(Bloomberg) -- Dubai’s booming tourist industry is feeling the impact of the conflict between in Israel and Hamas — and the fallout could be bigger than first thought. 

Despite reporting its biggest annual profit on Thursday, Emaar Properties PJSC posted a 33% drop in fourth-quarter revenue from its hospitality division. At 900 million dirhams ($245 million), its hotels, leisure and entertainment venues contributed around 11% to the developer’s top line during the period. 

The decline “could be attributed to geopolitical tensions from the Israel-Gaza war affecting the segment’s performance, which had proven to be relatively more significant than what we initially expected,” Sara Boutros, an analyst at CI Capital wrote in a report. The fallout from the conflict is likely to have offset the benefits of the city hosting the COP28 meeting, which saw thousands of visitors pour into the emirate. 

The impact is being felt across the Middle East. Driven by a wellspring of anger against the US and Europe for not doing more to get Israel to end its offensive in Gaza, many shoppers in the region are shunning big foreign brands, damping sales of some and creating PR headaches for others. 

Fears that the war may escalate are also impacting tourism in countries close to Israel including Jordan, Egypt and Lebanon where thousands of hotel bookings have been cancelled. 

Still, Dubai where hotel occupancy usually hovers around 80% during the cool winter months, has largely managed to escape much of the negative impact from the war. Home prices are close to record highs, office space in peak demand and restaurants are often fully-booked. Emaar’s hotels had an average occupancy of 72% in 2023 compared with 69% in 2022, according to CI Capital.

Shares in Emaar closed 3.4% higher on Friday after the developer said full year net income surged 70% to 11.63 billion dirhams. Its sales backlog reached 71.8 billion dirhams.

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