Market Update: Bahrain's hospitality industry is slow and steady

While the UAE has been the pioneer in the region in terms of drawing the world’s attention in every way possible, Bahrain is silently promoting itself as a tourism and events destination. In 2016, tourist arrivals crossed 12.2 million, the third largest arrival numbers in the GCC, according to the Bahrain Economic Development Board.

Jerad Bachar, executive director with the board’s tourism and leisure development department, says: “The authenticity of Bahrain is what differentiates it from the rest of the GCC; it’s the naturally hospitable Bahrain culture and 5,000 years of documented history and civilisation — presented in a modern business environment. You interact with Bahrainis in the country throughout every sector you come across — whether it’s taxi drivers, hotel clerks, or marketing people, they are part of the society.

“The sub-sector developments of tourism are driven by demand; our food scene continues to become more vibrant, every month we have a new restaurant concept opening in Bahrain. And that’s because demand drives it, and not just the country building restaurants so that people will come, but that’s what our guests want. It’s the same with retail offerings.”

According to the Bahrain Tourism and Exhibition Authority (BTEA), tourist arrivals into the kingdom in 2016 were 6% higher from 2015, with 88% of day and short trips from Saudi Arabia over the King Fahd Causeway, which forms the crux of the hotel room demand for the country.

The country, which is an archipelago of 33 islands, is home to a number of international hotel brands such as The Ritz-Carlton, Sofitel, Crowne Plaza, Four Seasons, Radisson Blu, Le Méridien, and many more.

STRAIN ON DEMAND

CBRE Bahrain, citing data from the Bahrain Economic Development Board, recently stated that 15 four- and five-star hotels and resorts with a combined investment of more than US $10 billion will open in Bahrain over the next five years. The brands include: The One&Only Resort, Wyndham Grand Hotel, Fairmont, Vida Hotels & Resorts, Ibis, and Pullman. These hotels are said to add to the Kingdom’s existing supply of more than 190 hotels and resorts. This comprises 18 five-star hotels, 48 four-star hotels, 35 three-star hotels, 81 serviced apartments, and 11 resorts.

The current average hotel occupancy for the region in June 2016 to June 2017 is 60% in comparison to 53% for the city of Manama, CBRE stated. Heather Longden, associate director, CBRE Bahrain notes: “The region is seeing an influx of new hotel rooms in spite of reduced demand and prolonged economic challenges primarily as a result of deflated oil prices. The majority of hotel rooms available in the Bahrain market in 2016 were in the four-star market constituting 43% of total room supply.

“In terms of future supply of rooms in the development pipeline, there are an additional 5,100 rooms planned to be introduced by 2021 in the five-star category which will further advance the standard of property in the Bahrain market.”

The influx of supply and reduced demand is leading to a drop in occupancy rates and average daily rate (ADR). In the past 12 months to May 2017, Manama saw its occupancy rate and ADR drop by 2.8% and 4.7% respectively, resulting in a RevPAR decline of 7.4%, according to STR.

Colliers International forecasts that 2017 will end at a similar level as year-to-date May, hence a RevPAR decline of 7% versus 2016. Manama’s occupancy and ADR are projected to reach 51% and US$ 182 respectively. Despite the lower occupancy rate, Manama’s ADR is still relatively high, comparable to rates achieved in Muscat, Riyadh, or Dubai’s Sheikh Zayed Road and DIFC.

Rashid Aboobacker, TRI’s associate director, is of the same opinion. He says: “Hotel performance levels in Bahrain have declined in the past year across most major parameters. Based on HotStats’ survey of five- and four-star full service hotels in Manama, during the full year 2016, average occupancy stood at 54.9%, up 1.9% percentage points from 2015. However, ARR was down 5.8% to $184.1 and TRevPAR was down 4.3% to $158.9, causing the GOPPAR to drop by 12.2% to $48.9.”

The Diplomat Radisson Blu Hotel, Residence and Spa general manager Kosta Kourotsidis says that occupancy figures were “positive” in the past one year however, “there was a slight drop on ADR and RevPAR, due to the new hotels opening in the Kingdom and the increasing number of rooms”.

He adds that growth in the government-led tourism initiatives and the leisure section is contributing to the hospitality business which is in turn fuelling supply. “The BTEA is promoting Bahrain as a wedding destination that is driving occupancy and raising awareness about Bahrain. The Food Festival that took place in March has increased the revenue of the participating restaurants and has increased the awareness about the hotel outlets. But there has been an increase in the number of new hotels and residences in the past year, and with more future openings, this is certainly going to put a strain on the city’s occupancy level and rates decreases.”

INVESTMENT AND INFRASTRUCTURE

There is an ongoing investment growth taking place in the country, which is about $10 billion of active investment within the tourism sector, and this is part of the greater $32 billion in commercial and infrastructure investment, according to the Bahrain Economic Development Board.

