In for the long haul: A look at Kuwait's hospitality market
Kuwait’s hospitality market has been under pressure for the last 12 months, but the government is committed to investing in projects to realise Kuwait Vision 2035 – and hoteliers are settling in for the long-term
Kuwait’s hospitality market is smaller when compared to some of its GCC neighbours, but slow and steady seems to be the mantra of the country’s hoteliers. However, the last year has shown the market to be under some levels of pressure.
TRI Consulting senior consultant Philippe Vercruysse revealed that RevPAR has declined by 15.3% over the 12 months until August 2019, hitting US$104.2. This decline was driven by a drop in both rate (-5.3%) and occupancy (-5.3%), which reached $208.80 and 49.9%, respectively.
Vercruysse said: “The falling revenues and rising operating costs, primarily driven by labour costs (+2.9 p.p.), have also led to notable decline in hotel profitability levels in Kuwait, where the gross operating profit on a per available room basis (GOPPAR) decreased by 20.6% from $102.70 in 2018 to $81.60 in 2019.”
Swiss-Belhotel International senior vice president, operations and development for the Middle East, Laurent Voivenel said that although overall hotel occupancy levels and ARR have been under pressure in Kuwait, the market performed better than some of its neighbouring countries. He noted: “The recent cuts in public spending and drop in demand from Saudi Arabia during weekends and holidays had an adverse impact on the business – even though ARR is protected through the minimum rate agreement implemented by the Kuwait Hotel Owners Association.”
Vercruysse said that demand segmentation remained stable, posting only marginal fluctuations. Hotel demand in Kuwait, he said, has traditionally been dominated by demand from the corporate, government and special interest tourism. Nevertheless, the country also benefits from a vein of leisure tourism demand, primarily driven by Saudi and GCC nationals.
“The Middle East – and more specifically the GCC – represents the most important source market for hotel guests in Kuwait with mix of business and leisure visitors coming from Saudi Arabia and Bahrain. Conversely, other source markets are found to be almost exclusively business-related visitors,” he said.
Saudi Arabia, Vercruysse noted, remains the largest source market for Kuwait’s tourism and hospitality industry due to the close proximity of both states and the greater range of entertainment options in Kuwait compared to neighbouring Saudi Arabia. However, this is expected to change as Saudi Arabia’s entertainment landscape evolves – the Kingdom opened its first cinemas in 2019 and concerts were held with more to come.
Vercruysse said: “The lack of leisure offerings in Kuwait and the expanding leisure offering in neighbouring countries, such as Saudi Arabia, is likely to reduce the inflow of leisure visitors to the country. Therefore, we anticipate that Kuwait’s hotel sector will become even more reliant on corporate, government, and special interest tourism in coming years.”
Most of the travellers to Kuwait are related to corporate and government demand, Vercruysse said, which is unlikely to be displaced to other destinations, making the impact on visitation marginal. “However, if five-star hotels don’t show flexibility on rates it is plausible that travellers could choose to stay in some of the recently opened four-star hotels instead,” he cautioned.
Like its neighbouring countries, Kuwait has set ambitious national targets for itself, including Kuwait Vision 2035. A number of plans are being implemented under this initiative to boost tourism that will see billions of dollars being invested in projects such as the expansion of Kuwait International Airport, reaching 25 million passenger capacity annually by 2025.
Tourism is certainly important for the country. According to the World Travel & Tourism Council (WTTC), the direct contribution of travel & tourism to GDP was KWD973.2m ($3,200.2m), 2.8% of total GDP in 2017 and was forecast to rise by 6.9% in 2018, and to rise by 4.8% per annum, from 2018-2028, to KWD1,668.2m ($5,485.5m), 3% of total GDP in 2028.
Voivenel commented: “The government is making huge investments in enhancing tourism infrastructure as well as developing new leisure and lifestyle attractions. Many unique projects are under development in the country such as the five islands – Bubiyan, Warba, Failaka, Maskan and Aouha – coupled with ‘Silk City’, the largest marine project.”
Pipeline and demand
Complementing the investment into infrastructure and projects is the increase in number of keys for Kuwait’s hotel market. The addition of 1,478 keys across 11 hotels over the next four years is expected, representing a 6.7% CAGR from 2020 from 2023. The pipeline includes some major brands such as the Waldorf Astoria (200 keys), the Grand Hyatt 360 (300 keys), and the Hilton Garden Inn (400 keys).
Hilton also recently signed a master development agreement with Kuwait’s Alshaya Group, to launch and develop 70 Hampton by Hilton hotels in nine countries, with the majority of these in the Middle East, North Africa, Turkey and Russia. With the first hotel expected to open in Kuwait in 2021, Alshaya Group will deliver 50 hotels in the next eight years, with another 20 in the development pipeline.
The trend of select service and extended stay brands being launched in Kuwait will continue, bearing in mind the country’s visitor demand. TRI’s Vercruysse said: “In addition, given Kuwait’s heavy reliance on corporate and government related demand, it’s no surprise that the pipeline includes several extended stay properties such as Staybridge Suites and Marriott Executive Apartments. These room products are typically well suited for business travellers who appreciate the additional space and comfort.”
Kuwait will also be where Swiss-Belhotel will debut the upscale Swiss-Belboutique brand in the Middle East with the Swiss-Belboutique Bneid Al Gar. This will be followed with the opening of Swiss-Belresidences Al Sharq in the second quarter of 2020, which is meant to serve as a base for corporate travellers as it is located in the business district near Souq Sharq.
Meanwhile, mixed-use hospitality operator, Kerten Hospitality, is scheduled to open 46-key The House Hotel Al Khiran in March 2020, and the operator’s CEO Marloes Knippenberg told Hotelier Middle East: “Kuwait is a market with untapped potential for the creation of lifestyle destinations for the next generation of travellers, residents, businesses and entrepreneurs and that is why we have been looking to expand our projects in the city.
“We are introducing The House Hotel, a luxury boutique brand into the market, and eyeing further growth for our portfolio of brands in the co-working space and in the mid-market hotels’ niche.”
Voivenel said that the vision to welcome 440,000 visitors annually by 2024 is fuelling demand for quality hotels. “It is the perfect time for us to enter Kuwait when the country is evolving into a multi-faceted destination with the development of these diverse attractions for both corporate and leisure visitors,” he said. “At Swiss-Belhotel International we believe, like the rest of the region, Kuwait has a massive opportunity in mid-scale hotel segment as well as quality serviced apartments.”
Value added tax (VAT) has already been implemented in GCC countries like the UAE and the Kingdom of Saudi Arabia, and Kuwait is set to follow suit in April 2021.
Swiss-Belhotel International senior vice president, operations and development for the Middle East, Laurent Voivenel said that the impact of VAT in Kuwait will be relatively less compared to other countries around the world where it is charged at 20%. Speaking about Swiss-Belhotel’s approach to VAT, he revealed: “Being an international chain, we have a clear system in place for the implementation of VAT and will follow the directives of the authorities once it comes into effect.”
The key challenges involved with the introduction of VAT will revolve around compliance and accounting practices, pointed out TRI Consulting senior consultant Philippe Vercruysse. “Major operators have already been through this implementation process in neighbouring GCC countries in recent years,” he said.
“In terms of the impact on hotel performance, the key question is whether the cost will be passed on to the consumer. Given the rate agreement enforced by Kuwait Hotel Owners Association, I anticipate this will be the case.”