October 2015 - Colliers International€¦ · As indicated in the exhibit to the right, Dubai, UAE...

MEA Serviced Apartment Markets & Guest Experience IndexTM

October 2015

MEA Serviced Apartments | Oct 2015 | Hotels | Colliers International

Report Overview

Rooms Facilities Location

Serviced

Apartments

-

30% larger than hotel

rooms

room,

kitchen facilities

F&B options

pool growing in

popularity

Primarily in city

centres, within

business & residential

districts

transportation links

Future Trends

duplexes & maid's

rooms to attract GCC

families

Efficient room

designs loft

inspired

options & mini-marts

due to low

operational costs

properties to

increase appeal to

leisure guests

areas but offer

shuttles to city

centre and access

packages to affiliated

hotel

KEY ELEMENTS OF SERVICED APARTMENTS

Source: Colliers International

growth phase in the MEA region, with further scope existing for developing more

efficient, purpose-

2

INTRODUCTION TO COLLIERS MEA SERVICED

APARTMENT MARKETS AND GUEST

EXPERIENCE REPORT

In this paper we examine the serviced apartment markets

within the Middle East and Africa (MEA) region, paying

particular attention to the growth in popularity of the

concept, the rise in the sale of units as branded

residences, the market dynamics in respective markets,

and key performance indicators. We also look at guest

experiences through online serviced apartment ratings

collected by Olery, as well as review the latest legal trends

contributed by legal specialists Al Tamimi & Company.

Overall our report aims to be an informative synopsis of

the regional serviced apartment market, with our analysis

touching upon a number of key stakeholder questions

including; What are the drivers of price premiums for

branded residences? Is there a significant potential of

developing serviced apartments in Africa? What are the

key performance indicators of serviced apartment

properties across cities in the region? What are the key

legal considerations for a developer when deciding to sell

individual serviced apartment/ branded residence units?

By answering these questions, we provide key information

to the key issues/ trends pertaining to this growing

concept within the hospitality industry.

CONCEPT OVERVIEW

Originating in the US, the serviced apartment concept was

established to provide long-stay guests with a comfortable

alternative to hotel accommodation by providing them with

features such as a kitchen, living area and bedroom. The

concept has evolved and is now a popular choice amongst

families/ groups on vacation, medium-stay corporate

guests (project workers) and long-stay guests (expatriate

relocation).

EVOLUTION OF THE CONCEPT IN THE REGION

Initially, the serviced apartment segment in MEA

comprised mostly of unbranded properties, typically

owned and managed by private individuals. However, in

more mature hospitality markets such as Dubai, Abu Dhabi

and Doha, internationally branded properties are growing

in popularity, currently exceeding 40% of total supply.

A large number of serviced apartments in the Middle East

have been converted from residential apartments (i.e.

either after completion or during construction),

consequently the properties tend to be less efficient due to

their large room sizes and lack of studio units. As a result,

some consumers have become accustomed to larger sized

rooms, contradicting the true serviced apartment concept

of units smaller than residential apartments.


Serviced Apartment

ModelOPERATING MODEL

From a product perspective, the serviced apartment

development model typically emphasises limiting public

areas and back of house support, with the main focus on

maximising the number of potential rentable units within a

property. Just as hotels attract guests with extensive

ancillary facilities and personalised service, serviced

apartment properties typical capture their guests through

larger unit sizes. Therefore, across the MEA market, the

Average Daily Rates (ADRs) of serviced apartments are

generally aligned with hotels of a similar positioning.

Overall, serviced apartments share a number of

characteristics with both, hotels and residential

apartments, combined to form its own product, although

with some key differences, as highlighted in the below

exhibit.


apartments carry less risk than hotels typically achieving higher occupancy rates and suffer less from seasonal

REVENUE MIX

% contribution to total property

revenue

F&B

4

8 %

ANCILLARY

ROOMS

90 -96%4 -8%

2 4%

Hotel Serviced Apartments Residential Units


3

Similarly, Frasers Hospitality (international serviced

apartment operator) recently acquired two boutique

lifestyle hotel brands : Malmaison and Hotel du Vin. By

diversifying their business model, hospitality operators aim

to increase their profitability and global visibility.

The growth in the number of international operators who

now operate in both the serviced apartment and hotel

sector, has given rise to an increase in the development of

dual component properties (both hotel and serviced

apartments operating in the same property).

INTERNATIONAL OPERATORS - HOTEL &

SERVICED APARTMENT DEVELOPMENT/

ACQUISITION

Global hotel brands are now branching into the serviced

apartment sector as management requires fewer facilities

and lower payroll costs than typical hotels. On average,

branded serviced apartments have 29% fewer staff than

unbranded ones, as they benefit from standardised lean

operations and centralised clustered services.

