Over the past three years, Bahrain’s hospitality industry has suffered significantly, with business travel experiencing a particularly sharp decline. The tide does seem to be turning, though, with a more stable domestic political environment and an improvement in the outlook for the global economy. This industry, which is primarily supported by regional business travel connected to the GCC and Saudi tourism via the King Fahad Causeway, is also boosted by the annual Formula 1 Grand Prix event, which boosts the economy by an estimated US$700 million, with the majority of this sum going to the hospitality industry. The 2011 F1 Grand Prix was canceled as a result of the unprecedented domestic unrest.
There are just over 9,000 hotel rooms in the nation, with about 25% of them being five-star properties, and the local unrest had a significant impact on how well the industry performed. The hospitality industry in the kingdom is strengthened by the addition of 3,400 additional serviced apartments. Many operators tried to entice domestic and regional travelers with discounts on room rates and health club memberships, free breakfasts, and “kids stay free” policies, but these measures had little success, with occupancy levels falling to record low levels at the height of the difficulties. Although official occupancy rates are not available, our calculations show average occupancy levels of 45 percent across all hotel classes in 2011–12, with an all-time low of 35 percent during the height of the tensions; this contrasts with an occupancy level of 65 per cent in 2010. Hotel occupancy is currently hovering around 50%, which points to a gradual improvement in the industry’s fortunes.
The number of ongoing and upcoming projects shows that hotel operators are viewing the market more long-term. Almost 8,000 more hotel rooms and furnished apartments, or a 65 per cent increase in the current supply, are anticipated from 33 five-star hotels that are currently being reviewed for approval or in the process of construction. That said, given the delays and uncertainty that have been incorporated into business plan equations over the past three years, we anticipate a number closer to 2,000 rooms to be delivered to market. The Seef area and other reclaimed large-scale developments to the north and south of Bahrain will house the majority of this new supply.
Serviced apartments, which account for 30% of the hospitality industry’s overall size and are spread across 84 properties, have fared better than the hotel segment, especially the branded international properties. Currently available serviced apartment inventory is classified as serving the international market to the tune of 30%. Brands like The Elite Hospitality Group, Diplomat Residence, The K Hotel, One Juffair, Hani Suites, Al Raya Suites, Ramee Suites, and Residence Inn are among those that fall under this category. At these less well-known properties around the world, occupancy rates are close to 50%. The three larger international brands—Fraser Suites, Somerset Al Fateh, and Marriott Executive—provide the market with 478 rooms or about 14% of the total supply. The occupancy rate for these more international operators is currently at 70%, though it is currently 60% for the Somerset and Marriott offerings; Fraser Suites has recently been reporting occupancy rates of close to 100%.
We have noticed a rise in the use of the term “serviced apartment” throughout Bahrain as serviced apartments outperform the traditional hotel room segment. To capitalize on the demand for this more lucrative market niche, operators of various properties are now adding the term to already-existing hotel room products rather than developing a genuinely new offering. Despite this, there is still a real need in the market for global operators to fill, and in the short to medium term, we anticipate an increase in the level of interest from abroad. Additionally, there is still a dearth of reasonably priced, high-quality, internationally recognized apartment hotel stock.
Serviced apartments typically cost less than comparable hotel rooms around the world, but the current inventory is thought to be overpriced for the quality. According to our research, Fraser Suites is the only operator who so far seems to have found the sweet spot for product, price, promotion, and location. This opens the door for additional international serviced apartment brands to enter the market and take up more of the market share. By fostering more competition and best practices, visitors to Bahrain stand to gain the most.