Turning the Corner - A Positive Trend Emerges

Colliers | MENA Hotel Forecast YoY Variance | RevPAR Muscat (Mar-18b)

For three long years the hotel industry in Muscat has been confronted each month with negative forecasts of ever declining revenue, leading to a compounded 33% decline in RevPAR (Revenue Per Available Room). The fact that these forecasts from Colliers International have reported the state of the industry in a typically professional and factual manner has been of little comfort to the industry.

Colliers | MENA Hotel Forecasts 1803 (Mar-18 Cover)

Starting in January this year that long slow decline appears to have turned a corner. For the first three months of 2018 the forecasts for Muscat have all been positive, with Colliers forecasting a four percent YoY increase in RevPAR for the Muscat hotel industry. After three months of positive forecasts this is now officially an upward economic trend.

While there are sure to be some hiccups going forward it is pleasing to see that the industry appears to have reached the nadir in terms of RevPAR. See below for more detail.

Colliers | MENA Hotel Forecasts 1803 (Mar-18 Table)

The Details | MENA Hotel Forecasts

Each month Colliers International EMEA sends out the MENA Hotel Forecasts. The key performance indicator in these forecasts is RevPAR. In general, the hospitality industry finds the forecasts and analysis from private and industry organisations such as STR Global, Cluttons, HVS, Viability and Colliers to be more attuned to the industry than any other source.

Since February 2015, as shown in the chart above, these forecasts from Colliers have highlighted a significant drop in RevPAR, with an overall compounded decline of 33 percent in those three years. 

In the most recent report for March 2018 the 12 month Year on Year (YoY) forecast is for an increase of 4 percent in RevPAR. Following on from similar positive forecasts in January and February, this is now officially a trend.

Note: The positive improvement in the RevPAR was solely due to a significant increase in the forecast for occupancy, while Average Room Rates (ARR) remain at a three year low, and 32 percent below the ARR of February 2015.

How these figures can be read

  • For the past three years the hospitality industry in the MENA region has been in a cycle of declining RevPAR. It appears to have reached the nadir and is now trending upwards.
  • This regional decline in the hospitality industry is a direct result of the lower oil price and the ongoing security concerns for the region as a whole. 
  • A recent increase in oil prices has injected some enthusiasm in the economy as a whole and has seen a pronounced improvement in the outlook for hotels.
  • After experiencing declining RevPAR for the past three years the hospitality industry in Muscat is seeing a glimmer of hope. For the first three months of 2018 the YoY forecast is for RevPAR to increase from current figures by four percent in the next 12 months. 
  • While Muscat has seen and will continue to see a substantial increase in the supply of hotel rooms, there is a growing appreciation of the relevance and potential of the industry. 
  • The increased investment in the hospitality industry, both in properties and infrastructure, particularly the new international airport, will provide new demand to offset this growth in supply. 
  • This projected increase in demand will bolster the occupancy rates of hotels. However, the ARR is unlikely to increase as the new hotels will introduce their properties to the market with lower introductory room rates. 
  • Overall Muscat is entering a period of significant growth that will lead to the establishment of a vibrant and dynamic tourism industry. An industry in which we can all invest and which will provide gainful employment for many.
WEF | Travel & Tourism Competitiveness Report 2017 | Cover

How the world sees Muscat and Oman

The Sultanate of Oman consistently receives positive international media coverage with more attention being drawn to the unique features that separate Oman from many of the other cookie-cutter destinations. A common theme through many of these media reports is the relative safety of Muscat and Oman.

In its 2017 Travel & Tourism Competitiveness Report (TTCR) the World Economic Forum (WEF) places Oman in the top 10 in terms of Safety and Security, and at #4 Oman is five positions higher than 2015, when the previous edition was published.

And earlier this year CNN published a list of Metropolises on the up: 7 design-savvy cities to watch in 2018 in its CNN Style section. In the opening paragraph CNN stated “the overarching specter of uncertainty made for an erratic 12 months. And 2018 doesn’t look much clearer or calmer.”

