With tight government budgets and a resulting hit to business arrivals, Kuwait is now shifting focus to the leisure market, with a string of megaprojects currently under development and renewed buoyancy in the F&B sector. But with international chains vying to enter the market and a delicate supply and demand balance, 2016 could be a testing year.
As of November 2015 Kuwait was experiencing a drop in performance on a par with that of Dubai’s 30% rate decrease. In September last year, occupancy dropped 8.5 percentage points, despite demand from the Eid Al Adha holiday, ending the month on an average 42.6%. The fall in demand had a negative impact on all remaining performance indicators with ARR and RevPAR dropping 0.7% and 17.2% respectively. Lower F&B demand compounded the softer room revenue and resulted in GOPPAR reducing 14.6% to $100.
Significantly, it seems the trend was driven by the collapse in oil prices, according to Hotstats, which means it may be a while before it is reversed.
With lower demand from government and corporate markets, a drop in MICE visitors and ongoing issues with the construction of the country’s new airport, the outlook could be challenging.
Peter Schuler general manager Symphony Style Hotel, Kuwait, comments: “The whole market including us experienced a significant drop in business which was related to various factors including the drop in oil prices, the political unrest and the crash which hit the stock market in Kuwait during that period.”
“Symphony Style Hotel, Kuwait had a good start to the year. The performance was steady and close to budget up until mid-June, which was the start of Ramadan. The start of 2015 was much better that 2014 but each year business during Ramadan does tend to dip slightly and we did experience a slight drop compared to 2014,” he continues.
In the balance
Kuwait’s supply demand balance is a delicate one, with a nominal incline in supply likely to affect rates for months.
However that hasn’t hindered the country’s pipeline, with the relatively recent opening of the 418 key Jumeirah Messilah Beach Hotel and the recently announced Grand Hyatt Kuwait, co-located with the under construction 360MALL development.
Due in 2020, Grand Hyatt Kuwait will be a 261 room property, with four F&B outlets and meeting “first class” meeting and event facilities, developed with Tamdeen Group; which is described as “an organisation aiming to reshape the urban and social landscape of Kuwait through developing innovative mixed-use projects”.
Upon announcement of the property, Peter Norman, senior vice president, acquisitions and development for Hyatt – Europe, Africa, and Middle East, said: “Kuwait is increasingly becoming a major gateway city, so we are delighted to announce this plan to bring the Grand Hyatt brand to this global business and cultural hub”
But, more importantly, Grand Hyatt Kuwait will extend beyond the hotel, as it forms part of 360 MALL’s expansion comprising the new Sheikh Jaber Al Abdullah Sabah Tennis Complex. With the expansion, 360 MALL will grow to more than 120,000sqm. This new leisure complex marks an important milestone in the growth of Kuwait’s luxury market, and Grand Hyatt guests will be able to enjoy its facilities right at their doorstep.
The Tennis Complex will have combined stadium seating for more than 7,600 people across two main arenas, each with the capacity to hold 4,000 people and 1,600 respectively, eight indoor courts with more than 500 seats and eight outdoor courts with 1,500 seats.
The development marks a point in the market where leisure becomes as important as business travel, and the necessary infrastructure to support that, become vital.
Schuler says: “In general Kuwait is a business driven destination with classic hotels, however the country does enjoy a healthy level of leisure business from the neighbouring feeder markets of Saudi Arabia, UAE and Qatar and as a luxury hotel we do have guests coming to stay for leisure from these source markets.”
According to analysts Aaron Allen and Associates, the behavior of Kuwaiti residents and nationals is driving the F&B portion of hotel operations into billion Dollar values.
In a recent report, the firm claimed: “With 2.2 million foreigners living in Kuwait and a market of $3.5 billion spent annually at restaurants, savvy restaurateurs from around the world are flocking to the country.”
There are currently 4,783 restaurants in Kuwait, which is a huge number by any count, but compare to a market like Dubai, which has a little over 5,000 restaurants and a total population of 2.1 million, with an additional 13.2m tourists, and the disparity becomes glaring.
In Kuwait there is one F&B outlet for every 230 people, however this is dominated by fast food chains like IHOP, Chili’s KFC and Burger King, which in turn has driven obesity rates to some of the highest in the region.
That doesn’t stop new chains trying to enter the market, vying for a share of the increased spending power GDP rises are set to create, added to the 1million predicted visitors this year entering the country.
Where this leaves hotels in future is anybody’s guess. While MICE and business tourism drive high spend in high end restaurants, and also contribute to the lion’s share of banqueting and functions, they do not provide year round stability in demand. What once did – government spending and oil companies – are now facing a monetary crisis of their own.
Schuler predicts: “2016 looks very challenging because of the drop in MICE business but the most influencing factor will be the drop in oil prices as Kuwait is known for its generous government spending yet we still believe that the corporate and MICE segments connected to the new projects springing up will help drive business.
In his recent study of the market for Hodema Consulting Services, consultant Toufic Akl, predicted another potential death knell for hotel F&B: “Coming up next in the market is the concept of F&B clusters, which have recently started appearing in the Middle East, following their popularity in the US. A restaurant cluster (or complex) is a geographic concentration of adjacent F&B outlets holding at least three F&B units within a short walking distance from each other, each having a distinct design, menu offer and seating area, as opposed to food courts”
Infrastructure and future
Kuwait is committing to serious investments in the name of economic diversification, which may even go some way to reversing the trends witnessed of late. With the diversification package estimated to sit somewhere around $110bn, it includes new roads, bridges, hospitals, and power stations, along with non-infrastructure developments near the capital.
The new “tourism mecca” will be Madinat al Hareer, City of Silk, featuring aviation, sport and MICE complexes, as well as a port, opposite the existing Kuwait City.
The mega project will cover a proposed 250 km2, and is estimated to cost up to $100bn although little has been written of it over recent months.
Most of the plans fall under Kuwait’s 2035 vision, which like many other GCC economic plans aims to “transform the country”, predominantly into a finance and trade hub.
While the hospitality industry itself will play a relatively small role in achieving the GDP growth targets which fall under this vision, it will be vital to supporting the industries that will; for corporate events, private and government delegations and, of course, accommodation.
With oil prices and government budgets still in flux at the time of press, how this will play out in reality is anybody’s guess. But should a return to former economic stability be achieved, and political and national security sustained, lavish hospitality and high occupancy rates may well be coming back over the course of 2016.
Should business investment also see a bounce back, the usual pattern a market would follow under this scenario would be for owners to invest heavily in extended stay, however in light of the average length of stay remaining stable, Shuler isn’t convinced.
“The average length of stay in Kuwait is in the range of three nights. Some corporate clients prefer to use hotels for long term stays but this represents a small chunk of the business because furnished apartments are more attractive for such guests due to cost,” he shares.
When it comes to supply on the other hand, he does expect significant growth.
Commenting on the delicate supply and demand balance of the country, he adds: “There are a number of international chains trying to enter the Kuwaiti market and the expected growth in supply will certainly put pressure on the newcomers and existing players, making a competitive market even more so. Symphony Style Hotel, Kuwait is a luxury landmark hotel that is uniquely designed with upgraded services and facilities and because of this visitors and residents in Kuwait want to stay with us.”
As like other GCC nations, Kuwait aims to wean itself of a $50bn a year oil revenue stream, while also increasing GDP 5% over the short to mid-term. As the oil industry has already begun to take a hit, it must now achieve this on tighter budgets and with many more challenges to overcome.