With an impressive 21% growth in revenue per available room for the second year in a row, the Middle East region was the best performing region in the world during 2005 according to the HotelBenchmark™ Survey by Deloitte.

Growth was fuelled by an incredible 23% increase in average room rates which soared to US$117 compared to US$95 in 2004. Despite falling back slightly occupancy continues to be at an all time high at nearly 70%. This contrasts starkly with the 60% occupancy levels reported in wake of the 9/11 attacks and subsequent wars in both Afghanistan and Iraq.

With over 60% of markets in the Middle East reporting double-digit revPAR increases, it is hardly surprising that the region took the gold medal for hotel performance growth. Of all the 165 markets tracked by the HotelBenchmark™ Global Ranking Index , the Middle East secured six of the top ten spots in terms of revPAR growth in 2005. Hotels in Qatar won the coveted first prize as revPAR stormed ahead 62% whilst hotels in Oman took third prize with revPAR growth of 54%. Abu Dhabi and Riyadh also featured in the top ten along with the Israeli cities of Jerusalem and Tel Aviv.

The impressive growth across the region is all the more remarkable given the increasing terrorist activity during 2005 which has hindered the performance of some markets, whilst bolstering others. As a result there is a marked disparity in hotel occupancy and average room rates, with some countries performing way above the average and some way below.

Hotel performance in the Middle East by country in 2005

Source: HotelBenchmark™ Survey by Deloitte

Lebanon was the poorest performing country during 2005 as visitor arrivals fell 11% during the first 11 months of the year following the car bomb that killed former Prime Minister Rafiq in February. As visitors shied away from the country occupancy in the capital Beirut crashed 29% to reach 48% for the year. Egypt too suffered from terrorism attacks in Cairo and Sharm el-Sheikh which contributed to a fall in demand. In Cairo occupancy fell 4% whilst in Hurghada and Sharm el-Sheikh occupancy tumbled 14% and 12% respectively. Encouragingly however occupancy in Luxor grew 22% to reach 56% and this combined with a 13% increase in average room rates helped revPAR across the country move ahead 5.1%.

Amman is the latest market to have been affected by terrorism following the detonation of three bombs in prominent hotels on 9 November 2005. In December occupancy tumbled 32%, however with the attacks occurring so late in the year the overall impact on the annualised results was minimal. We wait to see how performance will be affected during the first quarter of 2006.

Conversely, occupancy levels across the UAE continue to exceed the 80% barrier with hotels in Dubai reporting annualised occupancy levels of 85%. Across the Emirate there is strong all year demand with many months reporting demand in excess of 90%. This contrasts with hotels in Saudi Arabia which have the most volatile demand patterns. Makkah and Medina in particular are hajj (pilgrimage) destinations and therefore have a very seasonal performance. At the height of the pilgrim season occupancy can reach 90% but during the off-season demand falls away resulting in occupancy levels below 20%.

In terms of average room rate Kuwait remains the most expensive country with average room rates currently trading at US$196. Compare this to hotels in Egypt where the average room rate is nearly 400% lower at just US$57. Therefore it is hardly surprising that Egypt is ranked one of the most price competitive destinations by the World Travel and Tourism Council.

Commenting on the results, Julia Felton, Executive Director of the HotelBenchmark™ at Deloitte said "The Middle East has undergone a metamorphosis during the last decade, so naturally hotel performance has benefited. International visitor arrivals to the Middle East have nearly tripled from 13.5m in 1995 to 38.4m in 2005, representing a compound annual growth rate of 12.3%."

"Increased demand has been supported by the transformation of both the airline and hotel industry across the region. Passenger traffic through the Gulf is the now fastest growing in the world, rising by 10% per annum and there has been a rapid expansion of regionally-based international carriers such as Emirates Airlines, Eithad Airways, Qatar Airways and Gulf Air. Hotel development continues unabated across the regions with all the global hotel brands either having established or have advanced plans to expand their significant presence in the region. It is estimated that 80 new hotels will open on the Arabian Peninsula by 2008. Dubai leads the field and remains the major focus of development with an estimated 12,500 rooms being added to supply over the next four years. Qatar and Kuwait are also projected to see increases in rooms' supply of 145% and 75% respectively."

"Our prognosis is that the future continues to look bright for the hotel sector in the Middle East and the development of more mid-scale and budget accommodation should help fuel growth further in years to come."

Note: All analysis in US$

Notes to editors

The results of the 2005 HotelBenchmark™ Global Ranking Index will be released in the next edition of In The Know on the 1 March 2006 and published in the Global Performance Review available on 6 March 2006. To find out more email HotelBenchmark@deloitte.co.uk.