New offerings boost Bahrain's tourism sector

Benefitting from a diverse portfolio of tourist draws including UNESCO World Heritage sites, the popular and growing annual Formula 1 Gulf Air Bahrain Grand Prix event, and a variety of high-end retail developments and hotels, Bahrain’s tourism sector has been a notable economic success story in recent years. Visitor numbers, revenues and investments have been on a steady upwards trajectory since 2016 despite challenging macroeconomic conditions, and the authorities have intensified efforts to develop the sector, channelling billions of dollars into new infrastructure, including large-scale mixed-use developments, an expansive airport upgrade and a planned new convention centre.

Although a recent surge of new hotel rooms has weighed on occupancy and room rates, the sector remains well positioned to continue on a strong growth path in 2019, with demand set to rise as the kingdom ramps up its international marketing activities in high-potential regional and European markets.

Structure & Oversight

Bahrain’s tourism sector is overseen by several government entities including the Ministry of Industry, Commerce and Tourism (MICT), which formulates policy and legislation and leads development of tourism projects, as well as the Bahrain Tourism and Exhibitions Authority (BTEA), which was created in 2015 and operates under the MICT’s umbrella. The BTEA acts as the industry regulator, with a mandate to establish and manage convention centres either directly or through special-purpose companies established in partnership with the authority; attract and organise regional and international conventions and trade exhibitions; and grant licences for conventions and trade exhibitions. The BTEA also operates under a broader mandate aimed at boosting tourism’s macroeconomic contribution, in line with the Bahrain Economic Vision 2030, a long-term development and diversification agenda, in addition to a $32bn complementary infrastructure investment programme which emphasises six key sectors, namely, tourism and hospitality, retail, real estate, finance and financial technology, infrastructure, and oil and gas services.

The Bahrain Economic Development Board (EDB) is another important actor in the kingdom’s tourism industry, collaborating with the BTEA to promote the sector to foreign investors, as well as publishing statistical data about investment in the sector. The EDB focuses on creating new tourism products and services, while the BTEA promotes Bahrain across an expanding portfolio of source markets. The MICT’s Nationality, Passport and Residence Affairs Directorate, meanwhile, is the body responsible for collecting data regarding visitor arrivals to the kingdom.

GDP Contribution

In April 2018 Ali Ghunam Murtaza, director of real estate, tourism, and leisure business development at the EDB, told local media that tourism’s contribution to GDP was set to jump from 6.3% in 2017 to 20% over the longer term, as a host of new infrastructure projects, including mixed-use real estate developments and an upgrade of the Bahrain International Airport (BIA), come on-line. The EDB reports that tourism’s contribution to GDP was just 3.6% in 2016.

The EDB has also targeted boosting tourism arrivals to 15m annually by 2020, which would constitute an 18.1% increase on 2017’s 12.7m, with investment in the sector reaching $13bn as of April 2018 (see analysis). Bahrain’s national carrier, Gulf Air, has also invested close to $7.2bn to expand its fleet (see Transport chapter) and modernise its brand, moving to sign codeshare agreements with Turkish Airlines, Aegean Airlines and Oman Air in 2017. The expansion of BIA, meanwhile, was nearly 60% complete as of April 2018, with a soft opening expected to take place in 2019.

Employment

Employment in the sector has risen steadily in recent years, and the World Travel & Tourism Council (WTTC) reports that Bahrain’s tourism industry directly supported 24,500 jobs, or 4% of total employment, in 2017, up by 8.9% from 22,500 jobs in 2016. The sector’s total contribution to employment, including jobs indirectly supported by the industry, was 58,000 positions, or 9.4% of total employment. The WTTC projects direct employment in the industry will increase by 3.2% in 2018 to hit 25,284, and rise by an average of 1.8% annually to reach 30,000 jobs in 2028, although this would be a lower share of total employment, at 3.9%. Total indirect employment is forecast to rise by 3.9% in 2018 to hit 60,500 jobs, and rise by 2.6% annually to reach 78,000 jobs, or 10.1% of total employment, in 2028.

Policy & Branding

In a bid to raise Bahrain’s profile as a regional and international tourism destination, the BTEA launched a new tourism brand platform called “Ours. Yours. Bahrain” at the Arabian Travel Market event in April 2016. This strategy emphasises Bahrain’s status as both a preferred tourist destination and a high-potential tourism investment destination.

In its 2016 annual report, the EDB wrote that while it is “an invitation to tourists to experience the warm and welcoming attitude of Bahrain, the brand equally represents a whole new approach to engaging potential investors”, highlighting the bespoke service potential investors can expect to receive when doing business with the board and other authorities, as well as the commercial advantages Bahrain offers.