For example, two large hotel operators, Accor and Hyatt,

entered the serviced apartment market by acquiring pre-

existing properties and rebranding them as Adagio and

Hyatt House, respectively.

High Operating Costs

Pay daily

High staff ratio

Extensive ancillaries

Personalised services

Low Operating Costs

Pay Annual / Quarterly

Low to none staff ratio

Limited ancillaries

No personalised services

Medium Operating Costs

Pay Daily / Monthly

Lower staff ratio

Restricted ancillaries

Limited personalised services


Branded Residences

ConceptCONCEPT OVERVIEW

DISTINCTIVE OPERATING MODEL

Branded residences are typically developed in city-centric

areas of mature markets. Sometimes, resort destinations

witness these accommodation types, however, they

typically comprise of villa products, accounting for

secondary or vacation homes for HNWIs.

Not all purchased units are lived in by owners, as holding

the unit as an investment increases the appeal to both the

developer and owner. Most developments offer owners a

rental pool option whereby the operator agrees to rent out

the property (either short or long term) on behalf of the

owner. In this arrangement, operators do not guarantee the

rent of the unit, but if leased, a pre-agreed fee is shared

between both parties.

Branded residences incur similar operating costs when

units are in operation, therefore maintenance costs are

significantly higher than non-branded developments. In

addition to the selling price, annual maintenance costs are

paid by the owner to cover the management fee, FF&E

reserve, property maintenance, utilities and house keeping

costs.

The influence of a luxury brand name, hotel-like services

and facilities, and appealing internal and external design

leads to these units being priced at a premium, typically

starting from 10% compared to non-branded residences.


Sale Rent

Operator

Management

BRANDED RESIDENCES

Full Operator

InvolvementUnit owner

lives in the

unit, or rents

it out

Low Operator

Involvement

Operator leases

the apartment

for the unit

owner

Operator Involvement

varies(for a % commission

similar to residential leasing

agents)

Full Operator

Involvement(Earnings shared

between developer &

unit owner)

Unit owner

puts unit in a

rental pool

managed by

operator

BRANDED RESIDENCES PREMIUM

Over standard residence units

High-end Branded

Developments

Luxury Branded

Developments

World Famous Ultra Luxury Branded

Developments

10-20%premium

21-40%premium

41+%premium

From simply renting serviced apartment units to long-stay

guests, branded residences have emerged to form a new

hospitality asset class. Over the years, the definition of

Branded Residences has evolved with the rapid change of

market conditions in the region.

Originally, this accommodation sector constituted of

residential units attached to a hotel development with

a more simple model has emerged, whereby an affiliation

to a hotel operator alone is enough to create an identity for

the development (i.e. physical attachment to a hotel

property not required). By creating a feel of exclusivity,

branded residences focus on architecture and design in

order to differentiate the product from regular residential

developments in the operating market.

BRANDED RESIDENCES CONCEPT

Serviced

Apartment

Units

4



Premium Drivers

of Branded

ResidencesPhysical attributes: Tangible characteristics such as an iconic

design of the building to branded white goods and electronics

in every unit, and intangible features such as valet parking.

play a significant role in achieving the premium selling price

per residence.

Location: The location is a key consideration for operators as

prime locations tend to attract significant demand. By

combining a high-end residential development with hotel

facilities increases the chances of charging a premium on

units.

Market demographics: In markets where HNWIs are a rapidly

growing segment, the introduction of branded residences is

likely to receive a positive response due to the exclusivity and

prestige associated with such a product.

PREMIUM DRIVERS

Unit height: Units on higher floors tend to achieve a

higher premium over the same residences on lower

floors owing to desirable views. An example of this are

the branded residences in Downtown Dubai which have

a considerably higher selling rate for residences on

higher floors and penthouses due to direct views of the

Burj Khalifa and Palm Jumeriah / World Islands.

Design: The design of the residential unit as well as the

building overall is essential in portraying the exclusivity

of the development. In many cases, well-renowned

architects design the residence, enhancing the premium

charged.

Brand: The confidence associated with buying into a

global brand is a key factor for investors, as purchasing a

unit within the development not only creates an

impression of exclusivity, but also augments the

assurance on the delivery of the unit and its management

structure.

