A research paper by Drees & Sommer’s global hospitality team has revealed the pre-opening pitfalls of the Middle East’s hotel industry
Minimising the risk of budget overspend, delayed openings, and the tactics to avoid further issues have been outlined in the latest research by leading international real estate and construction consultancy, Drees & Sommer.
The findings of the research paper, Hotel Pre-opening: A tactical approach, have revealed that there are three main causes for delay in the handover from a contractor to a hotel owner, namely: lack of communication between project stakeholders, contractor time pressure and delayed deliverables from third party contractors.
With Dubai aiming to attract 20 million visitors in 2020 and overnight visitors to the Middle East exceeding 64 million in 2018, the opportunities to maximise profits have never been greater for the hotel industry.
Drees & Sommer’s Managing Director of Global Hospitality, Filippo Sona, said: “Our extensive research has shown that handover delays not only have a significant impact on the hotels’ return on investment, but they also affect the expected profitability of the first year of operations.
“To minimise the impact, we have identified seven key tactical pillars to help reduce the potential losses including project stakeholder alignment, value procurement approach, technical building delivery, realistic opening date and asset performance strategy.”
The White Paper highlights the main challenges and proposes solutions for each of the seven pillars, resulting in savings in five categories, including furniture, fixture and equipment expenditure, hotel recruitment phasing, operating supplies and equipment expenditure, advertising, promotions and hotel organisation structure.
“The role of the asset manager is a complex one, not only do they have to achieve the owner’s objectives by managing the investment, but they also have to resolve any misalignment between the parties, including the project manager, operator, and the owner in order to boost overall asset potential.
“This is critical in the pre-opening phase, which typically lasts between six and nine months,” added Sona.
The report goes on to highlight the challenges of handover from the project manager to the operator, with the main obstacle being the lack of efficient communication. The result of misinterpretation is the potential delay in opening date and negative impact on costs. A lack of procurement strategy can also have a negative impact on budgetary overspending.
The delivery of a quality hotel product is also a topic discussed in the report, with challenges often arising when the value level of the project finishing is not agreed at an early stage. From a technical perspective, inefficient testing and a lacking handover schedule can also create delays.
The pre-opening budget is another area researched. Excessive spending on payroll and unnecessary costs in marketing due to a lack of market intelligence and limited benchmarking, can have a negative impact on budget constraints.
Contractor payment is another issue due to a significant portion of the disbursement issued upon completion. The contractor is usually eager to hand over the property and in some instances being too optimistic on the delivery date and not taking into consideration the operator’s running and pre-opening costs.
“There are several factors to consider to positively influence the hotel opening date and negate the pre-opening expenses. Regular maintenance and consolidation of the program can have far reaching results as can the early implementation of value engineering.
“Other important factors to consider are setting-up pre-snag schedules, benchmarking the pre-opening budget against similar properties and incorporating regular meetings and visits to determine a more pertinent opening date in the event of a delay. Ultimately, anticipating the right actions to create a sustainable competitive advantage are key,” concluded Sona.