Christian Anklin of HVS Executive Search examines the effect of rent increases in Dubai on employee remuneration.
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Christian Anklin of HVS Executive Search examines the effect of rent increases in Dubai on employee remuneration.
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Category: Middle East
This is a press release selected by our editorial committee and published online for free on 2007-05-23
Spiraling rent increases have become a severe burden on expatriate employees in Dubai. HVS Executive Search looks at how hotel companies have responded when determining expatriate compensation.
The rapid development of Dubai’s hotel and tourism industry has created a tremendous wealth of job opportunities for hoteliers from all over the world. A combination of sunny weather, a relatively moderate and liberal government and good international schools have made Dubai an increasingly attractive place to live and work.
While the usual gripe of any Dubai-dweller is the creeping traffic along Sheikh Zayed Road, over the last two years another issue has become a hot topic among all who live in or have considered moving to Dubai: rent increases.
According to a survey by Asteco, a prominent UAE property company, the cost of renting an apartment in Dubai increased by an average of 38% through 2005. Continued increases in 2006 led to government intervention, capping rent increases at 15 % for 2006 and 7% for 2007. In the meantime, shrewd property owners have found ways around the cap, for example by increasing the price of on-property parking.
A survey conducted by AME Info found that the rental increases had a knock on effect on other areas, such as the cost of schooling, as well. To compensate for their higher rental costs, schools increased their fees by as much as 16.6% in 2006. In combination with relatively high inflation rates of 12.7% in 2005 and around 9.3% in 2006 (AME Info), the combined burden on employees during this period has been severe.
As most hotel employees live in rented accommodation in Dubai, HVS Executive Search decided to take a look at how local hotels reacted to the rent hikes at the time. Did the combined increase in the cost of living and its inherent effect on attraction and retention ratios force hotels to remunerate more generously? Or did they stand their ground, calm in the knowledge that an impending increase in housing supply would alleviate the situation, and cognizant of the fact that it is easy to increase wages but very hard to justify a later decrease?
We compared salary data of six executive committee positions among Dubai hotels from July 2005 to October 2006. The evidence suggests that hotel employees were forced to bear the brunt of the increases. On average, housing allowances increased between 2% and 8% during this time, with Food & Beverage Directors and General Managers gaining most while Directors of Rooms, Human Resources and Sales & Marketing saw close to no increase at all.
Allowing for the possibility that increases in the cost of living were compensated for by increases in other areas, it is prudent to look at the corresponding increase in base salaries for these positions.
One can see that the below-inflation increases in housing allowance were not recovered through an increase in base salary. Furthermore, the increases in base salary follow the same trend as those of the housing allowance, with the Director of Food & Beverage benefiting most and the Directors of Human Resources and Sales & Marketing even taking a cut.
Finally, we analyzed whether the increases in living costs were temporarily compensated for by paying higher bonuses.
This comparison did not prove conclusive, except to add to our impression that F&B Director’s salaries were finally brought more in line with those of their fellow executive committee members in 2006.
According to Julia Miller, Jumeirah Group’s Director of Remuneration, “Living costs are still rising in spite of the cap on rent increases. Although new accommodation is scheduled to come online later this year, this is mainly apartments. Many expatriate executive committee members prefer houses, where there is still limited availability. We noticed that more people are looking into buying.”
Jumeirah Group reacted to the rent increases by upping their employees’ housing allowances, keeping in line with the market. Julia Miller: “We offer all our employees company-provided accommodation. Through sheer volume and negotiation, we are often able to keep rent increases within a reasonable range. However, at executive committee level, Jumeirah takes on individual leases on behalf of employees, and these increases have been much more difficult to control.”
Miller also noted that housing was more expensive for people who had just arrived in Dubai as opposed to those who had been renting their property for several years. Furthermore, newcomers can have unrealistically high expectations, as quality of life is a selling point for assignments in Dubai. With the current shortage of affordable houses, these expectations are now harder to realize.
While the salary data comparison did not show a tremendous increase in housing allowance or other elements of total compensation over the period analyzed, this can be attributed to several factors:
* The executive committee members may have been long term residents in Dubai, thus not witnessing the same degree of increase as the reported average
* Renegotiations or new hires may have taken place after October 2006
* The hotels included in the peer group may have provided housing to their employees much in the way that Jumeirah does, thus buffering some of the rent increases
Among the hotel HR professionals that we consulted in the region, the consensus seems to be that they were well aware of the increased pressure on their employees and that they had addressed this to the best of their abilities at the time. They did not perceive a tremendous drop in employee retention ratios or any significant difficulties in attracting new employees over this period.
This leads us to believe that the attractiveness of Dubai as a workplace and the career opportunities that the region offers outweigh the increasing burden posed by cost of living increases for the time being. Nevertheless it is important for hotel companies to remain vigilant and continually adjust to the changing circumstances in order to remain attractive employers, especially during the continuing boom time in the industry cycle. With other locations such as Singapore witnessing a similar rental spire to that in Dubai, housing is certain to remain an important factor in expatriate employee compensation.
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