Ras Al Khaimah- The Emirate of Opportunities. March 2016

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1 Ras Al Khaimah- The Emirate of Opportunities March 2016

2 Table of Contents INTRODUCTION 3 DEMAND DRIVERS 4 DEMAND CHARACTERISTICS 5 HOSPITALITY SUPPLY 6 MARKET TRENDS 7 GUEST EXPERIENCE INDEXTM 8 RETURN ON INVESTMENT ANALYSIS 9 CONCLUSION 10 2

3 Introduction REPORT OVERVIEW Ras Al Khaimah (RAK), the fourth largest and northern most emirate of the United Arab Emirates, has experienced rapid economic growth in recent years. The emirate is strategically located within proximity to several major routes and demand generators and only 45 minutes from Dubai International Airport. The emirate is renowned for its unique topography and landscapes from the highest mountain in the UAE, terracotta deserts to lush mangroves, white sandy beaches and the longest stretch of coastline in the UAE. In this paper, we examine the hospitality market of Ras Al Khaimah, paying particular attention to upcoming demand drivers, the characteristics of supply, key performance indicators and return on investment. TOURISM IN RAS AL KHAIMAH Tourism is one of Ras Al Khaimah s most important economic sectors and is considered a key engine for continued GDP growth and job creation. In 2015, Ras Al Khaimah welcomed 740,383 visitors and recorded a 13% rise in total tourism revenues. As the emirate continues expansion plans to meet its growth targets, several large-scale developments have been announced which are expected to raise its tourism profile and further build Ras Al Khaimah s position as a leading leisure destination. RAS AL KHAIMAH TOURISM DEVELOPMENT AUTHORITY Ras Al Khaimah Tourism Development Authority (RAK TDA), was established in May 2011 as a government entity to develop and promote the emirates tourism infrastructure, both domestically and abroad. RAK TDA has recently launched its three year tourism strategy Destination Ras Al Khaimah 2019, which sets out a new agenda to ensure the long-term success and viability of this rising sector. W N S MACRO LOCATION OF RAS AL KHAIMAH E Mega Projects Population 416,600 Size 1,684 sq km Coastline 64 km Source: Colliers International MISSION Advance the development of a sustainable and competitive tourism industry to achieve 2018 targets Natural Beaches VISION Compelling destination for visitors seeking authentic, cultural, historical and natural Arabian experiences Source: RAKTDA, Colliers International Abu Dhabi Ras Al Khaimah Dubai Diverse Landscape Luxury Hotels Rich Heritage RAKTDA STRATEGIC TARGETS FOR million Total Visitors AED 2.4 billion Tourism Revenues 15,000 employees Tourism Employment Dedicated tourism authority aiming to grow tourism into the leading socio-economic driver under the Destination Ras Al Khaimah 2019 strategic plan 3

