Bahrain begins 2014 on upswing
18 JUNE 2014 5:54 AM
After several years of anemic growth, Bahrain’s hotel market is seeing a rise in performance and developer interest.
REPORT FROM BAHRAIN—The Kingdom of Bahrain’s efforts to push its economy and tourism forward is spurring demand along with development.
“The hospitality market in Bahrain has suffered over the last three years, but with a more settled domestic political scene and an improvement in the global economic outlook, things are looking positive,” said Mark Willis, area VP Middle East and Sub-Saharan Africa for the Carlson Rezidor Hotel Group.
The company’s Radisson Blu Diplomat Hotel Residence & Spa has posted steady occupancies this year, he added.
Occupancy in the country decreased from 65.9% in 2010 to 42.1% in 2011, according to data from STR Global, sister company of Hotel News Now. During the first quarter of 2014, it had recovered somewhat to 59.2%.
The influx of demand has overcome a 1.7% decrease in average daily rate in Bahraini dinar terms to drive revenue-per-available-room growth of 17.7% during the quarter, according to STR Global.
“We have witnessed similar trends at our Accor properties and even beaten the market,” said Christophe Landais, managing director Accor Middle East.
Year-to-date RevPAR increases at the company’s properties include: Sofitel Bahrain Zallaq Thalassa Sea & Spa (+39%); Novotel Al Dana Resort Bahrain (+21%); and Mercure Grand Hotel Seef / All Suites (+12%).
Filippo Sona, director and head of hotels for the MENA region at Colliers International, said occupancies would grow by 2.8% by year-end, and ADR might increase marginally or stay flat.
Pipeline stops and starts
“Back in 2010 there were circa 8,000 new keys planned for the market,” Sona continued. “However, the increased political and social instability has led developers to rethink their strategy, and the majority of these schemes has either been stopped or cancelled completely” during the past few years.
Recovering market fundamentals could kick start that stalled development and lift the number of rooms by 60% by 2018, according to “Middle East hotel development cost trends” from HVS. The hospitality consultancy counts 2,521 proposed rooms in the pipeline. Most are in the midscale segment (26%), followed closely by upscale (24%) and luxury (22%). The economy/budget segment would take 17% of the pie and serviced apartments 11%.
Sona expressed concern about the high percentage of 5-star hotels in the pipeline, arguing globally branded serviced apartments would better cater to the visitor makeup of the country.
The expat community also might benefit from hotel apartments, he added, as they provide a more flexible living arrangement until certain social stability is guaranteed.
Making the mid-market
“Mid-market hotels are most suited to cope with an uncertain future,” Sona said, citing lingering political and economic volatility throughout the broader region. “These have proven to be recession-proof in European markets during the global economic downturn of 2008 and 2009.”
The development cost per key for a midscale property in Bahrain, according to HVS, stands at $160,400, less expensive than upscale serviced apartments at $204,200, upscale properties at $230,300 and luxury properties at $442,700.
Accor plans to open its first Ibis economy brand in the country by the end of this year.
“Bahrain’s hospitality market is relatively small with a census of circa 6,800 rooms. Amongst those less than 5% are internationally branded economy hotels; therefore, Ibis will bring a very much needed complementary offer at an affordable price to the economy segment in Manama,” Landais said.
Rezidor is trekking the midscale path with its Park Inn by Radisson Bahrain planned to open in the fourth quarter of 2015 in Manama’s Al Seef District. The hotel will target the growing guest clientele of Generations X and Y, Willis said.
Meanwhile, Hilton Worldwide Holdings is debuting upscale with the Double Tree Suites by Hilton to open in Manama’s Juffair area in late 2015.
“DoubleTree by Hilton is our fastest-growing brand in the Middle East—for good reason,” said Carlos Khneisser, VP of development in the Middle East. “The brand appeals equally to leisure and business travelers. Owners, meanwhile, appreciate the brand’s flexibility and its ability to adapt to an urban city environment as comfortably as it can to an upscale premium resort.”
He sees room for further expansion in upscale with the company’s Hilton Hotels & Resorts brand in addition to DoubleTree. In the mid-range Hilton Garden Inn is a growth vehicle, he said.
“However, we remain flexible and would never rule out potential opportunities for our luxury brands if market expectations and the general economic environment suggest a good fit,” Khneisser said.
Bahrain as a gateway
Boding well for future business is Bahrain’s emerging status as gateway to Saudi Arabia, which itself is seeing a flurry of hotel development, Willis said.
Also working in the hotel market’s favor is the Ministry of Culture’s focus on developing Bahrain into a culture hub in the Gulf, he added.
Manama has been celebrated as Asian Tourism City 2014 and as the Capital of Arab Tourism 2013. The government is busy promoting year-round cultural events and recently twinned Manama with Nice in France.
Major events are indeed driving up occupancies. The Bahrain International Air Show that took place in January, for example, drove up occupancies to more than 80%, according to Assistant Undersecretary for Tourism Shaikh Khalid bin Hmood Al Khalifa.
In April the Formula 1 Grand Prix took center stage. “Business is buoyed by this annual event, which adds an estimated $700 million to the economy with much of this total being funneled into the hospitality sector,” Willis said.
According to Bahrain’s Ministry of Culture’s Tourism Affairs department, this year’s race saw occupancies at 5-star hotels jump to 87% from 72.6% in the previous year. Four-star hotels enjoyed a 15.3% increase to 86%.
The efforts and figures are encouraging hotel performance, but operators will have to work harder to guarantee future profitability as competition increases.
“An increase in the number of new hotels and residences in the past year, coupled with the future openings, is certainly going to put a strain on the city’s occupancies and rates,” Willis said.