2016 Market Update: Kuwait

Kuwait’s hotel backdrop is set to become even more vibrant in from this year until 2020, with a plethora of new outlets ready to storm the scene. From Hilton introducing two new brands at The Avenues Mall in Kuwait City this year to Four Seasons launching a further two properties across the country and a 2020 proposed opening of a Grand Hyatt, existing hotels will no doubt have to up their game to stay relevant.

But while performance indicators for the last year reveal it has not been plain sailing for existing players, questions arise as to what the attraction is that is drawing so many big brand names to launch new outlets across the country.

According to Colliers International, a global commercial real estate consultant, despite being “one of the most consistent markets in the GCC” in performance terms, the year to end-July saw a slight drop in key performance indicators. While occupancy was up to between 50% and 52%, from 49%-51% a year earlier, RevPAR fell to US $116-118 from $125-128 year-on-year, the drop stemming from lower demand from corporate business.

Nevertheless, Filippo Sona, director, head of hotels for MENA, says overall, tourism in Kuwait is maintaining a consistent growth rate of 3%. Compared to other markets in the GCC he adds, Kuwait has “performed consistently” in KPI terms.

Kuwait has a lot going for it. Sitting at the head of the Arabian Gulf, neighbouring Iraq and Saudi Arabia, its strategic location appeals to many a business and corporate clients. The 300-year-old country has a rich history. It is famous for everything from pearl diving to its stunning architecture which includes the Kuwait Towers and the Sabah al-Ahmed Sea City, the transformation of a rundown salt marsh into a fully functioning city with marine environments and beaches, set to house 250,000 residents in the near future. The country is also becoming a rising star in the medical industry, housing the KWD14mn ($46mn) Dasman Diabetes Institute, hailed in the medical world as an international research centre for the disease.

With much to see, it is not surprising Kuwait is drawing in tourists both locally and internationally. Year-on-year for the month of May 2016, passenger traffic into Kuwait International Airport rose 7% to over a million passengers. The airport recently signed off on a KWD 1.3bn ($4.31bn) expansion, set to see passenger numbers grow from five to 25 million on completion. And it appears hotel operators are capitalising on the opportunity this is set to bring.

Hilton’s Conrad Kuwait will add another 158 rooms to the country’s hotel landscape and Hilton Garden Inn Kuwait, a further 430. Both hotels will feature in The Avenues Mall which offers a retail unit, an outdoor pool and spa as well as a ballroom.

“With its number of shopping outlets set to increase by nearly 50%, demand for accommodation at a site which already attracts millions of visitors every year is set to increase substantially,” explains Rudi Jagersbacher, president, Middle East, Africa & Turkey for Hilton Worldwide. “Our Conrad and Hilton Garden Inn brands will enable us to cater for guests seeking either smart luxury or affordable accommodations during their stay.”

Guests and their ever-evolving needs are a key consideration for hotel operators, both those with new outlets and those with existing ones. The country’s population as of 1 January 2016 stood at four million, an increase of 4.79% on the previous year over half of which falls in the 24-54 age category according to World Population Review. By positioning the two new Hilton brands in The Avenues Mall, Hilton plans to attract Kuwait’s — and the wider region’s — growing youth population.

“Having hotels as part of The Avenues development will enhance the quality of the experience and the service we provide to our visitors. This will, in turn, support internal tourism and also place Kuwait on the regional tourism map. We have seen increasing numbers of visitors from abroad, in particular from the countries of the Gulf Cooperation Council, and this is a strong indication of the revival of tourism in the country,” says Jagersbacher.

According to the Travel and Tourism Council’s 2015 report on Kuwait, leisure spending generated 81.2% of direct travel and tourism GDP compared with 18.8% for business travel spend in 2014. And while business travel spend will continue to decline, leisure travel spend is forecasted to continue to rise. But hotels need to start adapting their offering with this in mind, explains Sona.

“Kuwait and in particular Kuwait City is in need of more branded serviced apartment product and lifestyle hotels. The population is young and very brand and trend conscious but the market is offering either five-star hotels or typical corporate hotels that are not appealing to this captive audience,” explains Sona.

While Hilton already has a presence in Kuwait with its luxury Hilton Kuwait Resort, the opening of the mid-scale outlets suggests it is aware of the needs of the new era of clientele.

“With just over one-third of leisure travellers from the region choosing budget hotels, and Asian expats increasingly opting for low cost accommodation — according to the Q3 2015 YouGov Travel Oracle insight report — Hilton is now primed to match the expectations of travellers seeking smart luxury options while also providing more affordable alternatives as we continue to diversify our offering in Kuwait,” says Jagersbacher.

Impacting the hospitality landscape further is the recent shake-up of the country. Since 2010, Kuwait’s government has been implementing a strategic development plan which aims to improve infrastructure, create a sustainable and diversified economy and revamp Kuwait’s international status, in the hope to attract more visitors. Improving the country’s international status involves a plan to execute 13 projects including the Sheikh Saad Al-Abdullah Islamic Centre scheduled for a 2020 completion. Last month the government revealed a $15.75bn cash injection over the years 2017-18 towards the development project.

And though business visitor spend is reported to be waning, business travellers do still make up the vast proportion of hotel guests in Kuwait. According to Colliers, 60% of the guests are characterised by corporate business. Hakan Petek, general manager at the Jumeirah Messilah Beach Hotel & Spa believes new projects, such as the airport and those being created under the country’s development plan will only further boost business travel and stay. Petek says despite the bulk of spend coming from leisure guests — which saw a rise in occupancy, ADR and RevPar year-on-year — there was a spike in the number of corporate guests in the prior year thanks to a number of projects signed in the oil and gas segment.

“We expect this trend to continue through to next year as they are long-term projects,” asserts Petek.

With both the leisure and business traveller continuing to play a significant role in the country’s tourism business, the real question is what guests are looking for from their hotel-stay and how hotels can best deliver on this.

“Hotel stayers in Kuwait have become sophisticated guests looking for only the best in the market. Both business and leisure guests are well-travelled, well-informed and generally seek a value for money experience,” says Petek whose hotel has had a presence in the country since 2013.

Value-for-money is a key factor among guests. Millenial guests — whether travelling for business or pleasure — are looking to get the most bang for their buck. With its new offering, Hilton is looking to capitalise on the crowds drawn in by “affordable accommodation”.

The future does appear bright for the Kuwaiti hospitality industry, agree experts. With the rise in passenger traffic expected from the airport expansion, and a number of projects in line with the country’s development plan which will boost job opportunities across the country, as well as more things to do and see for leisure visitors, hotel operators have much to look forward to.

“On an annual basis we confidently forecast this [tourism growth rate] will potentially increase to 3.9% by 2019,” says Sona.

Petek adds the remainder of 2016 for the country’s hospitality industry is forecast to be positive.

“There is already optimism within the corporate sector with increasing numbers of international companies looking to establish a firm base in the country,” he says.

And though there are a number of competitors about to hit the market, Petek remains unnerved.

“Kuwait is continually growing as a destination for business and leisure travellers in the region and with the expected increase in visitors over the coming years, more international operators are looking into investing in the hospitality sector due to the lucrative nature of this industry.

“We welcome competition; at the same time we will continue pushing the boundaries of what guests expect when they visit us.”