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Uncertain future for Dubai operators

04 December 2009
Uncertain future for Dubai operators

Not long ago it was considered the land of plenty, where cash was as abundant as the searing sun that heated its rooftop pools. But the economic sands of time have caught up with Dubai, and overnight the state has slid into the financial funk that had hitherto only affected the wider world.

Planned hospitality projects in the tax haven could be shelved following the paralysis that has gripped its economy, while existing ventures are braced for a bumpy ride.

Last week the gulf state sent shockwaves across the world after one of its government-backed investment arms, Dubai World, requested a six-month break from its debt repayments. It has liabilities of more than $60b and the standstill announcement led the Abu Dhabi stock market to suffer its biggest ever one-day fall last Monday.

While signalling the end - for now at least - of the Dubai bubble that had resisted the worldwide downturn, it could also threaten Dubai World's investments. These include Scotland's Turnberry resort, the Metropole Building in London and more than 100 luxury hotels worldwide.

Though it is still early days, the economic turbulence looks set to bring to a halt any new openings and threaten the viability of some businesses already operating in Dubai.

Construction work was already slowing in the state but it now looks as though any projects not past the point of no return will be stalled or, more likely, shelved.

"Unless a development is well advanced, the cranes have stopped moving and the men taken offsite," said Rod Taylor, chairman at Taylor Global Advisors. "A substantial amount of Dubai is now a ghost town and will remain so for some time."

Atlantis, The Palm on Jumeirah opened in September and was part of a number of planned flagship schemes, but Clive Hillier, chief executive of Vision Asset Management, believes it will now be the last for some time. "The mega projects are likely to be delayed or even stopped completely," he said.

"Some schemes just had no basis in economic reality. In the UK schemes are being put on hold but in Dubai they are likely to fall away completely."

The existing hotels and restaurants will now have to fight for a diminishing pool of potential customers.

"In the last 18 months corporate and leisure travel has reduced so those that are travelling are staying in better located, higher quality accommodation at lower prices." explained Taylor, adding, "The best hotels will continue to trade but anything that is tertiary will be left out."

Businesses on the ocean or facing Dubai Creek will continue to command good rates and occupancy, but those further inland are bracing themselves for tough times. However, there is an oasis of hope for those operating in the region.

"To maintain the huge increase in rooms, the government can always turn on the mid-market tourist tap using the state-run carrier Emirates Airlines," said Hillier. "There are likely to be offers introduced in order to encourage more tourists to the area."

Dubai's royal family has deep enough pockets to ensure the market is stabilised, so hospitality ventures are unlikely to be depressed for long. The state may not set off on another aggressive construction programme but, having had five years of revpar growth, this is a fall from a high base.

Is Dubai still a good bet? >>

General manager of Dubai's Atlantis resort in shock departure >>

Premier Inn gets set for first Dubai launch >>

Dubai takes lead in Arab hotel expansion efforts >>

By James Stagg

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