Dubai hotel market set to rebound from 4Q, just as a wave of luxury supply hits the segment that struggled most this year

Dubai’s hospitality market could start to recover from 4Q onward as international connectivity improves and the winter season lifts demand, Cavendish Maxwell says in its latest hospitality report. But the rebound is arriving alongside a heavy wave of luxury supply — a problem for a segment that bore the brunt of this year’s slowdown.

Still, the full-year picture will be one to forget: Full-year occupancy is forecast at 60.4-66.2%, with average daily rates at AED 600-675, and Dubai International Airport (DXB) passenger traffic at 67.6-79.3 mn — all below 2025 levels. Analysts previously told us that a full recovery in tourism flows would not come before 2029.

The 1H picture: Citywide occupancy fell 30.3% y-o-y to 56.4%, tracking a 31.7% drop in passenger traffic at DXB to around 26.6 mn in the first five months of the year, as regional airspace disruptions weighed on international travel. Average daily rates held up far better, dipping just 7% to AED 701, as operators largely held the line on discounting.

Luxury felt the pain most: Luxury hotels posted occupancy of 51.2%, while upper-upscale hotels came in at 51.8%, as their heavier reliance on long-haul international travelers left them more exposed to disrupted air connectivity. Upper-midscale was the strongest-performing segment at 65.7% occupancy, while midscale occupancy came in at 63.7%, helped by a broader mix of domestic, regional, and corporate demand.

The supply picture

Supply is still coming: Dubai had 727 hotels and around 152.1k rooms at the end of June, down slightly from year-end 2025, as closures offset new openings. Another roughly 3.2k rooms are due by year-end, taking total inventory to around 155.3k rooms.

The pipeline is getting even more premium: More than 80% of rooms scheduled for delivery in 2027 are in the luxury segment, with the share also above 80% in 2028. That could raise competition just as premium hotels are proving the most sensitive to weaker international demand, although Cavendish Maxwell expects the gradual pace of additions to give the market time to absorb the new supply.

Background

Dubai has been one of the hardest-hit hospitality markets in the UAE. We reported last week that Dubai revenue per available room was down 35.2% YTD in 1H, versus a 31.8% decline across the UAE overall, as weaker international inflows hit the emirate particularly hard. That broader downturn has also pushed operators toward domestic demand, fee relief, and more cautious development timelines.

The policy cushion: Dubai rolled out AED 2.5 bn in hospitality support during the period, including suspending the Tourism AED and municipal fees on hotel and restaurant bills, alongside campaigns to stimulate domestic, regional, and international demand. The UAE Tourism Council is also looking to widen Jaywan card acceptance across hotels and attractions and introduce more benefit programs through Esaad and Fazaa, as part of a broader push to channel more resident spending into domestic tourism.