Will Qatar face an accommodation overcapacity after the world cup

In recent years Qatar has witnessed a construction boom especially with the hospitality sector as it prepares to accommodate armies of football fans from around the globe. Will Qatar be able to provide the required number of rooms and if so, will the country face accommodation overcapacity after the World Cup?

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Qatar hotelQatar’s tourism sector is gearing  up for the upcoming FIFA World Cup, investing billions of dollars in hotels and infrastructure, while pursuing goals announced in its “Vision 2030” in which tourism is perceived as one of the key sectors for the future  diversification of the economy.  Some two years ago, the Qatar Tourism Authority (QTA) said the government plans to invest USD 20 billion in tourism infrastructure, of which at least USD 5.7 billion will be directly invested in hotels and restaurants. According to FIFA estimations, around half a million visitors are expected to visit the tournament in 2022. Qatari estimates are even more optimistic, close to one million.

At least 40,000 rooms still needed

At the moment, the country still has a long way to go, as it needs to provide at least 40,000 more rooms. “A survey of 140 international and regional hotel operators active in the GCC conducted by my company, Viability Management Consultants in May 2015, revealed a confirmed pipeline in Qatar of 56 future hotels and hotel apartment buildings containing 14,126 keys.  These future properties are all due to come on line between this year and 2018,” Guy Wilkinson, an experienced hospitality consultant and a managing partner at Viability Management Consultants, tells BQ magazine.

Despite optimistic results in the tourism sector and rapid annual growth of room capacity (9 to12 percent), Qatar will be able to provide only about 42,000 rooms out of 50,000 to 60,000 needed according to Deloitte’s report. This total falls way below the target Qatar committed to in its original submission to FIFA, concludes Wilkinson. Qatar’s bid document in 2010 pledged the country will make 100,000 rooms available by the beginning of the tournament. This means that some guests will have no other choice than to find accommodation in nearby countries.

Mark Shea, director – head of Hospitality, Middle East at Faithful+Gould – one of the world’s leading project and programme management consultancies – tells BQ the World Cup tournament will attract visitors to both Doha and Dubai and the demographics and budgets of the football fans will determine where they choose to stay. “Both regions have attractions that appeal to different types of travellers and where some of these tourists may not have previously chosen to stay in Qatar, the completion of some of the new exciting high profile projects such as Doha Oasis, will undoubtedly entice them to stay,” he adds.

Qatar is rushing construction and witnessing capacity boom with many new hotel operators opening facilities such as St Regis, InterContinental and Hilton, as well as Thai-based hotel brand Amari and Hong Kong-based Shangri-La and Traders Hotel. But these are just a few in the long rows of future hotels underway. QTA’s ambitious expansion strategy includes the rapid growth of tourism and construction of at least 80 hotels and apartment hotels in the next five years.

Beside this, Qatar has several aces up its sleeve which will bring even more tourists into the country. Breath-taking projects such as the development of futuristic metropolis and marina, Lusail, worth around USD 30 billion, and floating hotel resort and underwater broadcast studio for TV coverage during the World Cup, are just some of these plans.

Hotel chart

Risk of overcapacity

But does Qatar really need so many hotels and will it be able to attract enough visitors after the tournament to keep all these high class hotels running? Some analysts warn the country’s ambitious hotel-construction plans may lead to overcapacity of luxury hotels and plummeting room occupancy after the event. A good example of this is South Africa, where some cities were left with a number of empty luxury spots.

Robert A. Gilbert, president & CEO, Hospitality Sales & Marketing Association International (HSMAI) says this is very possible if too much supply is developed.  “The development of hotel rooms is a function of the investor climate for the region. Hotels can be built but are they a long term sustainable investment for ownership? Many markets around the world have peaks and valleys for hotel room demand.  The demand is high for peak periods but the real question is for the demand for all of these rooms the rest of the year.”

Despite robust grow of the tourism industry, it will be extremely hard for the country to attract enough tourists which would support and fill in rapid hotel capacity growth in the next eight years. According to the Samba Financial Group report from last year, it will require an annual average compound growth rate of 27.2 percent until 2022.

Last year’s Deloitte Middle East Hotel Market Intelligence Report, for example, reveals Qatar could support only 38,000 hotel rooms after the tournament based on previous tourist numbers and presumption of a 60 percent room occupancy. But, it is important to highlight that figures and forecasts vary considerably as statistical data are constantly changing and improving. QTA  stated that hotel occupancy rates reached 71 percent in 2014 from 60 percent recorded in 2013, while this year, occupancy rates in Doha’s hotels may be somewhere between 71 and 84 percent. More optimistic forecasts are also based upon Qatar’s ambitious strategy to increase number of visitors up to 7.4 million by 2030 as announced last year.

“I believe that at current levels of demand growth, which is primarily based on increasing corporate demand, the confirmed key pipeline can be absorbed.  However, when the time for the World Cup comes, no doubt many of the one million expected visitors will need to stay in such places as converted residential housing, floating hotels (which the government has promised to bring) and even hotels in neighbouring countries like Bahrain and the UAE,” says Wilkinson.

A similar view is shared by Shea who however suggests that a lot of consideration needs to be given to the number of hotels and rooms brought to market for the World Cup and post event occupancy. Qatar is a growing market and is driven first and foremost by Qatar’s National 2030 Vision, and as such there is strong momentum behind it to support the state’s long term economic growth and diversification he says.

On the top of this, Shea reminds us, the country is also becoming recognised as a sports destination with the recent World Handball Championship, so there is potential for the country to host future sporting events which will make use of the new hotel offerings. Also, the continuous improvement of the infrastructure, Doha Metro and the expansion of Hamad International Airport will make Qatar more appealing to tourists and expatriates. With the new airport expected to act as a major hub for onward travel, the numbers of short stay visitors will increase, having a positive impact on occupancy rates.

