserves, Abu Dhabi came to the rescue of its neighboring “cicada”, thereby eliminating any possibility of a collapse of this turbulent, but strategic, cousin. And for Dubai World, the time has come to clean up. The conglomerate entered a restructuring phase in order to assume its obligations and refocus on the future of the emirate. This should result in the sale of many non-strategic assets, which are mostly held abroad.But what will the long-term consequences of this crisis be? Dubai’s infallible image suffered, however, the real estate market will improve, even if it risks being affected by the current crisis for a while. And this may, by ricochets, have consequences on the growth of tourism in the emirate State. In fact, several major projects that supported the global vision have been suspended, or reassessed. In February 2009, the bank HSBC counted sixty or so real estate projects floundering in the Middle East, mostly in Dubai.It is difficult to establish a precise diagnosis of who will pay the price of this return to Earth. However, the Falcon City of Wonders amusement park and Jumeirah Gardens, the new city between Dubai and Abu Dhabi, seem to have been definitively crossed off the list and The Universe, sun-shaped islands that were to complete the artificial archipelago The World, is just as uncertain. Others are at a standstill. The island Palm Deira - intended to be bigger than Paris and Manhattan - is still but a dream and, on Palm Jebel Ali, works for terracing have been achieved, but this second island has not yet seen the slightest building erected. The Mina Rashid project to redevelop the port in Dubai as a marina or the Bawadi complex ($27 billion in investments) are also on hold. This 10 km boulevard should be the biggest tourist zone in the world with 50 hotels and 30,000 rooms. Another major tourist attraction, Dubailand, has come to a halt today. The future leisure resort twice the size of Disneyland was to accommodate complexes dedicated to different sports, several amusement parks, a Tiger Woods golf course, Universal Studios Dubailand…A pleiad of hotels was to be integrated into all these projects and it is likely that many of them will never take shape. In Bawadi, the Desert Gate Hotels & Towers, a 5* with 800 rooms, was cancelled and the Asia Asia - a 5* development with 6,500 rooms for $3.3 billion - is on hold. A case symptomatic of the current difficulties is the W Dubai Festival City, a project of the real estate developer Al Futtaim. Its opening was initially forecast for 2008, and afterward it was postponed to June 2010, and then 2013. In the end, like its ex-future neighbor Four Seasons Dubai Festival City, this hotel is no longer on the hotel group’s radar.As for those construction sites already under way, the delays are mounting up. Until very recently the city could boast having one-sixth of all the giant cranes worldwide. But less financing means less workers: today a certain number of construction sites have come to a standstill. On Palm Jumeirah, the construction of the Trump International Hotel & Tower was put on hold by Nakheel at the end of 2008 because of the financial crisis. And yet, the representative of the DTCM remains confident: “everything that was launched was achieved. Dubailand will perhaps take more than 20 years to be completed, but it will rise out of the ground.”In fact, while the emirate came to a serious halt, life in the destination did not stop short. Several projects will soon be completed. After the highly mediatized opening of Sol Kerzner’s mega-resort Atlantis in November 2008, this January will see the inauguration of the Burj Dubai, the tallest tower in the world. This will be the home of the first Armani Hotel from next March. The arrival of another label is well on its way and the Palazzo Versace is still expected for the end of 2010-beginning of 2011, at which time there should also be the inaugurations of the Jumeirah Business Bay Hotel and Jumeirah Al Fattan Palm Resort.For established hoteliers this slowed opening rate, especially on a particularly crowded luxury segment, is not such bad news. It will reduce the pressure on a market that has been affected for several months. The occupancy rate has been falling off since the end of 2007, and the average daily rate joined it in its slide at the end of summer 2008. Since then, prices have continued to tumble. On twelve rolling months, the latter fell by 21,4 %. “Faced with the global economic situation, our hotels have offered targeted promotions that all received a very positive response from our clients,” explains Robert Kunkler, VP operations Jumeirah for Dubai and its region. Nonetheless, although the occupancy rate is down by 6,3 pts on the same period, it nonetheless remains at very high levels: 75,3% in Dubai and even more for Jumeirah Beach. Many hoteliers only see such ORs in their dreams during this period. Local authorities even see an interest in lowering room rates: this would make it possible to broaden clientele and make the destination less elitist.Like the city overall, hotel results, which have been stratospheric for several years, have also regained some measure. “I can confirm that despite the drop in the RevPAR, Jumeirah continues to be very profitable,” emphasizes Robert Kunkler. And, despite current problems, several observers are counting on a future that will perhaps be less glitzy but nonetheless brilliant for the destination, like Jean-Gabriel Pérès, CEO of Mövenpick (see interview). “The emirate has become one of the most popular and most soughtafter/ popular/recherchées destinations with exceptional equipment, very upscale hotels and a year-round calendar of sports events and entertainment,” depicts Robert Kunkler. At the same time, the Business segment is sustained by several jewels for commerce such as the cargo port Djebel Ali and its airport, which is one of the biggest in the world, and a market that is growing, at least until recent events. These solid foundations should enable it to surmount difficulties, especially since local tourism players - with the DTCM, the Emirates company and hoteliers such as Jumeirah in the lead - are working together to stimulate occupancy.
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