5

CENTRAL

Location

Luxury

Brand

Personal

Concierge

High-end

fixtures &

amenities

High floors

and large

units

Duplex

units increasing in

GCC and

Africa

World-famous luxury brands can achieve a

price premium of 41%+ compared to prime

Iconic

Design

Security &

Privacy



INTERNATIONALLY BRANDED SUPPLY

Dubai holds the highest number of serviced apartment

keys with a total over 29,000 keys, 36% of which are

managed and operated by international operators. The

remaining 64% of the city's supply is represented by

locally branded and unbranded establishments, each

accounting for 28% and 36%, respectively.

Contrarily, the Holy cities of Makkah and Madinah in

Saudi Arabia have the least developed markets among

those analysed. This is attributed to the different nature

of these markets as a destination, which is heavily

focused on religious tourism generated by pilgrims

traveling for Hajj and Umrah.

Excluding Dubai, the current supply of serviced

apartments within the GCC is limited, predominantly

managed by unbranded and locally branded operators,

and lack international operational standards. This

highlights the opportunity for international operators to

enter the GCC serviced apartment market with

establishments comprised of a larger number of keys

than the current market averages.

NUMBER OF PROPERTIES AND KEYS

As indicated in the exhibit to the right, Dubai, UAE holds

the highest number of serviced apartment properties,

currently totalling up to 232 establishments and

Tourism and Commerce Marketing in branding and

promoting the city as vibrant leisure and corporate

destination.

Following Dubai is the city of Riyadh in Saudi Arabia,

with a total of 129 properties, however, serviced

apartments in this city average 43 keys per

establishment. The low average key count within cities

such as Riyadh, Jeddah, Khobar and Dammam, Muscat,

and Kuwait City, is attributed to the fact that the majority

of serviced apartment establishments are developed by

small individual investors, rather than large hospitality

groups.

the GCC is limited, predominantly managed by unbranded and locally branded operators, and lack international operational

NUMBER OF KEYS & SHARE OF INTERNATIONALLY BRANDED SUPPLY, OCTOBER 2015

INTRODUCTION

To provide an overview of the Middle East serviced

apartment industry, Colliers has chosen to provide an

analysis of serviced apartments within GCC capital cities

and other key cities including Al Khobar & Dammam,

Makkah, Madinah, and Jeddah in KSA, as well as Dubai

and Sharjah in the UAE.

This section aims to highlight the supply (in terms of

current supply, branding, and average unit sizes),

performance, and segmentation of serviced apartments

within the GCC.

GCC Serviced

Apartments

NO. OF PROPERTIES & AVERAGE KEYS



6

HIGH

NUMBER OF

PROPERTIES

HIGH AVERAGE

KEY COUNT

Dubai

Riyadh

Abu

Dhabi

Dammam

& Khobar

SharjahJeddah

Muscat

Makkah

ManamaKuwait

CityDoha

Madinah

Cairo

Marrakesh

LOW

NUMBER OF

PROPERTIES

LOW AVERAGE

KEY COUNT

0

5

10

15

20

25

30

Abu Dhabi Dammam

& KhobarDohaDubai Jeddah Kuwait

CityMadinah MakkahManama MuscatRiyadh Sharjah

0

10%

20%

30%

40%

50%

Thousa

nds

No. of Keys % of Internationally Branded


SERVICED APARTMENT UNITS

Serviced apartment establishments across the GCC tend

to offer a variety of units compared to establishments in

Europe, providing an additional unit type featuring three

bedrooms to accommodate the needs of large GCC

families.

Unit sizes across the analysed markets are similar, except

for Dubai and Doha which tend to have larger studios and

three bedroom units. This may be attributed to the high

volume of properties that were planned initially as

residential buildings and were subsequently converted.

SERVICED APARTMENT PERFORMANCE

In the region, the highest average rates for serviced

apartments are found in Manama, Bahrain, reaching up to

USD 200 per night in peak periods. This is due to the

weekend getaway destination for many GCC nationals.

The highest occupancy levels for serviced apartments are

achieved by Doha, registering above 80% during 2014,

predominantly due to the markets limited supply and

market has witnessed a decrease of 3.3% in occupancy

during 2014, with a market average of 79%. This is

attributed to the decline in the Rouble and Euro in 2014,

as well as the influx of new serviced apartment supply

that year.

When compared to mature international markets (i.e.

London and Singapore), cities such as Doha, Dubai,

Riyadh, and Muscat have achieved similar occupancy

levels, between 75% - 85%. However, serviced

apartments in London and Singapore have historically

commanded higher average rates due to the advanced

nature of these markets, which also have higher

operational costs. Nonetheless, as GCC economies grow, it

is likely that serviced apartments will be able to command

similar rates to those in international mature markets.

