Market update: Bahrain's hospitality on upward investment growth

Bahrain is on an upward investment growth in the hospitality sector, but stands to face the potential problem of oversupply

Operators

Nestled in the Arabian Gulf with a collection of 33 natural islands, Bahrain takes the title of the smallest GCC country. But despite being a tiny island nation, in 2017, the total number of visitors to Bahrain reached 11.4 million given the country’s resident population is only 1.5 million people. It has long been a leisure haven with GCC residents, especially from neighbouring Saudi Arabia, dropping by often for short weekend trips using the popular King Fahad Causeway.

“Intra-regional tourism is an important driver for Bahrain’s hospitality sector, led by Saudi Arabia as our largest source market, and followed by other GCC nations,” confirms Jerad Bachar, executive director for investment promotion at Bahrain Economic Development Board (EDB).

In terms of purpose for visiting Bahrain, Christopher Hewett, director at TRI Consulting, points out that leisure tops the hospitality market segment: “Leisure purposes are the key reason for visiting Bahrain followed by shopping, business and visiting friends and relatives.”

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Tourism and hospitality play a key sector for the nation and Bachar says EDB recognises this as offering a competitive edge for the country. “It [tourism] contributes 6.3% to the country’s gross domestic product (GDP), a figure set to continue to grow as Bahrain continues to add new hotels, retail and leisure developments currently underway,” Bachar adds.

Wyndham Grand Manama marketing director Basel Qabouq shares the same optimism: “Bahrain is mainly a leisure weekend destination, but we are seeing a healthy growth in MICE demand and corporate growth, with the special focus on Fintech and the ease of investment after the changes made in the laws, the amount of foreign investments and start-ups is growing by the day.”

But despite attracting millions of annual visitors and a growing supply of rooms, Bahrain’s hotels, Hewett notes, witnessed a relatively soft performance in 2017. Occupancy rates went down by 1.1 percentage points to 53.8% while average daily room rates (ADR) fell by 6.7% to US$171.4. As a result, the revenue per average room (RevPAR) took a hit too and the levels dropped by 8.5% to $92.4.

Investment and Demand

Bahrain’s hotel sector is witnessing a steady stream in the supply of rooms. Just within the first quarter of 2018, three hotels opened — Jumeirah Royal Saray Bahrain in February 2018, The Grove Resort Bahrain, and Park Regis Lotus Hotel.

Last year, the world’s largest Wyndham Garden opened in Manama, along with the 263-key Wyndham Grand Manama and the Ibis Styles Hotel; and in 2016, four new hotels were added to Bahrain’s offering: Ramada Hotel & Suites Amwaj Islands, a four-star Hotel, Lagoona Beach Luxury Resort & Spa Residences, Downtown Rotana, and Gulf Suites Hotel Amwaj.

Commenting on the slew of branded hotel openings, Bachar says he credits the country’s “pro-business regulatory environment” which has enabled it to show its potential as an attractive investment destination in the GCC.

He says: “Bahrain has developed an attractive investment destination for hotels and hospitality sector, thanks to its pro-business regulatory environment, with low tax and 100% foreign ownership nationwide with no free-zone restrictions, talented local workforce, and strong economic growth fundamentals.” Apart from investment-friendly rules, the kingdom, Bachar points out, also provides the hospitality sector a “strong network of support”.

“This network of support comes from coordinated engagement through the Economic Development Board and our network of landowners, investors, developers, and advisors.  We aim to support investors in their engagement with key agencies such as the Bahrain Tourism and Exhibition Authority (BTEA), Real Estate Regulatory Authority, and the Ministries of Commerce, labour, health, and interior.  We can also coordinate discussions with Bahrain’s labour development agency, Tamkeen, which provides an array of assistance in hiring and upskilling the dynamic Bahraini workforce,” Bachar further explains.

To continue its infrastructure development scheme, at the end of December 2017, EDB revealed that Bahrain has invested more than $13 billion. The investment, Bachar states, will be “spread across 14 tourism projects including the $1.1 billion Bahrain International Airport’s modernisation and expansion project which will increase capacity to upwards of 14 million passengers a year”.

“Tourism is one of our sectors  with the highest growth potential for investment and last year accounted for 10% of the total inward investment flows into the Kingdom, with major projects from Action Hotels and Jumeirah Resorts.  This year we will be building on that strong foundation to attract further strategic inward investments to help realise the tourism sector’s growth potential,” Bachar adds.

Besides hotels and upgrading the airport, the investment will be used for several projects including the development of a medical tourism project at King Abdulla Medical City, five new five- and four-star hotels which are under construction, three major retail destinations and six mix-use real-estate projects.

To help funnel in more tourists, the government is also adding a total of seven new aircraft — five Boeing 787-9 Dreamliners and two Airbus A320neo aircraft to the kingdom’s flag carrier, Gulf Air’s fleet.

The $13 million is part of a larger investment campaign which will be distributed across various sectors in Bahrain and totals to $32 billion. Out of the total sum, $10 billion accounts for government funding, $7.5 billion from the GCC Development Fund and $15 billion from the private sectors, a statement from EDB reported in a previous Hotelier Middle East report said.

While Bahrain is going full steam ahead with adding supply, the figures from Colliers International’s quarterly review for 2018 shows no signs of improvement in term of key performance indicators (KPIs). Instead, it’s a relatively stable performance but with continued rate suppression.

Citing an STR performance report from 2017, the 90-key luxury serviced apartments Fraser Suites Seef Bahrain general manager Pierre Vasseur says that property registered the “highest occupancy” of around 60% to 80% compared to rest of the hotels in the five-star sector in Bahrain.