Doha Hotel Entrance
Architect’s rendition of the Silver Pearl Hotel for the FIFA 2022 tournament in Doha. This 30 floor high luxury “floating” hotel will be built 1.6 km off the coast of Doha. It will have a more than 1000 rooms and an expo centre at cost of over USD 1.5 billion.

Alternative solutions

There are some alternative solutions which may solve these problems all at once. Gilbert is convinced there will likely be the development of some temporary types of lodging.  Cruise boats have been used in some markets to accommodate very high but temporary demand. Although the idea was rejected two years ago, it becomes relevant again as the QTA just recently announced the country plans to accommodate at least 6,000 football fans (and according to some reports even 12,000) on cruising ships during the World Cup.  This solution can offer additional rooms urgently needed for the tournament, while easing problems of hotel room over-capacity, as the ships would be used only as a temporary solution. “An innovative idea, this would help to reduce the risk of empty post games inventory,” says Shea.

Finally, floating hotels can prove to be a welcomed solution with regard to the sensitive issue of alcohol consumption. Moreover such accommodation fits perfectly with QTA’s ambition to develop Qatar as one of the major cruise destinations in the Gulf.

Mark shea
Mark Shea, director – head of Hospitality, Middle East at Faithful+Gould

Unexplored potential of mid-range hotels

Qatar’s hospitality industry is currently dominated by high-end luxury offerings. But Shea is convinced there is definitely a place for mid-market and budget hotel offerings, not only in Qatar but across all major destinations in the Middle East. “Not all travellers can afford to stay in luxury high-end hotel accommodation, so to cater to a wider demographic of visitors, a hotel product must be developed that is at a lower price point than the existing offerings,” he says. So far the sector of mid-range hotels has been quite neglected in the region.

Wilkinson offers some interesting insight into the Gulf’s hotel market.  “Gulf-wide, 3-star hotels account for only 10 percent of the future pipeline keys, while for 4-star hotels, it is 31 percent and 5-star hotels, 59 percent.  Within Qatar’s pipeline, there are future ‘limited service’ hotels coming up under the Best Western, Ibis and Premier Inn brands (the latter is opening two properties). “With more than 40,000 rooms still needed to meet the requirements of the FIFA 2022 World Cup, development of mid-range hotels could be part of the solution.”

Gilbert believes growing markets typically need a diverse offering of hotels in all price tiers and product types to accommodate all types of demand. “Any maturing hotel market should expect to see international brands slowly penetrating down the star ratings, bringing the consistency of big-chain facilities and service standards to more affordable hotels. Qatar is no exception. It is certainly true that for the World Cup there will be many fans looking for a more reasonably priced night’s stay,” adds Wilkinson.

Mid-range hotels offer many advantages especially when it comes to lower costs and pragmatic solutions. According to Faithful+Gould, such hotels are considerably cheaper to build and provide better and more functional usage of space as they do not require lavish reception areas and can therefore be located on the upper floors, releasing the ground floor to maximize retail footfall potential. Smaller hotels can be built much faster by using modular methods of construction. In addition, older business buildings can be transformed into hotels, considerably lowering the costs of construction.

Furthermore, hospitality customers make significant economic contribution to the retail sector – specifically to shopping malls as visitors from mid-market hotels in close proximity to a retail complex will stay five days and will visit the complex twice during their stay. Since mid-range hotels usually offer only very basic services, all other needs are usually serviced elsewhere, including entertainment, food and shopping. Shea believes, “A more diverse hotel portfolio offering in Qatar will have a positive impact on the number of visitors leading up to, during, and after the upcoming major events.”

Guy Wilkinson
Guy Wilkinson, hospitality consultant and managing partner at Viability Management Consultants

Cooperation rather than competition

Upcoming mega events in Qatar and UAE and the growth of the touristic sector within some of the GCC countries (such as Oman), have been improving the overall image of the region. UAE authorities, like Qatar’s, are gearing up for Dubai Expo forecast to attract 20 million visitors a year by rapidly developing the country’s hospitality sector. Massive increase of new hotel capacities – which will easily exceed 100,000 rooms in the next few years – is seen by many as a serious challenge to Qatar’s touristic ambitions. Wilkinson, however, sees this from a different angle, questioning if it is right to say these two mega events will compete in any way, as they target very different types and volumes of visitors. While the World Cup in Qatar is expected to attract a million football supporters specifically, the Expo 2020 is targeting 25 million leisure visitors of a much more general nature.

Shea agrees: “It is important to understand that each location offers something differently appealing to a different type of traveller and we see significant opportunities across the whole Middle East region.”

Since experts do not see different locations within the region as direct competitors, should the governments act together, bringing more visitors to the region? Such trends already exist in other parts of the world, especially in Europe, where some countries practice joint promotions, advertisements (and subsequently lowering the cost of promotions), joint trip package offerings, etc. Although similar offers could be found in the Gulf, there is still much untapped potential in the region. “It would be excellent if the UAE and Qatar could cooperate regarding these two events, starting with the airlift to be provided by Emirates, Etihad and Qatar Airways, and continuing with the hotel accommodation to be made available,” agrees Wilkinson.

However, Shea explains sharing of profits can be very complicated and with such a huge hospitality market in the UAE and Qatar, even more so. Hotels are run as profit making businesses and have a diverse and extensive ownership across the region in general. There are a significant number of individual owners and to encourage all to take part in a profit sharing scheme could be difficult.

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