GCC SERVICED APARTMENT PERFORMANCE, 2014

SERVICED APARMTENT UNIT SIZE AVERAGE IN m²GCC Serviced

Apartments


7

Abu

DhabiDubai Sharjah Doha

Studio

1 BR

2 BR

3 BR

65

105

127

50

68

124

173

65

93

105

63

75

135

151

35 35

Kuwait

70

90

174

45

RiyadhKhobar &

DammamJeddah Makkah

Studio

1 BR

2 BR

3 BR

56

100

126

35

60

90

134

60

103

139

35

50

75

35 41

35

50

75

Madinah

N/A N/A

Manama MuscatGCC

Avg.

Studio

1 BR

2 BR

3 BR

40

70

147

162

80

130

140

62

101

132

50

36

50

London

Avg.

43 28

N/A

Singapore

Avg.

68

95

126

43

0

50

100

150

200

250

300

0

20%

40%

60%

80%

100%

Abu Dhabi Dammam

& KhobarDoha DubaiJeddah Kuwait

City

MadinahMakkahManama MuscatRiyadh Sharjah London

Avg ADR

Singapore

Avg ADR

ADR (USD) Occupancy % London 2014 Occ% Singapore 2014 Occ%


MIDDLE EAST SERVICED APARTMENTS

FUTURE OUTLOOK

SUPPLY

The serviced apartments industry in the Middle East is

expected to witness favourable growth, especially within

the analysed markets.

Dubai and Abu Dhabi are expected to witness the entry

of approximately seven thousand keys over the next four

to five years, 74% of which will be developed in Dubai.

Sharjah still does not have any announced serviced

apartment supply within its pipeline.

Furthermore, the analysed Saudi Arabian cities are

expected to absorb close to five thousand keys, with

Riyadh, Al Khobar & Dammam representing a share of

22%, 23%, and 34% total announced forthcoming supply.

In addition, Muscat, Doha and Manama are also expected

to witness the entry of additional supply, while Kuwait,

just like Sharjah, does not have any announced

forthcoming serviced apartment supply in its pipeline.

DEMAND

expected to have both positive and negative impacts on

the industry. Since the region is heavily reliant on the

production of oil, corporate demand generated by oil

companies is expected to decline, while it is possible for

leisure demand to grow, assuming airlines reduce

airfares as a result of the declining oil prices.

CONCLUSION

The GCC is expected to witness considerable growth in

serviced apartment supply, however it is important to

develop products suitable to both business travellers,

relocating families, and leisure GCC families.

GCC SERVICED APARTMENTS DEMAND

SEGMENTATION

When looking at the segmentation of demand for

serviced apartment within the analysed markets, it is

long-stay than short or medium-stay demand. However,

when looking at markets within the UAE and Saudi

Arabia, it is noticeable that the majority of demand is

generated by short stay guest, who visit for religious,

visiting friends & relatives (VFR), leisure, and other

purposes.

The dominance of the short-stay segment within KSA,

UAE, Oman, and Bahrain is linked to the fact that the

by GCC nationals who typically travel in large family

groups. As a result, these guest tend to prefer

accommodation facilities which facilitate family time and

self-catering services.

Nonetheless, Doha, Dubai, and Abu Dhabi hold the largest

share of long-stay demand due to the availability of

quality supply (Internationally branded supply), which is

represented by business travelers on assignment and

relocating families.

-stay segment within KSA, UAE, Oman, and Bahrain is linked to the fact that the majority of the analysed

GCC SERVICED APARTMENT DEMAND SEGMENTATION

GCC Serviced

Apartments


8

87%96% 94% 89% 85% 88% 89%

11%

72% 72% 73%80%

10% 3% 5% 8% 11% 11% 7%

15%

16% 16% 15%12%

74%

12% 12% 12%

0%

20%

40%

60%

80%

100%

Riyadh Makkah Madinah Jeddah Dammam &

Al Khobar

Manama Muscat Doha Kuwait City Dubai Abu Dhabi Sharjah

< 1 Month 1- 6 Months > 6 months


INTRODUCTION

The serviced apartment industry in Africa is relatively

undeveloped, as the majority of the regions supply is

represented by unbranded and low quality stock.

Although limited, quality serviced apartments (those with

a 2-star rating or above) are available across Africa.

Some examples include Arabian Nights Villas & Apartments (Dar As Salaam, Tanzania), La Maison Royale (Nairobi, Kenya), and Bricks Point Boutique Apartments (Abuja, Nigeria).

