The Effects of the Rise of Holiday Homes on the Hospitality Market

09 October 2016

Knight Frank Middle East released their latest Hospitality report today: Dubai’s Holiday Home Market

When Decree Number 41 of 2013 was passed, which outlined the regulations under which holiday homes could be operated in Dubai, the framework within which the sector could operate became more transparent. At the time, one key stipulation of the legislation was that it was necessary for home owners to engage a licensed third-party holiday home operator as a management company in exchange for a fee, which typically ranged from 20 to 25 percent of gross revenues. These regulations were relaxed in April 2016, when the DTCM began to allow individual home owners to apply for holiday home licenses without having to commission a third-party entity.

Ali Manzoor,  Associate Partner, Knight Frank Hospitality Advisory, commented, “one of the core appeals of the short term rental market is not only the product offering, but also the provision of an ‘authentic experience’ in secondary districts which are not commonly visited by traditional tourists. This clearly does not apply to Dubai; Holiday homes in the emirate are largely located on Palm Jumeirah, Dubai Marina, Jumeirah Beach Residences, DIFC and Downtown Dubai – all areas that have high concentrations of hotel supply, which may prove to be problematic for the emirate’s hospitality sector in the long-run.”

Although hotel operators were initially dismissive of the short term rental market when it was at its nascent stages; generally citing that it either catered to a different demand base or was a different product offering, over time this view has been abandoned. Many operators have since acknowledged the impact that platforms such as Airbnb have had on the hospitality sector and in some markets have even lobbied for protective legislative measures.

Harmen de Jong, Head of Knight Frank’s Development Consultancy and Research team noted, “ultimately it is important to realise that not all hotels are affected equally – lessons drawn from other markets suggest that the impact of the holiday home market in Dubai will be more severe for (i) more affordable hotels, (ii) leisure-oriented hotels, (iii) hotels with fewer facilities and (iv) hotels without international operators.

“Additionally”, he noted, “holiday homes will dilute the ability of hotels to yield during periods of peak demand. Whereas hotel room supply is fixed and the incremental cost of developing supply is very high, the holiday home market can scale appropriately to demand with negligible marginal costs for additional supply. For this reason we believe they restrict the ability of hotels to price aggressively during periods of peak demand and have the highest impact in markets that are heavily seasonal.”

From a supply perspective, hotels in Dubai are insulated to some degree from the effects of the holiday home market as supply is largely ‘top heavy’ and internationally branded. Where potential weaknesses lie are in the ability of hotels to price during peak periods - this will become an issue in submarkets such as the Palm and Dubai Marina, which not only have volatile demand patterns but also high volumes of holiday home supply.

View the full report here.

 

For further information, please contact:

Nicola Milton, Head of ME Marketing & PR, Knight Frank, +971 56 6116 368, Nicola.Milton@me.knightfrank.com

Farah Elodat, Marketing and PR Assistant, Knight Frank, +971 56 420 2313, Farah.Elodat@me.knightfrank.com

 

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Notes to Editors

Knight Frank has a strong presence in the Middle East with offices in Abu Dhabi, Dubai, Bahrain and Saudi Arabia. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants.

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank and together with its New York-based global alliance partner, Newmark Grubb Knight Frank, operate from over 411 offices, in 59 countries, across six continents and has over 13,000 employees. For further information about the Company, please visit www.knightfrank.com or www.knightfrank.ae