4 Demand Drivers Al Marjan Island Al Hamra Village Al Hamra Golf Club Al Hamra Industrial Area 80 km to Dubai International Airport Ras Al Khaimah International Airport Falcon Island Al Jazira Al Hamra 67 km to Sharjah International Airport Source: Colliers International Ice Land Water Park Roads RAS AL KHAIMAH DEMAND GENERATORS Mina Al Arab Wadi Khadija Khor Al Jazira Tower Links Golf Club Qawasim Corniche RAK City RAK Mall RAK Shooting Club Under Development / Partially Developed EXCELLENT ACCESSIBILITY Strategic location with easy access from Dubai International Airport. Upcoming developments featuring distinctive residential and hotel supply to reinforce leisure demand. RAK Museum Khatt Springs Jabel Jais Leisure Demand Generators Khor Hulaylah 40 km to Oman The E 311 and E 611 highways connect Dubai and Abu Dhabi to RAK. RAK International Airport (25 km from city centre) has two passenger terminal buildings and a cargo terminal facility. The airport was also recently chosen as a location for the Bollywood movie Airlift. RAK is home to five seaports and several marinas. W S N E Corporate Demand DISTINCTIVE COMMUNITIES Al Hamra Village Al Hamra Village, a residential development, offers a variety of activities, including the Al Hamra Golf Club, four inter connected lagoons, the 200 berth Al Hamra Marina & Yacht Club, as well as the Al Hamra Mall. Historic Quarter Al Qawasim Corniche, developed by the RAKTDA, extends for 4 km and includes a number of restaurants, children's areas, cycling tracks and RAK International Marine Club. The historic center of Ras Al Khaimah city will be developed and managed as a cultural heritage conservation area. Work is already underway to explore the potential of developing archaeological parks at historic sites with dedicated visitor centers. Ras Al Khaimah City The city of Ras Al Khaimah is divided into two parts by a natural creek. RAK City mainly consists of government departments and residential neighbourhoods, as well as several shopping malls, two museums, the Tower Links Golf Club and RAK Shooting Club. Free Zones RAK s cement company is the largest producer in the UAE and it is the leading producer of ceramics worldwide (exporting to over 160 countries). The Ras Al Khaimah Investment Authority (RAKIA) has developed the Industrial Parks and Free Zones to host multiple industries and businesses who wish to conduct their business with 100% foreign ownership and tax-free. EXCITING CURRENT/UPCOMING SCHEMES Al Marjan Island A collection of four pristine man-made islands, set to feature upscale mixed use development with waterfront homes, luxurious hotels and resorts, marinas, private beaches, leisure, retail and recreational facilities. Mina Al Arab The natural coastal wetlands is home to a variety of fascinating marine life, hence the mixed-use development by RAK Properties is devoted to preserving and showcasing the beauty of nature through eco reserves and nature trails. The Anantara Mangroves Resort and Marine Life Reserve are set to open by Falcon Island A man made island, developed in line with LEED certification, is set in the centre of the Al Hamra Village featuring a Venetian style canal, alongside private beaches and parks. The island will feature a luxury hotel development. Jebel Al Jais, Desert and Hot Springs Plans are underway to develop a world class mixed use development in Jebel Al Jais with a luxury mountain resort. The eco reserve of Wadi Khadeja is home to the celebrated Banyan Tree Al Wadi. Additional opportunities exist for boutique hotels and luxury camping resorts in this area. The Khatt Springs area is a key development zone identified for thermal tourism development and wellness holidays. The natural springs have proven therapeutic benefits and are unique to the UAE. Leisure Demand 4

5 Demand Characteristics LEISURE DESTINATION Ras al Khaimah is predominantly a leisure destination, driven by both the domestic and international market. Leisure guests account for up to 90% of demand in beach and desert resorts, which comprise the largest segment of supply. AIRPORT EXPANSION A large volume of international visitors to Ras Al Khaimah arrive via Dubai airport, being only 45 minutes away. Despite this, Ras Al Khaimah International Airport has seen a 17% growth in passenger numbers in 2015, compared to the previous year due to an increase in flight movements and charters from Germany, Russia and Poland. RAK TDA has signed agreements with several key partners to grow international visitation, including Royal Brunei, Emirates and Air Arabia. Additionally, Qatar Airways, with flights to over 140 destinations, launched a new service earlier this year. The Indian low cost carrier, Air India Express, is expected to launch operations to the airport later this year. A new building linking the departure and arrival terminals is set to complete in the first quarter of 2016, as will a new terminal being developed in conjunction with cargo partner SKA Group. Designs have also recently been completed for a new VIP terminal, scheduled to be built by the first quarter of INCREASING VISITOR ARRIVALS Visitor numbers grew by 5.7% from 2014, and are estimated to grow by a further 11% in RAKDTA has set a target to reach 1 million visitors by the end of Source: RAKTDA, Colliers International NUMBER OF VISITORS , AVERAGE LENGTH OF STAY 538, , ,000 FORECAST 1,000,000 TARGET The overall average length of stay for Ras Al Khaimah was 3.18 nights in International visitors have much longer length of stays at 4.3 nights, while UAE residents stay for an average of 1.8 nights nights DIVERSIFIED SOURCE MARKETS UAE residents remain a key source market for Ras Al Khaimah, representing nearly half of total visitation, while Germany remains number one for international inbound market. Visitation from the UK grew by 24.7% in 2015, overtaking Russia for international visitors. The largest increase in visitors comes from the Indian source market, with a rise of 54.7% compared to Others 31.7% 90% 80% 70% 60% 50% 40% 30% 20% Russia 4.5% Source: RAKTDA, Colliers International UK 4.8% ESTABLISHED SEASONALITY Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Source: RAKTDA, Colliers International SOURCE MARKET SHARE 2015 Occupancy% Germany 9.8% UAE 45.2% India 4% The peak season in Ras Al Khaimah runs from September to May. Hotels experience a drop in occupancy only during the Holy month of Ramadan, as is common in the UAE hospitality market. Ramadan 2015 OCCUPANCY SEASONALITY 2015 Peak Season Annual growth of 17% in visitor arrivals since 2013 is expected to continue rising as upcoming developments reach completion. Domestic, leisure based demand represents the largest source of visitation however the past 12 months have seen increased international demand. Source: RAKTDA, Colliers International 5