In early October 2015, Marriott International successfully

Marriott Executive Suites featuring

108 keys of 1 and 2 bedroom units in Addis Ababa,

Ethiopia in partnership with Sunshine Business. The

operator is planning to launch an additional 12 properties

across the continent featuring a variety of its brands by

2020. This indicates the potential of the African market as

international operators are considering the region as an

important location for development.

HOT SPOT: GHANA

CURRENT SUPPLY

Similar to elsewhere in the region, the available serviced

apartment supply in Ghana is primarily represented by

unbranded and locally branded establishments. However,

some quality establishments do exist, such as Roots

Apartment Hotel. Typically, serviced apartment

properties in Ghana are comprised of a small number of

keys, mostly featuring 1 and 2 bedroom units.

Despite the lack of internationally branded serviced

apartment supply, Accra holds a number of

internationally branded hotels catering to business

travellers, including the Mövenpick Ambassador Hotel Accra, Golden Tulip Accra, Novotel Accra City Centre,

and Holiday Inn Accra Airport.

DEMAND

Demand for long-stay accommodation in Ghana is on the

total arrivals in 2013, which is forecasted to grow an

thriving oil sector.

The

markets, accounting for 8% and 10% of inbound arrivals,

respectively, while Nigeria and the Ivory Coast are the

top two regional source markets, accounting for 8% and

7% of total inbound arrivals respectively. The Ghana

Tourism Authority (GTA) is currently targeting Asian

countries to expand its source markets, particularly from

Malaysia and China.

CONCLUSION

Given the expected growth in business travel to Ghana,

and

markets, it is expected that demand for long-stay

accommodation will grow. Therefore, an opportunity lies

in developing quality serviced apartment establishments,

targeting business travellers from the US, UK, Malaysia

and China.

enter partnerships with local and regional

QUALITY SUPPLY DISTRIBUTION

Africa Serviced

Apartments

AFRICA SERVICED APARTMENTS

SUMMARY

The current supply of serviced apartments consists

primarily of unbranded establishments, a minority of

which provide quality services and facilities.

As African economies grow and develop, demand for

long-stay accommodation is expected to rise, highlighting

the opportunity for international operators to enter

partnerships with local and regional developers, in an

effort to cultivate and improve the quality of long-stay

accommodation in Africa.


9

4 300

3 35

5 76

8 161

5 378

11 290

4 77Cairo,

Egypt

Marrakesh,

Morocco

Accra,

Ghana

Lomé,

Togo

Abuja,

Nigeria

Dar As

Salam,

Tanzania

Nairobi,

Kenya

No. of Serviced

Apartment

Properties

No. of Keys


Consumer Trends

& Guest Experience

IndexTM

INTRODUCTION

This section analyses online guest ratings from August

2015 which have been extracted by Olery and captures a

number of scoring matrices from various review sites

and online travel agents.

The Guest Experience Index (GEI) has been developed

by Olery in conjunction with the VU University

being the perfect top score).

Overall, to develop the ratings and rankings within this

section, we have analysed data from a total of 140,000

reviews on various properties within the Middle East

have been analyzed.

ONLINE RATING I:

SERVICED APARTMENTS VERSUS HOTELS (AUGUST 2015)

The below summarizes the key differences in scoring

results between Serviced Apartment and Hotel properties

in the Middle East based upon data provided by Olery:

• Cleanliness. In KSA, UAE and Egypt, serviced

apartments have a poorer cleanliness rating than in 3-

star hotels; which suggests an evident gap in quality

serviced apartments. In Qatar, however, serviced

apartments are rated better than hotels. This can be

linked to the high performance of several serviced

apartment properties, within the market.

• Better value than hotels. Serviced apartments and 5-

star hotels in the region have the highest rating in

terms of value (better than 3 and 4-star hotels). When

considering purely the internationally branded market,

serviced apartments received a better value-rating

than 5-star hotels.

• Branded serviced apartments lead the Guest

Experience Index (GEI). Internationally branded

serviced apartments achieved a higher GEI than 3, 4

and 5-star branded hotels in the region.

ONLINE RATING II:

SERVICED APARTMENT BY TYPE OF

BRANDING (AUGUST 2015)

Source: Olery, Colliers InternationalNote: Ratings are out of 100

Overall

Unbranded

Locally Branded

Regionally Branded

Internationally Branded

Guest

Experience

Index

(GEI)Room

Rating

Value

Rating

Service

Rating

Location

Rating

Cleanliness

Rating

Best and worst by type of rating

10

As of August 2015, internationally branded serviced

apartments consistently out perform unbranded, locally

branded and regionally branded properties in the region in

each of the scoring segments namely room rating, value,

service, location and cleanliness.

