By Matthew Wright
Oman Airport Management Company figures indicate that Muscat’s hospitality sector should be in robust health with the number of passengers using Muscat International Airport increasing significantly from 4 million per year in 2008 to 6.5 million per year in 2011. Conversely, however, World Bank data indicates that the annual number of inbound tourists has actually fallen from a high of 1.4 million in 2008 to 1 million in 2010. So what is really happening and how can the hospitality sector in Muscat be best developed?
In terms of the performance of existing hotels, Government figures indicate that national annual average hotel occupancy in the Sultanate reached a peak of close to 60% in 2008 but has since dropped to an annual average of around 50%. Ministry of National Economy figures indicate that the 4 and 5 star sector has seen average annual occupancy drop from over 65% in 2008 to around 50% in 2011. Figures also indicate that the average daily room rate for 4 and 5 star hotels in Muscat has slipped from around RO 100 in 2009 to RO 80 during 2011. While still enjoying some of the highest room rates in the world and with signs of a slight uplift in occupancy in early 2012, the indications are that the hotel sector in Oman has been hit hard by the impacts of the global recession and Arab Spring. With the current Eurozone crisis and a potential US recession on the horizon, things may well get worse before they get better.
Cluttons’ research shows a significant pipeline of proposed hotels in the Muscat capital area in the planning or development stage. The projects that Cluttons has identified as having a moderate to high chance of delivery over the next 5 years would, in our estimation, provide in the regions of 3,500 to 4,000 rooms to the 3 to 5 star sector in the Muscat capital area: this compares to a total of around 3,750 rooms in the 3 to 5 star sector in Muscat in 2010 and would effectively double the supply of 3 to 5 star hotel rooms in the capital area.
The indications are that the hotel sector is struggling at present and recent downward trends may be exacerbated by both the pipeline of hotel development proposed for the capital area and the global economic situation. It is evident that the hotel sector in Muscat is in danger of entering an over-supply if all of the proposed projects are developed over the next few years, particularly in the 4 and 5 star sector. If there are potential gaps in the market, we consider that this will be in the boutique hotel/niche location sector, the budget to mid range sector (2 and 3 star hotels) or mid-range hotel/serviced apartments. The projected supply pipeline will, however, result in an increasingly competitive market, and Cluttons considers that professional market research and advice will be key to successful hotel development.
Matthew Wright is the Associate Director for Strategic Consultancy and Industrial at Cluttons Oman