Specific goals include supporting investment in tourism infrastructure, retaining and increasing tourist arrivals from Saudi Arabia and the GCC region, promoting Bahrain as an international tourism destination and unifying Bahrain’s tourism and hospitality sectors under a single platform. The platform also seeks to increase foreign direct investment (FDI) inflows into the tourism sector and connect with a target audience that includes GCC nationals and expatriates, event organisers, Chinese and Indian tourists, and other international markets such as Europe and Russia. The government has also recently adjusted its visa policy in a bid to boost arrivals. In December 2017 Gulf Air partnered with VFS Global, a major international visa service provider, to offer online visas to passengers travelling to Bahrain from anywhere within its international network. Between October 2014 and May 2016 the authorities also revised the kingdom’s entry visa policy, moving to cut single-entry, two-week visa fees from BD25 ($66.20) to BD5 ($13.20). Entry regulations for a host of nationalities have also been relaxed, with the EDB reporting that the kingdom now offers visas on arrival to passport holders of 67 countries and e-visa services to those of a further 114.

Visitor Numbers

These strategies have paid off, with the industry on a strong recent growth trajectory. The BTEA reports that total international arrivals to the country rose by 3.4% in 2017 to hit 12.7m, up from 12.3m in 2016, while total inbound tourism flows rose by 11.9% in 2017 to 11.4m, up from 10.2m in 2016. Same-day trips without an overnight stay accounted for 62% of total inbound tourists in 2017, up from 61% in 2016, although the BTEA recorded 12.3m tourist nights in 2017, up 12.3% from 2016’s 11m. The average length of stay also improved to 2.82 nights in 2017, up from 2.75 nights in 2016. Tourism expenditure recorded a moderate increase in 2017, hitting BD1.6bn ($4.2bn), up from BD1.5bn ($4bn) in 2016, although average expenditure per visitor dropped somewhat from BD88.1 ($233) per day, to BD85.2 ($225) in 2017.

Saudi Arabia continued to account for the majority of tourist arrivals in 2017, with the total rising by 10.9% to 9.92m in 2017, while other GCC countries’ visitor numbers rose by 29.5% to hit 1.07m. In a promising sign for new tourism market development, European arrivals also surged in 2017, jumping by 25.8% to 203,848, although visitors from the Middle East and Asia fell by 32% and 32.8%, respectively, to 36,782 and 75,008.

Recent Growth

The sector continued on an upwards trajectory in 2018, with the BTEA reporting that total arrivals rose by 5.8% in the first half of 2018 to 5.9m. The majority of these, a total of 5.29m, travelled to the country via the King Fahad Causeway, compared to 570,074 arrivals via BIA and 49,864 coming into the country through the Khalifa bin Salman Port.

The large majority of arrivals, some 43.4%, visited for tourism or leisure purposes. They were followed by shoppers (35.2%), people visiting family and friends (9.2%), business travellers (6.8%) and medical tourists (2.4%). The BTEA reports that overland tourists accounted for 5m tourist nights in the first half of 2018, as compared to 1.9m nights spent by air passengers. Tourists spent an average of BD76 ($201) per day in the first half of 2018, with total visitor expenditure standing at BD812.4m ($2.2bn).

The growing number of foreign visitors also impacts the market for high-end goods. According to Mohammed Jaffar, chairman of Asia Jewellers, “Attracting more foreign tourists will have positive effects on Bahrain’s luxury retail market. While the majority of our customers are locals, the potential to increase sales by tapping in to the growing tourist market remains promising.”

The Formula 1 Gulf Air Bahrain Grand Prix, a race hosted in the kingdom since 2004, is a major tourist draw and important revenue generator. It brings in an estimated $500m annually, and significantly boosts hospitality accommodation rates for the duration of the event, with the BTEA reporting that the weekend of the event in 2018 saw more than 23,000 hotel room bookings, with five-star occupancy rates at close to 90% during the event, against less than 50% in 2017.

FDI Rising

FDI in tourism surged during the first six months of 2018, after a moderate slowdown in 2017. The EDB reports that FDI inflows into accommodation and food services fell from BD57.32m ($151.9m) in 2016 to BD46.66m ($123.6) in 2017, while investment in arts, entertainment and recreation remained flat at BD360,000 ($954,00) in both 2016 and 2017. Investment in transportation and storage also moderated in 2017, hitting BD12.52m ($33.2m) against BD12.54m ($33.2m) in 2016, according to EDB data.

Investment has soared in the months since, however, with the EDB reporting that tourism and leisure FDI in Bahrain hit a total of $314m during the first nine months of 2018 alone. FDI in the retail sector has also recorded strong recent growth, and the EDB reported that inflows to the wholesale and retail trade sector surged by 282.7% in 2017 to hit BD312.91m ($829.1m), up from BD81.77m ($216.7m) in 2016.

