Hotel occupancy rate needed to break-even has dropped, finds report

Consultants Cavendish Maxwell have stated that the occupancy rates needed to break-even in the Dubai hospitality market have lowered. In its UAE Property Market Report, it found that a range of cost-cutting measures introduced by hoteliers last year amid the pandemic have caused a market shift.

It explained: “Some others have used the pandemic as opportunity to revisit and cut operating costs thereby improving margins not only for 2020 but beyond. As a result, they have successfully brought down the occupancy rate required to break-even, which is lower than the typical 40 percent.”

Cavendish Maxwell also labelled 2020 as the ‘Year of Staycations’ for the hospitality market in Dubai. In its multi-industry report published in the fourth quarter of last year, Cavendish Maxwell gave an overview of the emirates hospitality market, as well as predictions moving into 2021.

It said: “2020 was the year of staycations as hotels looked to ramp up domestic tourism in the absence of overseas visitors. Hotels launched innovative campaigns at attractive prices including offering rates that included dining, free upgrades and free cancellations.”

In December last year, authorities in the emirate announced that Dubai had reached a landmark high number of domestic visitors. Between May and October 2020 room nights sold to domestic guests went from 2.74 million in 2019 to 5.68 million in 2020. During this period, Dubai’s domestic tourism sector was mostly driven by UAE nationals (40 percent), Indian expats (11 percent), Filipino expats (7 percent), Egyptian expats (5 percent) and British expats (3 percent).

Despite the positive spin by the consultants, it warned that smaller hotels may face difficulties this year if they don’t diversify operations: “Going ahead, we expect small and mid-tier hotels to face difficulties if they continue to solely rely on room revenues without expanding their revenue streams. Also, with the increased upcoming supply amid a slow revival in demand, ADR and occupancy levels will likely move lower in 2021,” said the report.

This article was originally published in Hotelier Middle East