“That makes it all the more important to identify the right markets when investing in property. For many it will be a case of the safer the better. Even those taking more of a risk will likely be erring on the side of calculated caution. With that in mind, here are seven of the cities you should be eyeing in 2018.”

Muscat was listed as #2 in the worldwide list of seven cities.

Newsweek | How Much Longer Can Oman Be An Oasis of Peace in the Middle East?

Last year Newsweek published a positive article about Oman under the heading “How Much Longer Can Oman Be An Oasis of Peace in the Middle East?” that emphasised the relative safety and stability of Oman. This article went out to a global audience of more than 15 million people.

In today’s world safety and security issues take on added significance and relevance. And as the tourism industry in the Sultanate of Oman matures and expands, such positive and high profile articles and reports are exposing Oman to a potential new market of millions. These articles clearly support the international marketing efforts of His Majesty’s Government, particularly the Ministry of Tourism.

Recent trends

Everyone who has visited Oman is aware of the many and varied attractions that clearly establish Oman as a premier tourist destination. At the same time the commercial realities of life in a region so dependent on a high oil price are being felt by everyone living and working in Oman. 

The hospitality industry in particular is experiencing one of the worst periods in the past decade. With more than 1,200 new hotel keys in the past 12 months (Cluttons | Muscat Property Market Outlook) and a drop in corporate and leisure tourists in the same period, hotels have experienced declining occupancy levels. To compete in such a market hotels have been offering significant discounts which has led to a major drop in RevPAR, a common industry indicator.

As we get ready for an upturn in business, hotels in Oman will need to understand … 

  1. Lower room rates
    For the tourism industry in Oman to compete internationally, Muscat has to embrace the lower room rates and accept them as the norm. There will be no returning to the higher rates once enjoyed.
  2. Competitive pricing
    Market forces will demand more mid-range hotels with a greater number of rooms and more competitive prices.
  3. Quality will be rewarded
    These same forces will ensure that quality properties will survive better in the market. A “quality property” is not necessarily an expensive five star property. It can also be a mid-range property that has been purpose built to international standards.
  4. OTAs are not a threat
    The industry needs to see the Online Travel Agents (OTAs) as a marketing tool that will market your property to a wider audience - not as a threat that is cutting into your revenue.
  5. Focussed social media
    Social media is important, but only when it is focussed and leads to direct sales. 
  6. Declining RevPAR
    While the long range forecast is for an increase in RevPAR, Muscat will continue to experience declining RevPAR for most of 2018.
  7. New revenue streams
    For the ongoing survival of many, hotel managers and owners will need to identify and implement new feasible revenue streams that will add to the bottom line. These could include corporate centres, catering businesses, restaurant takeaway service, meeting room facilities, training room facilities etc.
  8. Distressed hotel properties
    Over the next few years a large number of uncompetitive hotels will fail. This has already started with many hotels facing financial pressure. By 2020 the industry will be far more stabilised, profitable and competitive.
  9. Diversification of the economy
    All countries in MENA need a vibrant and growing tourism industry, both as a source of future employment for the youth of the country and as a logical attempt to diversify away from a dependence on the petroleum industry. This will lead to future healthy growth for the industry.
  10. Promote - Natural and cultural attractions
    Oman is better able to develop a robust tourism industry than many other countries because of its natural and cultural attractions. In this area we are blessed - but we need to promote ourselves a lot more.
  11. Promote - Safety and stability
    As highlighted in the recent CNN listing of Muscat as one of the seven cities “you should be eyeing in 2018” and the Newsweek article promoting the relative safety and stability of the Sultanate, Oman is one of the most stable and safest countries in the world. This is reinforced by the World Economic Forum which ranks Oman as #4 in the world in terms of Safety and Security. Click here to see the full report and analysis.
  12. Real Estate Investment Funds (REIFs)
    Throughout the rest of the world they are referred to as REITs (Real Estate Investment Trusts), but whatever the name they are offering local hotel owners a progressive way to market their major asset to a broader market. Over the coming months we will provide more details on how this can help local hotel owners. To register your interest in REIFs please click here.

Mac Thomson
CEO, MMIS LLC
Mac@MMIS.co

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