Retail

The rising prevalence and popularity of mixeduse developments linking hotels to retail should help Bahrain’s retail sector maintain a growth trajectory that has remained resilient despite a recent macroeconomic slowdown. Growth will also be supported by a number of super-regional and high-end waterfront retail projects slated to come on-line in the near and mid-term, significantly augmenting retail supply in Bahrain.

In its “H1 2018 Real Estate Market Update”, the CBRE reported that retail development in Bahrain has accelerated over the past decade, with the rising popularity of both destination and community shopping malls supporting steady investment inflows. As is the case across the rest of the Gulf, bricks-and-mortar developments are increasingly geared towards experienceand leisure-based retail, with food and beverage and entertainment developments playing an important role in attracting new footfall and demand. According to the CBRE, demand is also driven by both Bahraini nationals and high visitor numbers from Saudi Arabia, with occupancy rates at established malls and shopping centres averaging 82% in 2017.

Resilience & Expansion

Although consumer purchasing power and shopping budgets have taken a hit against a subdued macroeconomic backdrop, the CBRE reported that rents remained stable from 2015 to the first half of 2018, averaging BD15.5 ($41.07) per sq metre per month across all categories, and ranging from BD3.5 ($9.27) for community entertainment centres to BD28 ($74.19) per sq metre per month for stores in super-regional malls. New supply has also been steady. In addition to the $159m Avenues Mall, which opened in 2017, the CBRE reports that upcoming entrants in 2018 include the Landmark Group’s Oasis Mall in Juffair, offering 54,000 sq metres of gross leasable area (GLA), as well as the Atrium and Kingdom Malls in Janabiya, both located along the Sheikh Isa bin Salman Highway. Waterfront developments such as The Avenues are becoming increasingly popular, with the CBRE reporting that the upcoming Mall of Dilmunia and Marassi Galleria will add 47,000 sq metres and 116,000 sq metres of waterfront GLA, respectively, when they open in 2020 in Muharraq. CBRE reports that total retail supply is to rise from 990,000 sq metres as of June 2018, to 1.6m sq metres by 2022, with 159,963 sq metres coming on-line in the second half of 2018 alone.

Hotels

A significant amount of recent tourism investment has been channelled into new hotel developments, with the EDB reporting that major upcoming hotel projects include The Address, a five-star hotel set to be located within the mixed-use development Marassi Al Bahrain and connected to Marassi Galleria, a shopping, leisure and entertainment development. Also planned for Marassi Al Bahrain is the 157-room Vida Marassi Al Bahrain, Vida Hotel and Resorts’ first property located outside of the UAE.

Other future offerings will include the kingdom’s first Shangri-La Hotel, offering 250 hotel rooms, 150 luxury apartments and 21 waterfront villages, with completion scheduled in 2022, a luxury hotel at the Al Sahel five-star resort, under development by Dubai’s Jumeirah Group, and the $35m Juffair Square complex, under development by Bahrain’s Royal Ambassador property and facility management firm.

New hotel supply had already surged in 2017, with a number of high-end hospitality projects coming on-line, including Wyndham Garden Manama, Wyndham Grand and Ibis Styles. Wyndham Garden Manama is the largest Wyndham Garden property in the world, with 441 keys. In December 2017 Dubai Holding and Sevens Holding also signed an agreement with Jumeirah Group to manage the 167-room Jumeirah Royal Saray Bahrain hotel, making Jumeirah the UAE’s first luxury hospitality firm to begin operations in Bahrain. The hotel opened for operations in February 2018. Other openings in the first quarter of 2018 included the Grove Resort Bahrain and the Park Regis Lotus Hotel.

Hotel Occupancy

Hotels accounted for the majority of tourist accommodation in the first half of 2018 at 73%, followed by furnished apartments (14%), friends and relatives (10%), owned apartments (2%) and rented apartments (1%). However, a surge of new keys amidst a more muted economic backdrop has raised concerns about sustainability and oversupply. “Our supply over the past couple years has really expanded. There is a lot of product that has come to the market, and while our demand has increased, it has not gone up as quickly as supply. However, I think that over the next couple years we will see it even out as demand continues to grow,” Jerad Bachar, executive director of investment development in tourism, real estate, education and health care at the EDB, told OBG.

