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Is Dubai still a good bet?

11 September 2009 by
Is Dubai still a good bet?

A PR and marketing triumph, Dubai has seen rapid development over the past 10 years. Despite signs the economy is suffering, the tax-free haven still has a lot to offer UK-based hospitality operators. Ben Walker reports.

The rapid development of Dubai as a tourist destination and international trading hub over the past 10 years has attracted wave after wave of UK-based hospitality operators. Once your business is up and running, Dubai offers complete freedom of capital movement and no direct taxation, eliminating a considerable amount of bureaucracy.

Yet this alone doesn't fully explain Dubai's attractiveness to UK hospitality businesses. After all, there are other tax-free havens around the world, such as the Cayman Islands, Cyprus and the Bahamas.

According to Julian Kemp, associate director at consultancy and agent CBRE Hotels, there are a number of further reasons: Dubaie_SSRqs expatriate community accounts for 90% of the population and includes a large British contingent providing a ready market for goods and services; Western brands have a certain kudos among Gulf nationals and there is a natural willingness for locals to sponsor British companies; it's also a young city with, around 55% of the population within the 25-39 age group.

A PR and marketing triumph with unique developments, such as the man-made Palm islands, fuelling inbound tourism, Dubai has benefitted from the joined-up thinking that comes from being largely governed and financed by one ruling family - the Al Maktoums.

John Podaras, associate director of advisory firm TRI Middle East, says the UAE city-state has adopted the Singapore model, which views shopping and tourism as co-dependent. Indeed, one government body deals with both - the Department of Tourism and Commerce.

When it comes to the financing of major property developments, the dividing line between private and crown ownership is blurred. What is clear is that there are no lengthy public enquires to delay proceedings, hence Dubai's rapid growth.

Heavy reliance on construction and real estate, however, mean Dubai's economy is now suffering. Some of the emerging statistics look dire, with residential property values falling by as much as 50% and an analysis by Swiss bank UBS suggesting a significant population decline over the next two years, since expatriates who lose their jobs are not allowed to stay on.

Yet it's not all gloom. It is to the government's credit that major infrastructure projects have not been halted like so much residential and commercial construction, says Podaras. The first line of Dubai's much-needed metro network opens this month. The total network will comprise 47 urban and suburban stations, facilitating footfall in shopping areas and providing new opportunities for food and beverage operators. A second airport is also due to go live at the end of 2010, again creating new prime retail space.

Dubai undoubtedly remains an important transport hub. Of the 30 busiest airports in the world, its airport comes in 16th place, according to the Airports Council International, and only three of these - Dubai, Beijing and Guangzhou - have recorded year-on-year growth in passenger numbers during 2009. Duty-free sales at Dubai airport in 2009 are reportedly matching those in 2008.

Much of Dubai airport's growth is in long-haul, through traffic on routes such as China to South America, and some hospitality businesses have recognised an opportunity here. Emaar's flagship hotel, the Address, has struck a deal with Emirates airline and offers long-haul travellers one free overnight stay in Dubai, which has helped keep its room occupancy above 75% and marketed the hotel to its target clientele.

In terms of casual dining, visitors from the UK will recognise familiar outlets such as Carluccio's, Caffè Nero and Gourmet Burger Kitchen, which have all opened in the past two years. Dim sum chain Ping Pong is due to open in the Dubai Mall, the newest of the city's malls, this month.

With its strong range of coolers and fruit cocktails, the Ping Pong menu is particularly suited to alcohol-free markets. Explaining why the company picked Dubai as its first overseas location, Tina English, Ping Pong's commercial director, says: "Most restaurant chains look at creating clusters alongside other restaurants in locations such as malls. Dubai is a recognised gateway to the rest of the UAE and Middle East, which is one of the right areas for our strategic growth. We are also opening in Sao Paulo and Washington DC."

There has been a huge amount of retail development in Dubai and inevitably some locations are doing better than others, although reasonably-priced restaurants remain more resilient than clothing and jewellery shops. Ibn Battuta Mall, in the south of the city, is not trading as well as the more central Mall of the Emirates and Dubai Mall. According to advisor and agent Jones Lang LaSalle, market dynamics are shifting in favour of tenants who can negotiate short-term contracts as rents decrease and more units become vacant in some centres.

So does this present an opportunity for new entrants? For Podaras, caution is the byword. "There are signs of a bottoming out but the future is still nebulous. New entrants need to exercise caution. It will not be until the second half of 2010 that we see an improvement," he says.

