The rising star of hotels in mixed-use developments

Al Salhia Mall, Al Muthanna complex, Al Rayya Mall, Al Manshar Mall, and Marina Mall all have something in common. They are all mixed-use developments that have hotels integrated in them. Kuwait witnessed a big step forward in real estate development in 1978 with the introduction of Al Salhia mixed-use development by Al Salhia Real Estate Company. The property is not a hotel, office, or a mall, but it is a combination of all. Hotels are considered within the mixed-use development equation and are major players in the overall mix. What makes such hotel developments special and how can they be more profitable than a stand alone a hotel property?

Before we discuss hotels in mixed-use developments, lets first introduce the mixed-use development concept. A mixed-use development is a property that has more than two money generating uses associated together whether it is hotel, office, residential, retail, cultural, recreational, or even industrial. All components work together to leverage the overall investment. This kind of developments is more complex than single use developments because more components need to be combined with each other and share similar services which makes the design, supervision, permits, parking, costs, and areas more difficult to manage and control. But once all these factors are planned properly and integrated correctly, the overall development would become an attraction to a diversified demand portfolio. Many developers recommend a mix of an office building with integrated business hotel. This kind of developments is considered a smaller scale compared to a mall with other components attached and it is less risky especially if situated in the right market.

A hotel component within such development would have fewer facilities than other hotels of the same caliber. Taking the Courtyard By Marriott Kuwait City as an example, being attached to an office building, a mall, and a parking garage, the hotel offers smaller public areas, fewer Food and Beverages areas, and fewer meeting rooms. The hotel visitors are either business travelers or mall shoppers which has increased the hotels occupancy compared to other hotels with the same classification. The major benefit of this kind of developments is the sharing aspect in facilities and profits where each helps the other to make a feasible investment. For example, if Al Rayya mall was not successful, the hotel would still have business travelers visiting Al Rayya office building and the surrounding areas and leverage the overall development.

The Kempinski Hotel Mall of the Emirates in Dubai has shown a great success since its opening in 2006 with 393 rooms. The Emirates Mall is a good example of a mixed-use development that worked its activities to success, which made the developer, Majid Al Futtaim Group (MAF), expand the concept to other countries. On the other hand, Al Rai Master plan or as it is recently named The Avenues Mall was essentially planned to be a mall, Office Park, Health and Therapy Center, Theater, Mixed Use Offices, Boutique Hotel, 5 Star Hotel, Convention Center, Retail Buffer, Souks, and a Mosque. The developer, Mabanee Company, has been going through tough times with the municipality to obtain the different permits required for all project components. It is essential for both the developer and local authorities to do their homework before introducing such concepts. Developers should plan and study the local regulations properly in order for them to build a successful development. Authorities should update and improve their regulations to attract developers to add more real estate value to the country.

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.