6 Hospitality Supply CURRENT SUPPLY The Ras Al Khaimah hospitality market consists of a mixture of hotels and resorts, serviced apartments and guest houses. The majority of guest houses, serviced apartments and city hotels are located in or in close proximity to RAK City. Resorts, which dominate the market, are typically located towards the south of the coastline as part of upcoming developments, as well as two desert resorts. The 5-star segment accounts for the highest volume of properties and keys (58% of total supply), of which 87% are internationally branded, resort properties. Hotels in the 4-star segment are a mixture of city hotels and resorts, whereas all 3-star hotels are located in the city and are owner operated. Resort properties (5-star) have an average of 314 keys, while city hotels have an average of 55 keys. SERVICED APARTMENTS The serviced apartment sector in Ras Al Khaimah is limited, with 7 properties currently in operation. Majority of the properties are located in RAK City, with an average size of 45 keys. No new supply has been announced in this segment, suggesting a possible market gap. GROWTH IN SUPPLY The hospitality market witnessed the largest increase in supply in 2014, with a 42% increase in keys compared to 2013, due to the opening of new properties, such as the Waldorf Astoria and resort properties on Marjan Island. RAKTDA expects the market size to reach 12,000 keys by Approximately 4,040 keys have already been announced to open in the next 5 years and an additional 2,841 keys are expected to be announced shortly according to the RAKTDA. The hotel market is led by Hilton Worldwide, which currently operates 5 properties. InterContinental Hotels Group (IHG) is expected to make a strong entrance in the market with the InterContinental Mina Al Arab and the Crowne Plaza Resort, expected to open before Other notable entries to the market include the expected opening of the Marriott Resort and Uniqorn Resort Marjan Island. EVOLUTION OF SUPPLY 5,384 5,932 6,729 6,954 9,122 12, (f) 2017(f) 2018(f) 2019(f) 2020(f) Source: RAKTDA Note: The graph includes forthcoming supply according to RAKTDA, part of which is yet to be announced. HOSPITALITY SUPPLY CHARACTERISTICS Guest Houses 241 keys Serviced Apartments 316 keys By Property By Rating City Hotels 1,553 keys Total Hospitality Supply Beach & Desert Resorts 5,384 keys 3,274 keys 58% 32% 2% 1% 2% 6% 0% 20% 40% 60% 80% 100% 5-Star 4-Star 3-Star 2-Star 1-Star Standard SA SA By Operator 0 1,000 2,000 Current Supply (No. of Keys) Future Supply (No. of Keys) Source: RAKTDA, STR, Colliers International Note: Current supply does not take into consideration properties currently under renovation, future supply only includes announced supply as of February 2016 Presence of internationally branded, 5-star resort properties with opportunities to develop further as mega projects reach completion. Limited number of quality hotels and serviced apartments in city centre and desert resorts. Market gap for serviced apartment component within resort properties to cater to families. Opportunity to develop eco-friendly desert resorts and luxury mountain resorts. 6

7 Market Trends CURRENT PERFORMANCE In 2014, the Ras Al Khaimah hospitality market experienced a softening in performance due to the increase in supply entering the market and the changing source market conditions. In 2015, however, the hotel market demonstrated an impressive progression compared to 2014 as visitation increased and performance of new hotel openings stabilised. Consequently, hotels in Ras Al Khaimah reported: A 3.3% increase in occupancy rates, reaching 64.7% in 2015 Average daily rate growth of 7% on 2014 Highest increase in RevPAR in five years, up by 10% 12.1% increase in room revenues A 14.4% increase in F&B revenues The growth in performance was demonstrated across both types of properties resorts and city hotels. Ras Al Khaimah resorts achieve a higher ADR due to the large concentration of internationally, branded 5-star supply in the resort segment, while city hotels, the majority of which are unbranded, tend to target corporate demand and price sensitive customers. Hotel performance has withstood increases in hotel supply and changing source market conditions. Resort performance indicates further opportunities to develop destination hotels with extensive range of leisure and wellness facilities. Opportunities exist to develop luxury mountain resorts, serviced apartments and additional city hotels. ROOMS % KEY PERFORMANCE INDICATORS RESORTS REVENUE MIX % contribution to total property revenue Source: Colliers International OCC% ADR (USD) RevPAR (USD) F&B % 4 8 % Large room sizes to accommodate GCC source market demand. Greater proportion of suites and connected rooms. CITY HOTELS % 65% Source: RAKTDA, Colliers International FACILITY MIX 62% 64% ANCILLARY 2 4% High F&B contribution due to lack of significant food and beverage offerings outside of hotels Meeting facilities predominately in city hotels while resorts tend to offer large banqueting space. Resort hotels feature luxurious spas with an average of 8 treatment rooms and extensive leisure facilities. 7