Kemp's verdict is that only those interested in a long-term commitment should venture into the Dubai market, since the ability to make a quick buck no longer exists. This sentiment is echoed by Vineet Bhatia, who has had a restaurant, Indego, at the Dubai Grosvenor House hotel since 2005.

"Dubai will take a while to bounce back but for us it's a long-term play. We took a gamble introducing high-end Indian cuisine to Dubai five years ago. We are pioneers. We were here in the boom and we are here in the recession," he says.

Dubai's rulers have been incredibly successful at reinventing their city, Kemp adds. Now the need for innovation and reinvention is stronger than ever. "Dubai has been too reliant on leisure demand and the international conference market now needs to be developed," he concludes.

Next month, the Burj Dubai tower, the tallest building in the world, is expected to open. The 818m structure will include an Armani hotel, serviced apartments, retail and leisure facilities and a public observatory deck on level 124. It seems that whatever the future holds for Dubai, it will not stay out of the headlines for long.


In an STR Global survey of 15 international hotel city markets, Dubai reported average occupancy of 68.9% for the first seven months of 2009, a 14.6% drop compared with the same period a year earlier. Similar falls in occupancy were reported in Los Angeles, Cairo, Madrid and Hong Kong.

However, average room rate in Dubai increased by 1% to £160.23, the highest absolute value in the survey, but the hit on occupancy meant revenue per available room was down by 13.8%, the third largest decline after Beijing (-23.1%) and Madrid (-22.8%).


  • In most cases you will need a local partner to open a business in Dubai.
  • Employ an experienced local lawyer from the outset who will help you find a local partner and guide you through the complexities of registering your business.
  • As a foreigner, you're likely to use a Western/Arab joint-venture law firm. When choosing one, seek the advice of the Arab-British Chamber of Commerce, the DTI, Middle East Association or your embassy's commercial sections.
  • Registering a business is not as straightforward as in the UK. You may need to obtain a number of licenses which can command recurring fees.
  • Arabic is the common language used in all government offices. Therefore, every company has to have an Arabic speaking employee or hire someone temporary to deal with government institutions for various business matters.
  • Although more liberal than its neighbours, the UAE is a Muslim country which adheres to the Islamic calendar. This is likely to impact your operation. During Ramadan, which started on 21 August this year and lasts about one month, Muslims do not eat or drink during daylight hours.
  • If you are not operating inside a licensed hotel you will not be permitted to sell alcohol, so the absence of alcohol sales should be factored into your business plan.
  • The right of foreigners to own freehold property was only granted as recently as 2003. Real estate law is complex and subject to constant revision. The Real Estate Regulatory Authority (RERA) is taking some measures to improve the situation.
  • From January 2009, RERA ordered developers and banks to stop collecting payments exceeding 20% of the cost of properties until construction begins.
  • The Land Department is encouraging tenants and landlords to register all rental contracts in Dubai via its website www.ejari.ae


"To a large extent, these are uncharted waters for the city of Dubai, so long the poster boy for unfettered growth and development in the fast-emerging United Arab Emirates," says James Chappell, managing director of STR Global.

"Like the vast majority of international destinations Dubai fell hard last September, as first the price of oil and then the financial markets themselves crashed. Hotel room occupancy levels, which hadn't fallen below 80% since 2003, were suddenly running at 65%. In September 2008, a combination of the tail end of Ramadan and the financial collapse pushed occupancy to below 60%, possibly the lowest level ever.

"Personally, as painful as this period is for the hotels operating under these conditions, I think this will be looked back on as the wake-up call the region needed. The levels of building, especially in the hotel and residential sectors, were clearly unsustainable and too susceptible to external factors beyond the region's control.

"New room supply has increased from 40,000 to almost 50,000 bedrooms in a year, an increase of over 20%, compared with a European average of around 2%. The fall in real estate values has meant that many projects have either been cancelled or put on hold indefinitely, meaning that when the market picks up again there will be fewer bedrooms to fill than there otherwise would have been.

"The second issue is that Dubai has been too reliant on the leisure segment, contrasted with Abu Dhabi, which has a better mix of corporate and leisure business and is subsequently not affected as badly. Year to date, revenue per available room (revpar) in Abu Dhabi has actually grown, compared with a double-digit fall in Dubai.

"On the positive side, Dubai as a market knows that it can fill its hotels when demand returns, and having had five years of incredible rate and revpar growth since 2003, the falls experienced now are from a very high base, something that has meant room rates in Dubai are still higher than any city in Europe.

"When demand levels pick up again in Europe towards the end of 2010, I suspect Dubai will not be far behind as leisure travel picks up and the financial markets bounce back."

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