Overall, Internationally branded serviced apartments

received a significantly higher GEI than unbranded ones,

84% versus 73.1%.

The below table presents the key differences in scoring

results between Unbranded, Locally Branded, Regionally

Branded and Internationally Branded, Serviced Apartment

properties within the Middle East based upon data

provided by Olery.

74.9 83.1 82.0 81.8 83.4 80.3

73.1 80.7 79.3 78.5 83.6 74.5

78.6 82.0 85.2 82.6 79.9 80.2

78.1 81.4 74.7 83.0 87.7 90.3

84.0 89.7 87.6 88.3 84.5 88.2

73.1

84.0 89.7

80.7

74.7

87.6

78.5

88.3

79.9

87.7

74.5

90.3

MEA Serviced Apartments | Oct 2015 | Hotels | Colliers International11

Consumer Trends & Guest Experience IndexTM

SUMMARY: KEY FINDINGS ONLINE RATINGS (AUG

2015)

Connected to a hotel provides higher guest rating

Top Rated Brands

PoorCleanliness

Six of the 8 highest rated brands

with serviced apartment units

were hotel brands, or connected

to a hotel.

In August 2015, top rated brands for

serviced apartments were

Rosewood Residences, Residence

Inn, Jumeirah, W Hotels, Grand

Hyatt, Mercure, Staybridge Suites

and Shangri-La.

In KSA, UAE and Egypt, serviced

apartments have a lower cleanliness

rating than 3, 4 and 5-star hotels,

mostly due to poor management.

Offer GoodValue

Internationally branded serviced

apartments are rated as higher

value than branded 3, 4 and 5-

star hotels.

Source: Olery, Colliers International

ONLINE RATING III: MAP GEI SCORING FOR SERVICED APARTMENTS BY CITY (AUG 2015)

Source: Olery; Colliers International

Source: Olery, Colliers International

ONLINE RATING III: RANKING GEI SCORING FOR

SERVICED APARTMENTS BY CITY (AUG 2015)

77%Cairo

74%Alexandria

82%Hurghada

79%Sharm El

Sheikh

68%Amman

73%Aqaba

70%Jeddah

58%Makkah

72%Madinah

76%Muscat

73%Riyadh

72%Kuwait City

77%Dubai

70%Sharjah

75%Ras Al

Khaimah

72%Fujeirah

77%Manama

73%Al Khobar

75%Doha

82%Abu Dhabi

81%Beirut Marina

JBR 82% 80% 81%

82%71%

Doha Airport

& City Centre West Bay &

Diplomatic Area

Dubai Creek &

Festival City

Sheikh Zayed

Road & DIFC

Rank City/ Area Scoring

1st Doha - West Bay/Diplomatic Area 82.3%

2nd Hurghada 82.2%

3rd Abu Dhabi - Overall 81.9%

4th Dubai - Marina /JBR 81.7%

5th Dubai - Creek/Festival City 80.9%

6th Beirut 80.6%

7th Dubai - Sheikh Zayed Road/DIFC 80.1%

8th Sharm El Sheikh 78.9%

9th Cairo 77.5%

10th Manama 77.4%

11th Dubai - Overall 77.4%

12th Muscat 76.4%

13th Ras Al Khaimah 75.2%

14th Doha - Overall 74.7%

15th Alexandria 74.1%

16th Riyadh 73.3%

17th Al Khobar 73.1%

18th Aqaba 72.6%

19th Kuwait City 71.9%

20th Fujairah 71.8%

21st Madinah 71.6%

22nd Doha - Doha Airport / City Centre 70.8%

23rd Jeddah 70.2%

24th Sharjah 69.9%

25th Amman 67.8%

26th Makkah 58.3%


OPTION 1: Hotel & Serviced Apartments with mandatory rental pool

• Maximum protection for Developer: retains ownership of

the Hotel and hotel facilities (e.g. gym, spa, pool etc.)

• Costs and service charges for common areas and

shared facilities, with operating expenses deductible

from unit revenue prior to distribution of profit share

• Where Hotel and Serviced Apartments are in the same

building, with 1 OA, due to its size the Hotel has voting

control within the OA

• Risk of withdrawal of the unit from the rental pool, giving

rise to risks outlined in Option 2

Legal Contribution:

Al Tamimi & Company

OPTION 2: Hotel & Serviced Apartments with optional rental pool

OPTION 3: Serviced Apartments sold subject to a mandatory rental pool (no hotel)

OPTION 4: Serviced Apartments sold subject to an optional rental pool (no hotel)

High

• Greater risk and exposure to non-rental pool unit

owners

• Voting control at OA is lower, but mitigated if Hotel and

Serviced Apartments are in the same building with 1

OA

• Risk of late or non payment of services charges for

common areas and shared facilities, increasing risk to

Developer under the Hotel Agreement with Operator,

• Maximum protection for Developer as above

• Risk of withdrawal of the unit from the rental pool, giving

rise to risks outlined in Option 2

In the following pages, we provide a comparative

analysis of the typical developer risks associated with a

branded residence rental pool arrangement, together

with observations on stakeholder conflicting interests.

