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Wed 24 Apr 2019 12:14 PM

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Bahrain's hotels face challenging future as supply surges, rates drop

The hospitality sector has already seen a fall in occupancy rates and revenue levels

Bahrain's hotels face challenging future as supply surges, rates drop
Bahrain currently has around 13,000 rooms (including 11,000 hotel rooms and 2,000 serviced apartments), with an additional 3,300 rooms set to come on stream by the end of 2022, representing a 25 percent increase in supply over the next three years, Knight Frank said.

Bahrain’s hospitality sector is facing a challenging future as a 25 percent surge in supply of hotel rooms over the next three years is set to put increased pressure on already decreasing occupancy rates and revenue levels, according to a new industry report.

“The short to medium term outlook for the market remains subdued as a result of additional supply scheduled to enter the market and the implementation of VAT which is likely to create further pressure on KPIs,” real estate consultancy firm Knight Frank said in a report released this week.

The island state currently has around 13,000 rooms (including 11,000 hotel rooms and 2,000 serviced apartments), with an additional 3,300 rooms set to come on stream by the end of 2022, representing a 25 percent increase in supply over the next three years, Knight Frank said.

Four- and five-star hotels represent 40 percent and 39 percent of the current market and much of the new supply will target the top end of the market.

The increased supply comes at a time when the hospitality sector is already under pressure.

“Over recent years we have seen average occupancy decline from 56 percent in 2014 to 52 percent in 2018. Over the same period, ADR (average daily rates) and RevPAR (revenue per available room) decreased by 23 percent and 28 percent respectively,” the Knight Frank report said.

Another factor likely to impact Bahrain’s market growth is the development of competition from nearby Saudi Arabia.

“Entertainment is an up and coming, emerging sector,” Khaled Tash, the deputy governor for marketing and communication of the Saudi Arabian General Investment Authority (SAGIA), told Arabian Business on the sidelines of the Saudi International golf tournament in February.

“It’s an interesting sector, because it’s SMEs that add the most value in this sector, and in the last year we’ve seen 500 companies in entertainment alone be established,” he added.

The kingdom’s Public Investment Fund has said that its combined entertainment projects – which will eventually be able to cater to more than 50 million visitors each year – will provide 22,000 direct jobs and contribute $2.13 billion to Saudi GDP by 2030.

“More so, in the medium to long-term we expect demand will be further impacted as entertainment led destinations are delivered in Saudi Arabia,” Knight Frank said. The consultancy firm also warned that “as more quality internationally branded properties enter the market, we expect locally operated and less centrally located properties will ultimately lose market share”.

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