8 Guest Experience IndexTM The Guest Experience Index (GEI) has been developed by Olery in conjunction with the VU University Amsterdam and indicates guests general perceptions of a property s quality, on a scale from 1 to 100 (with 100 being the perfect top score). This section analyses online guest ratings from January 2016 which have been extracted by Olery and captures a number of scoring matrices from various review sites and online travel agents. Ras Al Khaimah achieved an overall Guest Experience Index Score of 75, from a total of 3,066 reviews. GEI SCORE BY TYPE OF PROPERTY 78.8 Resorts Overall Market 75.1 Ras Al Khaimah Majority of reviews received are from families and couples on leisure trips. Low GEI scores of city hotels and serviced apartments is indicative of the need for upgrading of properties. Score out of Serviced Apartments 71.8 City Hotels W S W S N E N E Source: Olery, Colliers International TYPE OF GUEST 87% of reviews received were from guests travelling as families and couples, with 92% of all reviews from those travelling for leisure purposes. The highest number of reviews were received from guests travelling from the UAE, followed by UK and Germany. However, guests from Russia and Germany tend to assign a higher score to the property than guests originating from UAE. SOURCE OF REVIEWS By Nationality Rank Source of Review Average Rating 1 United Arab Emirates 74 2 United Kingdom 78 3 Germany 79 4 Saudi Arabia 76 5 Russian Federation 82 Type of Trip Travel Composition TYPE OF PROPERTY Ras Al Khaimah s 5-star resorts achieved the highest GEI rating of The lower score in the hotel apartment segment is indicative of the gap within the quality, deluxe serviced apartments segment. Scores reveal that Internationally branded properties in Ras Al Khaimah receive the highest score, in particular due to the rooms and service. Unbranded properties obtain the lowest GEI score, however are rating highly on value and location, as most unbranded properties in Ras Al Khaimah are located within the city centre and offer lower rates. Overall Internationally Branded RATING BY TYPE OF BRANDING GEI Room Rating Value Rating Service Rating Location Rating Cleanliness Rating % Business Trips 92% Leisure Trips 13% Others 46% Families 41% Couples Regionally Branded Locally Branded Unbranded Source: Olery, Colliers International Note: Other category includes solo, friends, business and groups Source: Olery, Colliers International 7

9 Return on Investment Analysis In this section we explore the potential return on investment that exists from hotel development within the Emirate of RAK at present. Our analysis focuses on the Marjan Island development within RAK, which is well known for being home to a number of high-end beach hotels. For comparison purposes, we have also carried out a similar exercise on two other well known resort areas within the UAE, namely, Palm Jumeirah, Dubai and Saadiyat Island, Abu Dhabi. ESTIMATE OF POTENTIAL RETURNS FOR A HYPOTHETICAL 200 KEY HOTEL INVESTMENT Al Marjan Island Palm Jumeirah Saadiyat Island Al Marjan Island Ras Al Khaimah Palm Jumeirah Dubai Saadiyat Island Abu Dhabi Occupancy (%) Average Daily Rate (USD) 70% 78% 73% RevPAR (USD) Profit Conversion (%) 40% 32% 32% Site Acquisition and Construction Cost ( 000 USD) 75, ,948 79,700 Equity IRR (%) 16.1% 16.2% 14.9% Source: Colliers International Notes: 1. Based on a 200 key hypothetical hotel in each of the mentioned locations 2. Assumed the hotels are managed by an International Hotel Operator 3. Assumed Upper Upscale Positioning 4. IRR has been calculated using a 50:50 Debt to Equity assumption Disclaimer: The Projections provided with respect to each of the hypothetical hotels are estimates only, and are based upon Colliers opinion on how each of the hypothetical hotels could perform within the respective markets. Estimates have also been made regarding land acquisition and construction costs per submarket. Although not as well known internationally as the Emirates of Dubai and Abu Dhabi, Ras Al Khaimah can offer similar attractive hotel investment returns for Owners/ Developers. In RAK, beach resorts (in particular), have shown high profit conversion when compared to other similar regional markets. Good levels of profitability, along with more affordable land prices, offer hotel investors in RAK the opportunity to achieve attractive returns. 8

