Do Dubai hotels face competition from hotel apartments?

By NP Chandrashekhar, CHA, MHCIMA

Since the first Hotel Apartment was opened by Hilton International in 1980 the concept is becoming famous in the middle-eastern markets especially the UAE. Although it was not very successful in other parts of the world, but, have taken a good shape in middle-eastern markets. Today, in a place like Dubai where the leisure traffic is very high especially from Gulf Co-operation Countries (GCC) the demand for hotel apartments have increased and have become most chosen place to stay for families. Specially, those who come from GCC have large families and they need larger place to stay. There are families that do not stay in a hotel as they serve alcohol hence, hotel apartments becomes convenient place as they do not have permission to sell alcohol.


From Customer perspective:

The configuration of a Hotel Apartment is normally a studio, one bedroom, two bedroom or three bedroom apartments.

The sizes of these rooms are substantially bigger than a normal hotel room.
They are priced reasonable and affordable.

Longer stay for the family is possible due to reasonable pricing.

No alcohol is served in the apartments - some construe convenient for families.

All Hotel Apartments have a coffee shop - a facility better than a residential apartment.

There are only two types of Hotel Apartment - standard or deluxe.

Most of the Hotel Apartments have facilities such as laundry, room service etc.

Guests can be independent - self-cooking, washing etc. is possible.

All Hotel Apartments are provided with kitchen gadgets.

Normally, all hotel apartments service the rooms daily for short term rooms and twice or thrice weekly for long term.

From Owners perspective:

Construction costs of a Hotel Apartments are comparatively cheaper than the hotels and also the lease rentals.

Interior decoration, furniture and fixtures used in apartments are cheaper than a hotel.

The distinction of standard or deluxe is mainly based on the size of the apartment, and bathroom fittings such as bathtubs etc.

Maintenance of an apartment is much easier than hotels.

People coming from GCC normally stay longer and is advantageous in terms of occupancy.
Operation is easier comparatively and operation costs are much lower than hotels.

Payroll costs are substantially lower in case of hotel apartments as there is no major food and beverage operation.

The client demand is much lower in apartment than the client of a hotel.

Administration of hotel apartment is much easier than hotels.

Break-even situation is very comfortable in case of hotel apartments.

Food and beverage operation only caters to the basic needs of the clients and hence economical to operate with limited profit margins.
The numbers of hotel apartments have increased in Dubai in the recent past. These hotel apartments seem to be competing with the hotels and snatching part of the market share of hotels. Most of the hotel apartments in the Dubai are full and the occupancies ranges from 80% to 85% throughout the year. There are many corporate clients who choose to place their employees and visitors in the hotel apartments instead of hotels. It becomes economical for them when they take the rooms on long term basis. Most of the corporate clients offer their expatriate employees a furnished accommodation. In such a case, furnished hotel apartments are the best bet, as they can move their employees at short notice. Moreover, their investment in capital expenditure such as furniture and fixtures get reduced and further burden of managing them completely gets eliminated.

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The leisure market is increasing in Dubai every year. People come in large groups to Dubai from the sub-continent and European markets. It becomes economical to stay in the hotel apartments for large groups as they can share the apartments when they take two or three bedroom apartment. It is cheaper to take three bedroom apartments than to take three individual rooms in a hotel. Many of the tour operators make a good buck on such dealings. Hotel apartments also provide facilities such as, swimming pool, gymnasium, business center etc. and other necessary facilities to its clients. Only thing one can notice is the grandeur of a hotel is different from that of Hotel Apartment. Normally, hotel apartments have only one coffee shop that caters to the basic needs of the clients such as break-fast, lunch or dinner. However, in a place like Dubai where there are varieties of independent restaurants that caters to all kinds of people coming from different parts of the world. Hence, people who stay in hotel apartments are not deprived of their choice of food or beverage.

Most of the tour operators big or small are promoting hotel apartments in Dubai. Major tour operators have their offices in different parts of GCC, Europe and Sub-continent. They are able to convince their clients to choose hotel apartments to hotels. This concept is sold in these markets convincingly. Today, people are aware of the hotel apartment concept and specially, the groups and families seek to stay in hotel apartments. The demand for hotel apartment has increased substantially over the period.

This gives raise to a doubt whether there is a shift in the market from hotels to the hotel apartments or a niche has been created for hotel apartment. Both hotels and hotel apartments in Dubai are doing well. The demand for room in Dubai has increased substantially. There is no doubt that the market is expanding in Dubai due to the expansion in business opportunities. Moreover, Dubai is also becoming the tourist destination for leisure. Infrastructure facilities in Dubai are good compared to any other well known cities of the world. The government is doing all its efforts in marketing the destination to all parts of the world. Dubai Land project is another milestone set to attract tourists from Hong Kong in the east to Paris in the west.
During the year 2005 many of residential apartments have been converted to hotel apartments in Dubai. Many owners prefer to construct hotel apartments instead of hotels. There are many more hotel apartments in the pipeline to open in the year 2006, such as Capital Tower, Sheikh Ahmad Tower, Ritz Carlton Residence etc. all are nearing completion in the next twelve months. The capacity is about to double this year and increased with another 50% with the opening of Bavaria Suites Hotel (2100 suites). Some of the well known hotel brands have combination of apartments and hotel in the same building. Three years back the hotel apartment used to be the second option only in case of non-availability of hotel rooms. Today, there are customers for hotel apartments.

Although market reacts to the demand and supply in the overall situation, but, one can see the shift of demand for hotel apartments. Substantial marketing has been done for hotel apartments and market is aware of the concept in GCC. The demand for hotel apartment is increasing in Dubai and hence the investment in hotel apartments. Is it that Hotel Apartments are absorbing the overflow from hotels? Is it that supply of hotel rooms are not in par with the demand or is it the owners do not want to take risk by constructing hotels that can cater mainly to short-term clients or is it that conversion of hotel apartments to residential apartment is much easier as an exit plan?

However, qualitative aspects of the hotel are much different compared to the hotel apartments. Hospitality is an experience and it has different levels of satisfaction. Ultimately, it is the style, taste and satisfaction of the guest that decides the existence of the market. Will the hotel apartments in Dubai sustain for a long period to come? Wait and see!
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