Vasseur credits the hotel’s performance to the serviced apartment concept. “One of the key strengths of the serviced apartment business model is being able to change the target market profile between long and short stay to suit market conditions in order to achieve revenue maximisation,” he explains.

For the 245-room five-star city resort, The Ritz-Carlton Bahrain, executive assistant manager for sales and marketing Soufiane Elallam shares that 2017’s performance was “strong against the budget,” but reveals the property ended on a “positive note”. “We maintained our top spot in the market with growth in all segments, despite adverse market conditions,” he adds.

Source market

As stated earlier, visitors from Saudi Arabia dominate the hospitality source market and this is true for a number of hotels in the country. Vasseur notes that Saudis provide the hotel a majority of its business. But visitors from Europe have also been steadily increasing, too.

The Saudis are followed by other GCC nations like UAE, Kuwait and Oman and internationally, Bahrain also attracts visitors from UK, USA, Russia and India. For The Ritz-Carlton Bahrain, Elallam notes that in terms of top bookings at the hotel based on nationality, Russia is emerging strongly.

However, Bachar points out that visitors from Europe are on the up and up: “Last year we also saw strong growth from European markets, with visitor numbers from Europe increasing by 25%. We are also seeing average visitor length of stay and expenditure grow year on year. We know that second time visitors stay longer and spend more, which is a very positive indicator of Bahrain’s increasingly diverse tourism offering.”

While the leisure market does attract the most tourists to the kingdom, a report from #W7Worldwide Communication Consultancy agency has predicted a significant growth in Bahrain’s exhibitions and conferences sector in 2018. According to the report, in the process of developing this MICE sector over the next three years, the sector will activate business and tourism trips to attend the conferences, exhibitions and meetings.

The government, too, is playing an active role in upping the visitor count which thus far, Bachar points out has been “largely achieved organically”. Upcoming leisure developments and stand-alone attractions are in the works, confirms Bachar.

“Current developments in progress cover a number of retail and entertainment destinations including Dilmunia Mall and Marassi Galleria, which will join the recently opened $159 million Avenues Mall at Bahrain Bay. Also in the pipeline is the development of Manama Traditional Souk as well as new beach and island development projects at Qalali Beach, Al Qous Corniche, and Al Moatredh Island. Expansion and enhancements have recently been made at the Lost Dilmun Water Park and at the Bahrain International Circuit, two cornerstones to our leisure attraction sector,” Bachar adds.

Besides the retail investments mostly slated to open by 2020, Bachar points out that there’s “huge potential for further investment” along the kingdom’s 14 km coastline which was recently revealed as a strategic government investment project.

BTEA has also launched tourism campaigns like the ‘Ours. Yours. Bahrain’ to intentionally increase the international awareness of the island kingdom. Besides key source markets, the campaign objective is designed to target tourism, foreign direct investment, media, influencers and even Bahrainis, according to the campaign website.

Vasseur also brings attention to the ‘Bahrain Representative Offices’ set to open in countries around the world such as UK, Germany, France, India, Russia and China as well as the GCC in an effort to attract more tourists. He highlights that India is turning out to be an emerging market for destination weddings.

Looking forward

By 2020, Bachar expects 15 new four- and five-star hotels and resorts to open which will add up to 3,400 rooms and will join existing hotels such as Four Seasons, Ritz-Carlton, Sofitel, Art Rotana, Marriott, Le Méridien and Westin.

With various marketing, hotel openings and investment strategies in place to boost the tourism industry, Bahrain’s hospitality sector still has quite a few challenges to hurdle across in 2018. And that, Hewett points out, is the potential problem of oversupply.

“One of the big challenges for hoteliers in 2017 was how to respond to increasing supply. A number of large hotels opened during the year and quickly adopted aggressive pricing strategies in order to carve out market share. This posed a challenge for the existing hotels to either follow the new entrants or to maintain their own revenue strategy. This will continue to be a key challenge in 2018 as the supply will increase further, strengthening the competitive market,” Hewett explains.

Colliers International predicts that Bahrain’s occupancy rates will remain the same as 2017 but the ADS is forecasted to decline by 4% in 2018 compared to the performance in 2017.

Vasseur says that one of the challenges he anticipates Frasers Suites Seef Bahrain facing is the strong competition in the region but believes the market will be “stable” for the serviced apartments in the coming year. He adds: “The flexible operating structure of a serviced apartment concept allows for a versatile business model to fit demand trends. When a market demand is strong, developments can focus on short-term transient demand, which allows for high average rates. Conversely if the market is weak, developments can target long stay demand, which allows for high occupancy levels.”

Vasseur also believes that when it comes to hotel guests, the interest seems to be shifting from five-star hotels to lifestyle hotels where the guests can be more in “control of their own experiences.”

Elallam, on the other hand, is realistic about the fact that the market will also present challenges, but he shares a positive outlook regarding The Ritz-Carlton brand, which he hopes will carry it forward in the coming years.

Looking to the future of the hospitality sector, Vasseur alludes to the fact that with leisure travel being the “new target of the future”, Bahrain’s development as a resort island will help it wean off from its reliance on oil revenues and help diversify its growth strategy.

Hewett says that despite challenges lined up ahead, Bahrain’s long-term outlook remains positive: “With the recent announcement of large oil and gas reserves, coupled with Bahrain’s strengthening financial sector, the markets corporate sector is set to expand, increasing the overall demand levels in the country.”

“Bahrain has the potential to deliver a unique tourism offering within the GCC, drawing on the strengths of its cosmopolitan capital city, natural islands, rich and accessible history with two UNESCO World Heritage Sites and authentic, open culture. With a strategic focus on building on these unique strengths, there is huge potential for future growth which is creating investment opportunities across the sector from real estate to leisure, including attractions, retail, dining and cruise ships,” Bachar concludes.

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