• Greater risk and exposure for Developer

• Operator may require Developer to retain a minimum

amount of unit inventory in its own name for

guaranteed room inventory for daily sales and voting

control at OA

• Reduction of profit for Developer as less units to be

sold

• Risks outlined in Option 2

TYPICAL STAKEHOLDERS WITHIN A RENTAL

POOL ARRANGEMENT

SERVICED APARTMENT RENTAL POOL

STRUCTURING CONFLICTING INTERESTS

AND DEVELOPER RISKS

Al Tamimi & Company is the largest law firm in the Middle East with 16 offices across 9 countries. The firm has unrivalled

experience, having operated in the region for over 25 years. Our lawyers combine international experience and qualifications with

expert regional knowledge and understanding.

We have a dedicated Hospitality team covering the MENA region, consisting of over 20 lawyers, each an expert in their own legal

specialism with experience of providing advice and service to our clients operating within the hospitality industry.

www.tamimi.com

Al Tamimi Company @AlTamimiCompany

Hotel

Operator

Developer

Unit Owner

Owners

Association

(OA)

Source: Al Tamimi & Company

http://www.tamimi.com/


Legal Contribution - Al Tamimi & Company

High

CONFLICTING STAKEHOLDER INTERESTS AND ALIGNMENT OF INTERESTS

Operator Interest Unit Owner Interest Developer Interest Requirements for Alignment of Interests

Issue : Preservation of the right to operate and manage

• Requirement to

manage rental pool

to maximise

revenues and

remuneration

• Invest in a financially

attractive project with a

reputed Operator adding

value through its brand

• Transparency of cost

allocation and profit

distribution

• Sale of branded units on best

commercial terms,

• Management Agreement signed by

Developer and Operator

• Constitutional documents under Strata laws

• Lease Agreement between Developer and

Unit Owner, with transparency on Operator

appointment, cost allocation and profit share

Issue : Multiple participants in the rental pool

• Avoid direct

dealings with Unit

Owners

• Deal directly with

Developer

• Through OA, with voting

rights delegated to the

Developer under the Lease

Agreement

• Flexibility to withdraw the

Unit from the rental pool

• • Compliance with Strata laws and

transparent disclosure of costs and profit

share

• Developer acts as intermediary between

Unit Owners, OA and Operator through its

position as tenant of the Unit under the

Lease Agreement and appointment as OA

manager and Facility Manager

Issue : Preservation of Units in the Rental Pool

• Maximise inventory • Flexibility to withdraw the

Unit from the rental pool

• Create a successful scheme

to increase unit sales

• Transparency on budgeting, cost allocation

and profit share

• Provision for withdrawal from rental pool

subject to notice effective at year end

• Payment of termination fee by Unit Owner

to withdraw

Issue : Control over shared facilities (pool, leisure deck, spa, gym etc)

• Maintain control and

management

• Define services and

pricing

• Right of use during periods

of private occupation

• Allow Operator control rather

than OA to enhance

performance and revenues

• Transparency in sales documentation on

Operator control and management

• Rights of personal use given

• Transparent allocation of costs

• Use of Building Management Statement

Issue : Cost allocation for management and maintenance of the Units

• Management in

compliance with

Brand standards

• Cost allocation to

Unit Owners and

Developer for

repairs,

maintenance and

FF&E replacement

• Transparency on costs and

allocation

• Create a successful scheme

to increase unit sales

• Compliance with Regulatory

requirements

• Regulation of cost contribution in the Lease

Agreement

• Regulation of cost contribution to common

area and shared facility costs regulated in

sales documentation, FM agreement,

Building Management Statement and Jointly

Owned Property Declaration

• Apportionment pro rated against unit area

Issue : Brand Protection

• Non-interference

• Competition

• Compliance with

Brand Standards

• Benefit from Brand to

maximise return on

investment

•

create a successful scheme

• Management Agreement protects Brand for

Units in rental pool

• Restrictions on Unit owners contained in

Unit sales documentation and JOPD

13


High

The existence of strata/multiple ownership legislation, including the creation and rights of Associations and their members,

greatly impact the structuring of rental pool schemes and the various positions thereunder. In Dubai, the regulation of

such arrangements by the Real Estate Regulatory Agency has been in place for some time now and we have set out below

some key information on OAs within the Emirate.