Bachar says: “That investment is coming from a couple of main sources — the GCC fund, the private sector fund, and later on this year we will see the opening of the One&Only Al Seef. Also scheduled to open is The Avenues — a joint venture between Al Shaya and some Bahraini developers.”

He adds: “Hotels such as the Wyndham Grand and another property that’s scheduled for Amwaj Island are family- and halal-focused. So, we see a really good variety of products that are coming in that are demand generators within themselves. They are being built to serve a particular market and not necessarily take away from other properties that are in the market. We want new developments to complement what’s already existing in the country, and do not want to replicate what’s in Dubai, Abu Dhabi, or Saudi Arabia.”

Aboobacker points out that major infrastructure projects such the expansion of King Fahd Causeway to Saudi Arabia and the expansion of Bahrain International Airport are expected to boost economic growth, investments and tourism arrivals to Bahrain, thus creating long-term opportunities for hospitality projects in the country.

He also argues that “the market is facing several challenges including slow economic growth which is forecasted to continue over the next few years”.

He says: “The hospitality market is currently under significant pressure from the strong growth in supply and the subdued growth in demand, which has created a short-term supply demand imbalance in the market.”

Hoteliers in the country believe that events and conferences are the need of the hour as this sector will help boost demand tremendously.

Le Méridien Bahrain City Centre complex director of sales Zee Bassila notes: “Bahrain requires more conferences and exhibitions in order to be able to fill the current hotel inventories in the city. Driving more events to the city with its current supply creates high occupancy and healthier ADR, fewer events in a big supply market creates price cuts and lower ADR. The oil and gas sector is a major contributor to the hotel industry and the economy. At the moment we are not securing our fair share due to the declining barrel price.”

Sofitel Bahrain Zallaq Thalassa Sea & Spa director of revenue Nicolas Vucher-Bondet shares a similar belief. “Our market strongly relies on events to gain exposure. Bahrain has begun emerging as a strong alternative destination to the Dubai and Abu Dhabi markets. We have managed to maintain strong figures on several segments, such as business groups and corporate individuals.”

SAUDI DEPENDENCE

Hotels in Bahrain are currently heavily dependent on the Saudi market, and this is likely to continue in the near future. Tourism arrivals from Saudi Arabia is predicted to increase from three million in 2016 to 4.3 million by 2021, according to GlobalData. The over-dependence on the Saudi market is considered a risk as a reduction in tourism flow from the kingdom may have substantial negative impact on Bahraini hotels.

Filippo Sona, director — head of hotels at Colliers International, says: “Considering that approximately 80% of hotel guests in Bahrain stem from Saudi Arabia and that the market is predominantly leisure-oriented, this means that the hotel market will generally follow the trends of the Saudi tourism market and economic situation.

“With continued low oil prices affecting the Saudi economy and spending, tourists have generally become more price sensitive. This has affected the performance of Bahrain’s hotels in the recent past; however, it is also an opportunity for new developments to target the more price-sensitive guests, by offering mid-market resorts.”

Sona added: “A more price-sensitive market would also result in tourists cutting down on flight costs (i.e. distance), which Bahrain could benefit from due to its proximity to Saudi Arabia. Another opportunity would be to develop lifestyle hotels in Manama that can appeal to the large young population. There is a gap of these type of hotels in Manama, which are mainly targeted towards Generation Y, as they focus on the vibrancy, design, and atmosphere of the hotel rather than the typical luxury and relaxation.”

The tourism authority is determined to develop Bahrain as a natural tourism destination, which will allow it to move away from being solely dependent on Saudi Arabia and attract diverse source markets from across the globe, which will in turn boost the country’s image and create demand for hotels in the kingdom.

Bachar explains: “Hawar Island, one of our largest natural islands, which was not developed, is now being developed as an eco-destination. It has a lot of natural aspects to it, it is home to an annual bird migration. There are a lot of animals that live on the island, and Edamah is developing the area. They are looking at eco-resorts and they are targeting operators who specialise in that space.”

The Ritz-Carlton, Bahrain executive assistant manager sales and marketing Soufiane El Allam says: “Bahrain’s tourism industry is developing year-on-year, but the demand remains a constraint. The onus now lies with hotels to create the demand and to grow new source markets. We at The Ritz-Carlton, however, pledge to always create the demand and look forward to endless possibilities.”

He concludes: “Bahrain’s scenery has always been vibrant that is why more international hotels are opening in the city, but the demand is not matching the supply. For the next one year we remain bullish about the market. 2018 is looking slightly similar to 2017 but we are expecting a lot more business coming in. With BTEA opening new offices worldwide, I am certain that we will reap more benefits in the next 12 months.”