UAE hotels among the ‘highest profitability levels in the world’

Hotel food and beverage demand underpinning profits, says STR Global managing director

UAE hotels are among the ‘highest profitability levels in the world’, with hotel food and beverage demand underpinning profits, according to managing director of STR Robin Rossmann, who leads operations across Europe, Middle East and Africa, Asia Pacific, and Latin America.

Speaking exclusively to Hotelier at the Arabian Hotel Investment Conference in Ras Al Khaimah, UAE, Rossmann said that one of the ultimate elements underpinning investment in hotels across the region is that they are among the highest profitability levels in the world. He revealed that one of the elements underpinning that is the strength of hotels in terms of food and beverage.

“This is because they [hotels] are already the epicentre of demand for local communities and for tourists, especially for western cultures that want to have alcohol and the only place you can do that is in hotels. It creates a lot of demand and it is profitable demand,” he said.

He went on to highlight how food and beverage offerings in hotels in the UAE generate profit margins of around 40%, compared to New York where profit margins are 0%, Paris at about 6%, and London at 25-30%, due to the higher labour costs and lower demand in the latter three cities.

Speaking about hotel profits in the region, he said that historically the region, and Dubai particularly, has had incrediblly high levels that are unattainable anywhere else. “They [profit levels] have come down now,” he said, “and obviously hoteliers are not going to be happy about that. However when you benchmark that on a global scale, returns are still pretty good here.”

Speaking about the future of the region’s hotel sector, Rossmann said that because supply is increasing, a lot will depend on the ability of the region to continue to grow demand. “It has got the levers to do that,” he said, “but that doesn’t mean it will be easy. It will get bumpy; there will be years when there will be declines, and we expect 2019 is going to be a tough year.”

He pointed out, however, that ultimately, hotels are long term investments, over a period of 25-50 years. “You have to take a view on your belief in your destination as a whole and ultimately travel and tourism is a very strong and growing industry globally. If this region can do what it needs to do to attract those travellers then it is difficult to bet against,” he said.