10 Conclusion FOCUS ON TOURISM Increase in guest visitation by 6% and tourism revenues by 13% in Dedicated tourism authority aiming to grow tourism into the leading socio-economic driver under the Destination Ras Al Khaimah 2019 strategic plan. EASE OF ACCESSIBILITY RAK International Airport, 25 km from the city centre, services a diverse range of source markets and is set for expansion. 45 mins from Dubai International Airport. The emirate has 5 seaports and several marinas. LEISURE DEMAND RAK benefits from leisure demand, nearly half of which generates from the domestic market. The emirate offers a variety of unique features, with the longest stretch of coastline and tallest mountain in the UAE, cultural and heritage sites and diverse landscapes. Upcoming mega projects, including further development of the popular Al Marjan Island and Mina Al Arab developments. GROWTH IN HOSPITALITY PERFORMANCE Existing and forthcoming supply of quality, internationally branded resorts along the coastline. Hotel performance has withstood increases in hotel supply and changing source market conditions. Strong performance of Ras Al Khaimah hospitality market, with the highest RevPAR recorded in 2015 over the last five years. INVESTOR FRIENDLY & ATTRACTIVE POTENTIAL RETURNS Ras Al Khaimah s free trade zone has zero tax on income and capital gains as well as no property transfer or value-added tax. Although not as well known internationally as the Emirates of Dubai and Abu Dhabi, Ras Al Khaimah can offer similar attractive hotel investment returns for Owners/ Developers Good levels of profitability, along with more affordable land prices, offer hotel investors in RAK the opportunity to achieve attractive returns DEVELOPMENT OPPORTUNITIES Destination Hotels Branded City Hotels Serviced Apartments Ecotourism Trendy F&B Offers Opportunity to further develop resort properties offering an extensive range of leisure and wellness facilities Resort development zones include coastal, desert and mountain areas Simple and efficient in design, with modern amenities and meeting facilities Serviced apartment component within resort properties to cater to families Market gap for branded serviced apartments in the city-centre Opportunity to further develop sustainable, ecofriendly desert and mountain resorts and luxury camping Opportunity to further develop wellness resorts around natural thermal springs Focus on unique F&B concepts to act as a draw factor for the hotel Opportunity to introduce new F&B concepts through leasing or franchises Source: Colliers International 10

11 Colliers International Hotels Colliers International Hotels division is a global network of specialist consultants in hotel, resort, marina, golf, leisure and spa sectors, dedicated to providing strategic advisory services to owners, developers and government institutions to extract best values from projects and assets. The foundation of our service is the hands-on experience of our team combined with the intelligence and resources of global practice. Through effective management of the hospitality process, Colliers delivers tangible financial benefits to clients. With offices in Dubai, Abu Dhabi, Jeddah, Riyadh and Cairo, Colliers International Hotels combines global expertise with local market knowledge. SERVICES AT A GLANCE The team can advise throughout the key phases and lifecycle of projects Destination / Tourism / Resort / Brand Strategy Market and Financial Feasibility Study Development Consultancy & Highest and Best Use Analysis Operator Search, Selection and Contract Negotiation Pre-Opening Budget Analysis and Operational Business Plan Owner Representative / Asset Management / Lenders Asset Monitoring Site and Asset Investment Sale and Acquisition/Due Diligence RICS Valuations for Finance Purposes and IPOs Our hotels team in the MENA region: $9 39,200 8,880 billion keys Hotel keys investment value of valued under asset management projects advised 11

12 502 offices in 67 countries on 6 continents United States: 151 Canada: 46 Latin America: 26 Asia Pacific: 190 EMEA: 89 For further information, please contact: Filippo Sona Director Head of Hotels MENA Region Main Mobile filippo.sona@colliers.com Selim El Zein Associate Director Hotels MENA Region Main Mobile selim.elzein@colliers.com Colliers International MENA Region Dubai United Arab Emirates $2.3 billion in annual revenue 1.7 billion square feet under management 16,300 professionals and staff About Colliers International Colliers International is a global leader in commercial real estate services, with over 16,300 professionals operating out of more than 502 offices in 67 countries. Colliers International delivers a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services and insightful research. The latest annual survey by the Lipsey Company ranked Colliers International as the second-most recognized commercial real estate firm in the world. In MENA Colliers International has provided leading advisory services through its regional offices since Colliers International currently has four corporate offices in the region located in Dubai, Abu Dhabi, Riyadh and Jeddah. colliers.com Colliers International, 2016 The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their professional advisors prior to acting on any of the material contained in this report.