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‘We’re not Monaco’: Why Dubai doesn’t need any more 5-star hotels

Dubai skyline
Cedric Ribeiro | Getty Images
Dubai skyline

Dubai is pushing for more foreign direct investment but the last thing it needs is more luxury, high-end hotels, according to the chief executive of the country's investment development agency.

Fahad Al Gergawi, chief executive of the Dubai Investment Development Agency (Dubai FDI), told CNBC Tuesday that the emirate wants more accessible, smaller and low-key accommodation in order to attract a wider range of tourists.

The city state is well known for hosting the world's most luxurious hotels, including the distinctly-shaped Burj Al Arab Jumeirah (Dubai's only seven-star hotel) along with the Jumeirah Beach hotels, the Four Seasons Resort Dubai, Raffles Dubai and Kempinski Hotel Mall of the Emirates, to name just a few.

Even fashion houses have got in on the act with famous brands hosting luxury hotels, including Palazzo Versace Dubai, Gucci Hotel and Armani Hotel Dubai.

Needless to say, Dubai's tourism industry is booming and accounts for around 20 percent of the emirate's gross domestic product (GDP), according to the Dubai FDI.

Its stock of hotel rooms rose by 5 percent in 2016 to cross the 100,000 mark; while the year also marked the opening of more luxury hotels, Dubai is crying out for average hotels that can cater for 'normal' families, according to Al Gergawi.

"We're looking at tourism to be upgraded from where it is now, from 104,000 rooms to 245,000 rooms and that will increase the flow of visitors," Al Gergawi told CNBC. "Dubai ranked number five in terms of visitors' numbers at a city level globally, so there is room for development and focusing on families and three and four star hotels."

Calling Dubai a "tourism hub," Al Gergawi said the emirate wanted to attract more visitors, not only the "glitzy and glamorous but also families… who will tend to stay longer."

"The three and four-star focus is to give variety but also to reduce costs and overheads on investors and market rates. We have one of the highest occupation rates of almost 86 percent but we still think there is room to develop."

Asked whether there are too many high-end hotels, Al Gergawi said there had been "for a while, yes."

"Usually, you have the five-star hotels at the top of the pyramid but for a while we've had the pyramid upside down with a lot of five-star hotels. We're not saying we're stopping five-star (hotels) but we want to focus on three and four-star hotels that appeal to more market segments and families."

'We're not Monaco'

The city state of Dubai, within the United Arab Emirates, has become synonymous as a destination for luxury tourism with the number of visitors expanding at a steady rate. In 2016, the number of overnight visitors hit a new record of 14.9 million people, up 5 percent from 2015 and up 8 percent since 2012.

In particular, there was a marked increase in tourists from China and Russia with inbound tourism rising by 20 percent and 14 percent respectively from the two countries.

Savills reported in 2016 that international overnight visitors spend an average $2,050 per trip to Dubai, $4.7 billion in food and beverage spending and $9.7 billion in retail spending.

Despite the tourism boom in Dubai, the city still has a reputation for being a playground for the rich. In a separate report from Savills in 2016 on Dubai's investment outlook, the real estate experts said that the city had a "relatively saturated" five-star and four-star hospitality segment.

"The need for a mid-segment hospitality offering is strongly felt with a considerable lack of three-star accommodation in central and new Dubai — a segment which could benefi­t and sustain in the long-term with an increase in investments," Savills noted.

There is certainly demand for more hotels with the city's hotel industry boasting a high room occupancy rate of 85 percent, and with an international showcase of its economy and culture approaching with Expo 2020, Dubai expects that it could host up to 25 million visitors in 2020. As such, Al Gergawi said there was a need for more hotels – they just needed to be the right kind of hotels.

"We want to appeal to more segments of people, the more the better, the more days they will spend and more activities they will do," he said, conceding that in the past there had been too much focus on building an elite profile.

"The reputation (of being a high-end destination) may not be the right one. We're not Monaco, we're a city that has desert, mountains, shoreline, beaches, old souks… You can do many things here so why focus on only the ultimate (high-end) part. We're not limiting the city to that."

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