International and regional operators are seeking to cash in on a boom in Saudi Arabia's budget hotel market, according to experts.
Between now and 2014, around 1690 budget hotel rooms are expected to come online in Saudi Arabia, research by hospitality consultancy Christie + Co revealed.
This figure is based on the signed hotel pipelines of operators including Accor, Golden Tulip, HMH, IHG, Marriott and Rotana, among others. Taking into account the emergence of local Saudi Arabian management companies, the figure is expected to be higher in reality.
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A quarter (25%) of Saudi Arabia’s hotel supply is currently in the three-star budget market — according to Christie + Co’s latest data.
“At the moment, 70% of the pipeline is still upscale,” said Philippe Baretaud, vice president, head of development for Europe, the Middle East and Africa, Accor.
Darroch Crawford, managing director, Premier Inn Hotels MEA added: “It’s an anomaly in the Saudi Arabian market and I think it’s going to change rapidly over the next three to four years".
He said the budget market was a lucrative one for hoteliers: “This sector offers exceptional returns on investment and the region is starting to realise this.
“In the last year or two, more people are identifying the success of budget brands and realising the returns are exceptional. The whole project cost is considerably less – from building to operating. It’s a very efficient business model and those people who put return on investments ahead of ego are getting returns very fast.”
Viability director Guy Wilkinson explained: “It’s been proven in several markets that the level of profitability is opposite to the number of stars. You have long-term value creation in a five-star product, where as in economy you’re looking for direct return on investment.
“ROI in the economy sector is exceptional – we have some running at 70% GOPPAR," Wilkinson added.
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