Kuwait Financial Centre “Markaz” recently published the executive summary of their GCC Hospitality report. In this research note, Markaz analyses the Hospitality Industry’s supply-demand dynamics, estimates the current and potential market size, discusses the various investment opportunities while analyzing the major players involved. The report also discusses the key drivers of growth, identifies existing and emerging trends and illustrates the challenges in hospitality industry.
The estimated room revenue for the year 2011 stands at US $ 17.83 Bn which is expected to reach US $ 24.92 Bn by 2016 at a CAGR of 6.93. The average occupancy rate for GCC is estimated to be 68% for the year 2012 and expected to reach an average occupancy of 73% by 2016.
Figure : GCC Hospitality Industry Size (in USD billions)
Source: Markaz Research
The GCC is home to high percentage of luxury hotels and its pipeline is also dominated by many high profile projects. As such, the Average Daily Rent (ADR) for the year 2012 is estimated at US$ 204 which is relatively on the higher side in comparison with other regions. While issues like political unrest and oversupply affected the OR and ADR in the past, the forecast for both these metrics is positive with increasing business as well as leisure tourist demand.
There are several growth factors driving the hospitality industry in the GCC but international tourism has to be the most significant one. The GCC region is home to some of the finest hotels in the world and people visit the region for niche tourism offerings such as cultural, religious tourism as well as sports and event based tourism. The region is increasingly seen as a MICE destination (Meetings, Incentives, Conferencing and Exhibition) while cities like Mecca and Medina are visited by religious pilgrims across the world. The improving economic condition, government’s support to the private sector, the strategic location of the GCC as an ideal transit point along with the better reach from the airline industry fosters well for the hospitality industry.
Skewed supply of hotel rooms towards upscale and luxury segment is a key trend in the hotel industry. These hotels provide services including spa and gymnasium facilities for which the demand is on the rise. Also, some of the big international hotel chains are increasingly showing willingness to form tie-ups with local players and the latter are being recognized for their remarkable and novel services. Service apartments have grown in the GCC region with the rise of business travellers and expatriates who look for longer stays at reasonable prices.
The possibility of a negative shift in the socio-economic and political instability of countries in the Middle East could impact the revenues of the region’s hospitality industry. Other issues like oversupply in countries like UAE, Qatar and some parts of Saudi Arabia affected the OR and ADR values in the region. The high employee turnover and the labor laws in the region are a cause of concern for the hoteliers. The rising cost of construction coupled with stringent lending policies is some of the other key challenges in the industry.
Kuwait Financial Centre K.P.S.C. “Markaz”, established in 1974 with total assets under management of over KD 888 million (USD 3.11 Bn) as of March 31st, 2013, is the leading and award winning asset management and investment banking institution in the Arabian Gulf Region. Markaz is listed on the Kuwait Stock Exchange (KSE) since 1997 under ticker Markaz.