Three Brand Tiers Planned for new Sharia-Compliant Hotel Chain

The branded four-star lodging market in the UAE remains under-serviced, according to KM Properties, with the mid-range business traveller market needing immediate focus.

KM Properties, which is a division of the UAE-based Al Rostamani Enterprise, recently announced the launch of a US$2.3billion, sharia-compliant, real estate development fund to develop a new-concept hotel chain.

The hotel chain, which will also be sharia-compliant, is in the advanced stages of business development, and will include a four-star brand tier, alongside a premium tier and a five-star offering.

According to consumer research by KM Properties, there had been a misconception that Arabian visitors demanded a luxury product, which was reflected in the largely five-star hotel offering in the region.

For the future, analysts agree the growth should be in branded three and four-star properties, offering quality guarantees that come from an international hotel flag, yet at market-correct prices.

Currently, Dubai, the city with the largest number of quality hotel rooms in the GCC, has 6,185 four-star rooms compared to almost 9,000 five-star rooms. However, less than half of the four-star stock carries a regional or international brand name.

The emirate is on schedule to open another 30,000 hotel rooms from 2008-2010, with five-star hotels making up the bulk of the portfolio, particularly on The Palm Jumeirah. 

Dubai’s Department of Tourism & Commerce Marketing (DTCM) still predict that more than 60% of Dubai’s total room stock will still be in the premium classification.

According to the World Tourism Organisation’s 2020 predictions, the target figure of 69 million visitors to the Middle East will come through the continued expansion of low-cost airlines, value hotels, late bookings, high price sensitivity, and Internet-driven holiday packages.

KM Properties confirmed that the new hotel chain, expected to comprise 30 properties over an eight-year development period, is planning to introduce 50% of its total room stock in the four-star category, with five star and deluxe at a 30:20 ratio, respectively.

The three product groups will each carry a stand-alone brand name and be distinct in product proposition including significant elements that have not been addressed or targeted by existing hotel flags. 

The first hotel and serviced apartment project will open in Dubai in 2008, following an 18-month, $290m investment. Its 700 rooms and suites will be built to a top-end, four-star specification.

The fund has been established to develop and own hotels that will abide by the Islamic principles of sharia. It will also spread investment across various complementary commercial real estate assets worldwide. 

A Hospitality Operator Company, also established by KM Properties as part of this sharia-complaint initiative, will operate independent properties on behalf on owners throughout the Middle East and Asia. Saudi Arabia, Morocco, Turkey, Malaysia, and India are all earmarked as prime entry markets during the first 12 months.

To kick-start this portfolio, KM Properties has already signed three management agreements in addition to the own-brand Dubai property, with another seven in advanced stages of negotiation.

Phase one of the hospitality and real estate development fund is closed to subscribers, but it is anticipated that international corporations will enter the fund in its upcoming stages, with great interest already shown for phase two.

The new group brand name is expected to be announced in the coming weeks.

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