May 28 (Bloomberg) -- In Dubai, a city known for some of the world’s most luxurious hotels and penthouses, developer Union Properties PJSC is looking to tap demand from people who want to visit the sheikhdom without breaking the bank.
The company plans to build around 1,000 hotel rooms in the next five years to address a shortage in the middle- and lower-end of the market, managing director Ahmad Al Marri said in an interview.
“Most of the demand is at the three- and four-star level, because the majority of existing affordable hotels tend to be located in the older part of Dubai,” Al Marri said. “We can’t invite people to visit the city just to have them come and find it very expensive.”
About 42 percent of the existing supply and at least 56 percent of the rooms to be built in Dubai by 2017 are five-star, which can cost 2,000 dirhams ($550) or more per night, said Matthew Green, head of United Arab Emirates research at CBRE Group Inc. Three- and four-star hotels command nightly rates of 300 dirhams to 625 dirhams, he said.
Dubai plans to almost double hotel rooms as it seeks increase annual visitors to 20 million by the end of the decade, when it will host the World Expo 2020. The emirate, which boasts iconic hotels such as the sail-shaped Burj Al Arab, is encouraging developers to construct affordable hotels to cater to business travelers and families on holiday, Helal Saeed Almarri, director general of the Dubai Department of Tourism and Commerce, said in March.
Union Properties plans to build four hotels and is looking for land plots in Business Bay and space along Sheikh Mohammad bin Zayed road owned by Dubai Investment Park, Al Marri said. The company will use its own cash to start construction and may borrow from banks or seek equity partners to complete the work, he said.
“Traditionally, Dubai has been a five-star location as most visitors tend to be wealthy nationals from the Gulf, Russia, India and China,” CBRE’s Green said. “With the rise of the conferencing business and family holidays, we are starting to see a push towards the affordable end of the market and that will continue.”
Union Properties is enjoying a revival in earnings and share price after Dubai’s 2008 property crash led to three years of annual losses. The developer sold the Ritz Carlton at the Dubai International Financial Centre in 2010 and three years later sold the Marriott hotel and swapped the Renaissance hotel for debt after it was unable to complete construction of the properties. The Courtyard Marriott at the Green Community is the company’s only remaining hotel.
The company returned to profit last year and in April paid its first dividend since 2009 after reducing debt, Al Marri said. Since then, the developer has focused on high-demand areas such as accommodation, retail and expanding residential communities, he said.
Union Properties closed 1.9 percent down at 2.11 dirhams in Dubai trading today. The stock is up from a record low of 0.22 dirham in January 2012. The developer is the second-best performer on the 30-member Dubai Financial Market General Index in the past six months after Arabtec Holding Co. The shares have gained 127.2 percent, almost twice as much as the index.
The company may raise the foreign ownership limits in its stock once the current limit of 25 percent is taken up, Al Marri said. Legally, the developer can allow foreigners to own as much as 49 percent of its shares, he said.
Union Properties is planning projects with a value of around 4 billion dirhams, according to the managing director. The owner of around 12 million square feet of land is working on designs for five towers with more than 800 apartments and 210 villas, he said.
A surge in shopping and tourism helped Dubai shake off the economic slump sparked by the property market crash. The sheikhdom lured 11 million tourists last year, up 11 percent from 2012. Dubai has 80,000 hotel rooms and is aiming to boost that to 160,000 by 2020, according to Almarri of the tourism department. CBRE’s Green said about 19,000 rooms will be built through 2017.
“We went through the same hardships that other developers went through, such as debt and contractors claims,” Al Marri said. “But now we see a hospitality boom is coming and we are well positioned to ride it.”
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