In Bahrain, Serviced Apartments Increasingly Popular
The hospitality market in Bahrain has suffered greatly over the last three years, with business travel in particular, suffering a sharp downturn. However with a more settled domestic political scene and an improvement in the global economic outlook, the tide does appear to be turning. This industry, which is primarily driven by regional GCC-linked business travel and Saudi tourism, via the King Fahad Causeway, is also buoyed by the annual Formula 1 Grand Prix event which adds an estimated US$700 million to the economy, with much of this total being funnelled into the hospitality sector. The unprecedented domestic tensions led to the cancellation of the F1 grand prix race in 2011.
The local unrest heavily impacted the performance of the country's hospitality sector, which is home to just over 9,000 hotel rooms, with approximately 25 percent of these in the five star range. There are an additional 3,400 serviced apartments that further bolster the kingdom's hospitality sector. Room rate and health club membership rate reductions, free breakfasts and "children go free" policies were introduced by a number of operators to entice domestic and regional travellers; however, this had a limited impact, with occupancy levels dropping to record low levels at the height of the difficulties. Official occupancy rates are unavailable, but our calculations show average occupancy levels of 45 percent across all the hotel classes in 2011/12, with an all-time low of 35 percent during the peak of the tensions; this compares to an occupancy level of 65 percent during 2010. Current hotel occupancy stands at approximately 50 percent, suggesting a gradual turn around in the fortunes of the sector.
Hotel operators are taking a longer term view of the market and this is evidenced by the number of existing and planned schemes. Thirty three-five star hotels, due to complete by 2015/16 are currently under review for approval or in a state of construction and are expected to add almost 8,000 additional hotel rooms and furnished apartments; a 65 percent increase to the current supply. That said, we anticipate a figure of closer to 2,000 rooms to be delivered to market given the delays and uncertainty introduced into business plan equations over the past three years. The majority of this new supply will be located in the Seef area and other reclaimed large scale developments to the north and south of Bahrain.
Unlike the hotel segment, serviced apartments, which represents 30 percent of the total size of the hospitality sector, spread across 84 properties, has fared better, particularly the branded international properties. Approximately 30 percent of the current stock of serviced apartments is classified as catering towards the international market. This includes brands such as The Elite Hospitality Group, Diplomat Residence, The K hotel, One Juffair, Hani Suites, Al Raya Suites, Ramee Suites and Residence Inn. Occupancy levels at these less internationally recognised properties stands at close to 50 percent. Fraser Suites, the Somerset Al Fateh and the Marriott Executive, which constitute the larger global brands, supply the market with 478 rooms, representing approximately 14 percent of total stock. Occupancy for these more global operators stands at an average of 70 percent, although the Marriott offerings and the Somerset are currently running at 60 percent; Fraser Suites has been reporting occupancy of close to 100 percent in recent months.
With serviced apartments out performing the traditional hotel room segment, we have noted an upturn in the use of the term 'serviced apartment' across Bahrain. Operators of different properties are now applying the term to existing hotel room products, instead of creating a genuinely different offering, in an attempt to capitalize on the demand for this more lucrative market segment. Despite this, there is still a legitimate gap in the market for global operators to fill, which is where we expect to see an increased level of international interest in the short to medium term. Furthermore, reasonably priced, good quality, internationally branded apartment hotel stock is still relatively undersupplied.
Serviced apartments are generally less expensive than equivalent hotel rooms globally; however current stock is perceived to be over priced in relation to quality. Fraser Suites is so far the only operator who appears to have struck the correct balance between product, price, promotion and location, according to our research. This leaves the door open to other global serviced apartment brands to enter the market and capture a larger proportion of the sector and by introducing a greater level of competition and best practice, visitors to the Bahrain stand to benefit the most. Steve Morgan is head of the Middle East for Cluttons, the international property consultancy.