With supply rising faster than demand, occupancy rates are somewhat subdued, and the BTEA reports that the average occupancy rate at a four-star hotel was 50% in the first half of 2018, against 48% for fivestar hotels. The authority further reports average daily room rates were BD35.9 ($95.12) for four-star hotels and BD72.6 ($19.2) for five-star hotels, while revenue per available room was BD14.4 ($38.16) for four-star hotels and BD34.6 ($91.68) for five-star hotels. Some stakeholders argue that unregulated apartment rentals have kept rates artificially low, with the growing popularity of sites like Airbnb exacerbating problems of market oversupply. “In the current scenario, where the GCC is in an economic slowdown, it is only natural that people will go for cheaper, quality accommodation, so we are seeing a lot of movement towards unregulated apartments. In our case, we have seen an upward trend in our occupancies this year, but the rates have really dropped over the last two years; our overall average rates in four-star hotels have dropped by 20% to 22% since 2016,” Sarosh Aibara, COO of Elite Hospitality Group Bahrain, told OBG.

Culture & Heritage

As one aspect of the strategy to boost visitor arrivals, investment and tourism’s GDP contribution, the authorities are increasingly targeting new markets in Asia and Europe. A particular focus is to emphasise Bahrain’s status as a prime cultural and heritage tourism destination. “Our positioning is centred around an authentic Arabic experience that is based on 4000 years of trade, culture and heritage. When you come to Bahrain and engage with Bahrainis, you are immersed in the culture,” Bachar told OBG.

Bahrain’s status as a cultural and heritage tourism destination also benefits from its two UNESCO World Heritage sites: Qal’at al-Bahrain, or the Bahrain Fort, which was designated in 2007; and the Bahrain Pearling Trail, which followed in 2012.

UNESCO Offerings

The Bahrain Fort is an important historical site spanning a 12-metre-high “archaeological tell”, an artificial hill formed over generations of human occupation, a sea tower located north-west of the tell, a 16-ha sea channel through the reef near the sea tower, and some palm groves. Located within Bahrain’s Northern Governorate, 5.5 km west of Manama, the site is described by UNESCO as “an exceptional example of more or less unbroken continuity of occupation over a period of 4500 years”. An important component of the kingdom’s heritage tourism portfolio, the site’s tell is the largest known in Bahrain and considered unique within the entire region of Eastern Arabia. The Bahrain Pearling Trail, meanwhile, comprises 17 buildings in Muharraq, as well as three offshore oyster beds, the Qal’at Bu Mahir fortress on Muharraq Island and part of the seashore. Buildings include merchant residences, shops, storehouses and a mosque, with the site standing as the “last remaining complete example of the cultural tradition of pearling” from the 2nd century to the 1930s, according to UNESCO. Tourists in Bahrain can also participate in pearl diving tours, an experience that is unique to the country. “There is nowhere else you can come and do pearl diving, where you can actually go to the oyster beds, dive and bring them to the surface. People do find pearls, and they are yours to keep,” Bachar told OBG.Beach and marine tourism also offer a high-potential avenue for investors. “The most pressing need for the tourism sector is the development of more beaches, but the BTEA is actively addressing this issue for the first time, and we are expecting to see some substantial progress in the next few months and years,” Essa Faqeeh, CEO of Al Areen Investment, told OBG.

MICE & Medical 

With heritage, retail and F1 tourism poised to maintain a steady near and mid-term growth path, Bahrain is increasingly looking to exploit new tourism channels, including meetings, incentives, conferences and exhibitions (MICE) tourism opportunities, as well as medical tourism.

In the medical tourism segment, a new inspection and accreditation framework launched by the National Health Regulatory Authority (see Health chapter) could result in the kingdom becoming an important regional destination for tourists seeking specialty care. “Bahrain has promising potential for health tourism, and there are still a good number of opportunities that have not yet seen enough investment to meet the demand,” Faqeeh told OBG. Plans are also under way to boost MICE tourism growth, with the EDB and the BTEA moving to establish a new convention centre in partnership with the private sector. In December 2017 the MICT announced that tenders for the construction of a new convention centre would open in 2018. The planned facility will offer some 100,000 sq metres of space and capacity for more than 4000 people. It will comprise 15,000 sq metres of convention space, 10 exhibition halls, and dedicated retail and events areas, with construction being expected to finalise within 24 months of the awarding of a contract.

Outlook

Bahrain’s tourism and retail sectors remain important macroeconomic growth drivers and notable recent success stories. Both have been resilient in the face of challenging macroeconomic conditions, with growth set to benefit from a surge of near-term investment bolstering the long-term outlook.

Although it seems likely that hotel oversupply and the rising popularity of unregulated apartment rentals will continue to challenge operators in 2019, the outlook is bright, with the sector buoyed by new infrastructure investment, a multifaceted portfolio of tourist offerings and a host of new retail, hotel and mixed-use projects slated to come on-line over the coming several years.