Colliers International gives a detailed review of the spa market in Dubai and shows that despite challenges, it remains resilient and continues to grow

The Middle East and North African region is the second fastest-growing market in the world for spas, with the UAE at the forefront of this growth according to the Global Wellness Institute (GWI). Recent findings from Intelligent Spas (see p104) has identified that Dubai hosts the highest number of spas in the GCC, with more than 190 in operation and another 34 under development. With the Dubai Expo 2020 nearing and the accelerated growth in hospitality supply, competition is at an all-time high for spa operators as they’re forced to innovate to capture the market.

Colliers International Hotels (MENA) launched the Dubai Spa Benchmark Report last year and its latest edition, updated for the Spa Business Handbook, includes a full-year analysis of spas in city hotels and resorts from 2013 to 2015. It’s based on data received directly from a spa panel representing a stock of 263 treatment rooms. The report features 14 key spa metrics.

Market performance in 2015
Overall, the Dubai spa sector experienced an increase in demand in 2015, as demonstrated by the rise in average number of a treatments sold per day, up 7 per cent from 2014. The data indicates a positive trend for spas, highlighting the growing popularity of spa visits. At the same time, operators have observed a rise in the price sensitivity of consumers.

A closer analysis of the data reveals that the growth in spa revenue indicators has been driven by resort spas, while city hotel spas in Dubai have been forced to lower prices in order to remain competitive and attract more residents.

City hotel vs resort spas
Over the last three years, the Dubai resort spa market has experienced a significant growth in average treatment rates, rising by 12 per cent since 2013 – as shown in Diagram 1. However, the average number of treatments sold dropped in 2014, with only a 3 per cent growth registered in 2015. Dubai’s city hotel spas, on the other hand, have witnessed a rise of 12 per cent in the number of treatments sold per day during the same period, together with a 7 per cent drop in rate.

While both resort spas and city hotel spas have seen an increase in walk-in guests, resort spas have a higher share of in-house guests (63 per cent) than city hotel spas (57 per cent). As a result, resorts benefit from higher spending and bookings from tourists, while resident walk-in guests, often more price sensitive, tend to look for discounts and seasonal promotions. According to the GWI, an international wellness tourist is more likely to stay in a resort and spends an average of 130 per cent more on wellness activities than the typical tourist. This could be one reason why resort spas had a 25 per cent price premium in average treatment rate over city hotel spas in 2015, as little difference was found between treatment menu prices.

In line with the trend observed in treatment revenue indicators and the number of treatments sold, resort spas have witnessed a 14 per cent increase in the average treatment revenue generated per therapist in the last three years, along with a reduction in therapist utilisation (see Diagram 2). City spas have observed the opposite, with an increase in therapist utilisation by 8 per cent and a decrease in revenue generated per therapist. The same pattern is apparent when comparing the treatment room utilisation and treatment revenue generated per available treatment room.

The Dubai Spa Benchmark Report – 2015 Full Year Review reveals that therapist utilisation rates are higher in resort spas than in city spas. Resort spas in the sample operate with an average of 0.60 staff per treatment room and benefit from greater efficiencies, whereas city hotel spas have an average of 0.98 staff per treatment room. Less than 50 per cent of therapists’ hours are currently utilised in city hotel spas, which indicates an opportunity to create greater operational efficiencies, while resort spas in Dubai may need to take measures to ensure that utilisation rates do not fall further.

RevPATH as an indicator
RevPATH can be calculated by dividing the revenue for a period of time by the number of treatment hours available in that interval. Unlike other indicators, RevPATH allows variable time to be taken into consideration, an essential component in the spa industry.

The data suggests that Dubai resort spas tend to be more efficient at generating revenue from customers per hour, they recorded a RevPATH of AED78.8 (US$21, €20, £15) in 2015, which is 80 per cent higher than city hotel spas with AED43.8 (US$12, €11, £15). Resorts benefit from a large base of potential customers in the hotel (leisure tourists), demonstrated by a higher hotel guest capture rate (2.7 per cent) compared to city hotel spas (1.7 per cent). International tourists are known to generate a higher average spend than the more price-sensitive domestic customers, leading to a higher average treatment rate which positively impacts RevPATH.

As customer demand fluctuates depending on the time of the year, week and time of the day, it’s vital for each spa manager to be able to forecast their operations’ time related demand. For this reason, RevPATH is a necessary indicator for spa operators to monitor in order to make effective pricing and allocation decisions, especially in cases such as 24-hour spas, a trend observed in the Dubai city hotel spa market.

Spa challenges
The full year edition of Colliers International’s Dubai Spa Benchmark report also included results from a survey sent out to spa operators, listing key challenges faced in 2015. The top three obstacles related to recruitment of talented staff, increase in price sensitivity of customers and an influx of new spa entrants to the market.

The major challenge faced by the growing spa industry in Dubai has been the sourcing of skilled manpower. This may be due to the fact that the industry lacks a well-defined educational pathway and has few spa-specific college level courses and training programme to train individuals in spa business. As a result, spas resort turn to external training which is time consuming and costly. Changes are on track, however, as spa courses are being introduced into curriculums. For example, The Emirates Academy for Hospitality Management in Dubai now offers a Quality in Spa and Medical Wellness course and a number of international training organisations are also starting to focus on spa and wellness as a discipline (see p320).

Operator dilemma
The spa industry is constantly changing and adapting to a multitude of trends. The continuous stream of new entrants offering the latest in design and technology leaves operators in a dilemma between investing in new trends and catering to the rise of value-driven consumers. Therefore, it’s important for spas to know when to say yes to what’s trending, taking into consideration customer demand, target market, branding alignment and its potential impact on current and future performance.

In Dubai’s dynamic pricing and demand environment, the ability to track performance data internally, as well as compare against external market-level information is more important than ever. Spas often occupy some of the most prominent real estate in hotels taking up a considerable amount of room – resort spas in Dubai are on average 1,968sq m (21,183sq ft) in size while city hotel spas are 772sq m (8,310sq ft). A spa’s prime spot cannot always be justified by direct return on investment; but the facility often has a more indirect impact of adding a ‘premium’ to the overall development. In addition, spa guests typically stay for longer, spend more on food and beverage and retail, and pay a higher room rate than average hotel guests.

Outlook for 2016
Despite the challenges, the Dubai spa market has remained resilient and continues to grow. When questioned, an astonishing 76 per cent of respondents said that they expect spa revenues to continue growing in 2016. Indeed, an optimistic 20 per cent predict that their revenue will increase by 10 per cent or more. The positive outlook of spa operators in the region is further evidence of the rising growth of this industry and its ability to drive guest bookings.