The company plans to invest US$56 million in the Dubai Healthcare City (DHC) hotel, which had been scheduled to open as a three-star property.
Its subsidiary, Action Hotels, will own the property, which will now be operated by AccorHotels’ Novotel brand as a 220-room hotel.
Construction on the hotel will start next month with the hotel on track to open in 2018.
The 26,312-square-feet plot of land was acquired for $16m from Dubai Healthcare City and is jointly owned by Action Hotels and Sheikh Mubarak Al Sabah, its founder and non-executive chairman.
Dubai Healthcare City and its surrounding area currently has five hospitals with another scheduled to open in 2018.
“We did a feasibility study and found that the economics of a four-star, full-service property is better in that area than a three-star property as there are only five-star hotels in the area,” according to Alain Debare, the chief executive of the London AIM-listed Action Hotels.
“We want to tap into medical tourism and the Oud Metha area with the government and corporate offices.”
The Dubai Health Authority has set a target of 500,000 medical tourists by 2020, up from 107,500 in 2012.
Initially planning to develop the hotel on a leasehold basis, the company said the project would be funded through a mix of equity and bank financing of about $35.2m.
This will be Action Hotels’ first property in Dubai.
It also wants to get the benefit of the Dubai government’s initiative, announced in 2013, to waive the 10 per cent municipality fee levied on daily room rates if the construction permit is granted by December 2017.
Despite the supply of new hotel rooms in Dubai, Action Hotels is confident of the four-star segment’s buoyancy.
“The pressure on room rates is for the five-star hotels mainly as there is a real gap in the four-star market,” said Debare.
Action Hotels opened its first property in the UAE in Sharjah last August with 168 rooms. A Staybridge Suites in Abu Dhabi is expected in 2017 with 112 rooms, and a Tulip Inn is expected in Ras Al Khaimah this month with 104 rooms.