The Business of Business Hotels

A shift in the category of hotels being developed in Kuwait was noticed in recent years. A Four Points by Sheraton, an Ibis Hotel, and a Courtyard Hotels started to show since 2003. Developers have noticed a niche market that has a potential of attracting the business type of demand. Two questions to be answered are; Why are these so called business and budget hotels categorized differently? and why have we not seen them before?

Business Hotels usually have higher room efficiency ratio to supporting facilities. Room sizes usually range between 24 square meters to 32 square meters with lower staff and F&B facilities. They usually target business travelers looking for an affordable yet convenient place to stay for one to three days business trip. Hotel Brand that offer such concept are: Park Inn, Novotel, Courtyard, and Traders Hotels. On the other hand, Budget Hotels usually cater for transit traveler requiring low cost places to sleep at night with the minimum services and F&B facilities. Room sizes range between 18 square meters to 24 square meters. Brands such as Ibis Hotel, Hyatt Place, and Staybridge Suites are of this type along with many other brands that are mostly available in the international market.

Market studies have shown a gap in this category of hotels in our region. Most of the available hotels fall under the four to five-star category. Because of changing travelers’ habits and the increased business travel to the GCC countries, the need for such hotels has increased dramatically. Dubai has taken the first steps introducing such concepts to the region by having the Four Points by Sheraton, Traders Hotel, Ibis Hotel, Novotel Hotel, Easy Hotel, and more to serve the increasing business demand.

There are major challenges that face hoteliers from developing such properties. First, a Business Hotel needs to be located near business centers which are usually located in downtown areas and central locations. This results in a higher land value more building restrictions and thus makes such notion unfeasible. Second, construction costs have been increasing to new highs, up until October 2008, which also made the balance sheets unbalanced. This is because of the fact that mid market hotels have lower revenues compared to luxury hotels because of the cheaper rooms and limited F&B facilities. So if you have high land value and high construction, your return on investment would be unreasonably long. Third, local business demand is not yet used to such concepts where many look for bigger room sizes, facilities, and prestigous brand names to stay in even for a night or two. In Kuwait, in order to overcome these challenges, developers have mixed this hotel concept with other activities; such as the Courtyard Kuwait City which is attached to AlRayya Mall. By doing so, developers would utilize the adjacent activity whether it is retail or office as a demand generator for the hotel. Moreover, they would leverage their investment by diversifying their income portfolio.

Kuwait is still considered a closed market by all aspects of regulation, price, supply, and demand. We hope to see more attractions, more businesses, and more of everything that drives our hotel performance indicators to a new era. While being closed to ourselves, other GCC countries are getting more aware about the right hotel concept they are in need for. Countries such as UAE, Bahrain, Saudi Arabia are witnessing massive hotel developments to satisfy the increasing demand from local and international visitors.

By Ali Boshehry

Ali Boshehry has an extensive experience in dealing with financial data in many different fields that enabled him to be a dynamic part of the Global Markets Monitor team.