What laws apply to Owners Associations in Dubai?

The current legislation pertaining to Owners Association in mixed ownership or strata buildings in Dubai comprises:

• Law No. (27) of 2007 Concerning the Ownership of Jointly Owned Properties in the Emirate of Dubai Owned Property

.

• The Jointly Owned Property Law is also supplemented with what are known as the which comprise the following: (1)

the Direction for General Regulation; (2) the Direction for Jointly Owned Property Declaration; (3) the Survey Directions; and (4)

the Direction for Constitution Regulation.

• In accordance with the Jointly Owned Property Law, an Owners Association comes into existence from the moment the first Unit in

the development is transferred from the Developer to another party. Such an occurrence would generally correspond with the

completion and handover of the Project to the investors.

• Notwithstanding the above, it is important to note that although there are many prescribed procedures for creating

Owners Associations there are very few with legal capacity. An Owners is usually

instigated through RERA after the Project is handed over to investors.

Are there any procedures for the establishment of an Owners Association that need to be followed?

• The procedures for the operation of an Owners Association are set out in the Direction for Association Constitution and the Jointly

Owned Property Declaration.

• The first General Assembly should be called within three (3) months of the creation of the Owners Association though (for the

reasons expressed above) the practice in this regard may vary. A General Assembly must thereafter be convened not less than

once per annum.

• The quorum for a General Assembly is fifteen percent (15%) of the total of the Project. Entitlements are based on the

area of a Unit as a proportion of the area of all Units in the Project or such other criteria as RERA may permit.

• Generally speaking decisions of the Interim/Owners Association are made by Ordinary Resolution being a resolution of fifty percent

(50%) of the votes of those present at a quorate General Assembly. Board members are appointed by ballot and changes to the

Jointly Owned Property Declaration must be by being seventy five percent (75%) of the total Entitlement for

the Project.

Are there any rules and regulations pertaining to the operation of an Owners Association in Dubai?

• Due to the limitations on the legal capacity of Owners Associations, much of the management of the Project will depend on either

the Developer or the Association Manager. Some Developers are happy for owners to be very involved and treat the resolutions of

the Interim Owners Association as lawful directions.

• Other Developers set up their own Association Management companies and remain heavily involved in the day to day management

of their Developments. Pursuant to the Directions, once an Owners Association is licensed then the day to day operation of the

Owners Association and management of the Project would be undertaken by the Association Manager who would seek direction

from the Board of the Owners Association (being members (owners) elected at the General Assembly). Certain powers are

however vested in the owners of the Units at a General Assembly. Such powers include the right to appoint Board members, the

right to approve the Association Manager and the obligation to approve the annual budget.

Who is responsible for the operation of the Owners Association and management of the Project?

For further information please contact:

Tara Marlow

Partner and Regional Head of Hospitality

Al Tamimi & Company

Phone: +971 4 364 1641

Email: [email protected]

www.tamimi.com

Legal Contribution - Al Tamimi & CompanyFREQUENTLY ASKED QUESTIONS -

mailto:[email protected]

http://www.tamimi.com/

MEA Serviced Apartments | Oct 2015 | Hotels | Colliers International15

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 8,880billion keys Hotel keys

investment value of valued under asset management

projects advised

About Colliers InternationalColliers International is a global leader in commercial real estate services, with over 15,800 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 LipseyCompany 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 1996. Colliers International currently has four corporate offices in the region located in Dubai, Abu Dhabi, Riyadh and Jeddah.

colliers.com

Colliers International, 2015

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.

$2.3billion in

annual revenue

1.7billion square feet

under management

16,300professionals

and staff

502 offices in

67 countries on

6 continentsUnited States: 151

Canada: 46

Latin America: 26

Asia Pacific: 190

EMEA: 89

Colliers International | MENA Region

Dubai | United Arab Emirates

+971 4 453 7400

For further information,

please contact:

Filippo Sona

Director | Head of Hotels | MENA Region

Main +971 4 453 7400

Mobile +971 55 899 6102

[email protected]

Selim El Zein

Associate Director | Hotels | MENA Region

Main +971 4 453 7400

Mobile +971 55 899 6103

[email protected]

Ian Albert

Regional Director | MENA Region

Main +971 4 453 7400

Mobile +971 55 899 6070

[email protected]

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