COUNTRY FOCUS: Saudi Arabia

Hotels in Saudi Arabia have performed well in 2012, with a bright outlook for 2013 in spite of additional supply. Experts predict the challenge lies in staffing the hotels rather than filling them

The outlook for Saudi Arabia going into 2013 is a largely positive one based on a strong performance this year, according to consultants and hoteliers alike.

Hotels across the country have performed well in 2012, with a few stars among them, namely the religious cities of Makkah and Medina, as well as Jeddah, which has largely benefitted on the back of religious tourism.

“Jeddah in particular has performed very well this year. Year-to-date figures have shown occupancy is up around 7% on last year, with average daily rate up nearly 10%.

This has positively impacted the RevPAR and we’re seeing the profits from hotels in Jeddah on the up as well,” TRI Hospitality Consulting’s Chris Hewett tells Hotelier Middle East.

Average occupancy from January to September 2012 in Jeddah stands at 81%, according to TRI Hospitality Consulting Data, with RevPAR for the same period at US $181.82.
While the traditional corporate market has remained as strong as ever in Jeddah, as with the rest of the country, its leisure market is also growing.

“You get a lot of demand from domestic tourism. There were a lot of issues in Egypt and other parts of the GCC at the start of the year and people in Saudi were deciding to remain in the Kingdom.

With Jeddah being the leisure and retail destination in the Kingdom, they would go straight towards Jeddah,” says Hewett, adding that the main motivations for domestic travel are leisure and shopping, with Jeddah beating other parts of the country on both accounts.

Located around half an hour away from Mecca, the city is also benefitting from pilgrims stopping over en route to the holy city, according to MENA Hotels and Resorts director Fadi Mazkour.

“The biggest impact on occupancy is coming from Hajj and Umrah, that sector is unbelievably increasing. The visitors to Makkah and Medina want to stay at least one night on the way there or back usually for shopping purposes. There are the old souks and the modern malls, so people pass by and buy souvenirs before they go home,” he explains.

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Makkah and Medina
“Makkah is also doing very well, obviously from religious tourism. Occupancy levels have increased 11% on last year and that is countering a big increase in RevPAR,” asserts Hewett.

Operators from abroad and from Saudi Arabia have already expressed their interests in expanding in Makkah and Medina, with many projects already signed.

Owner and developer Saudi Hotels & Resorts (Sharaco) is a major player in the religious arena, and is hoping to further develop its presence there under its operating arm Makarim Hospitality Group.

Religious tourism makes up a significant portion of Makarim’s business today and going forward. Five hotels are open under the brand in Mecca.

Sharaco recently signed a deal for a major complex in the holy land, Sharaco CEO Badr Al Bader reveals to Hotelier Middle East.

“We signed an agreement with Al Marefa city project in Al Madina Al Monawarah for a plot of land that will be invested by constructing an integrated complex that includes hotel, suites, offices, shops and multipurpose halls to serve visitors of the second holy mosque, just five kilometres away from haram Prince Mohammad Bin Abdulaziz International Airport and train station,” he explains.

Perhaps the most significant upcoming development for religious tourism though is the $5.3 billion Jabal Omar project in Makkah, comprising 38 hotels managed by 28 companies, adding 13,500 rooms to Makkah’s hospitality industry.

Marriott International, Hyatt Hotels, Hilton Hotels and Sheraton will manage properties on the development.

In August, Jabal Omar Development Company established to invest $3.2 billion in Makkah, told Bloomberg it planned to open 10 hotels in the area. The firm is already developing a significant 2.2 million square metre plot of land near the Grand Mosque.

“Saudi Arabia is aiming to increase the number of people who are allowed to perform the annual pilgrimage. It’s also mostly trying to accommodate more religious visitors and that will surely increase demand for hotels,” executive director Sameer Al Quraishi said at the time.

“The Jabal Omar project is a massive project. The kingdom is putting a lot of money into that area, expanding the infrastructure to cater to more and more visitors,” Hewett adds.

“The country is starting to see a lot of religious tourists particularly from Indonesia,” he adds.

So far this year (from January to September), the average daily rate in Makkah is at $252, with an occupancy of 73%.

“That’s not taking into consideration the Hajj season in October, which will show even higher levels and push up year-to-date figures in terms of total revenue, and there’s also a lot of demand for F&B,” explains Hewett.

To sum up, Al Bader says the major cities represent a good opportunity for both development and investment. 

“Religious sites such as Mecca and Medina are always sound investments though the entry fee may be a little steep and may require partnerships,” explains Al Bader.  
“Riyadh, Jeddah and Al Khobar are gearing up for both MICE and tourism,” he adds.

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Ramping up in Riyadh
Speaking of Riyadh, overall the city has performed well in 2012 with RevPAR from January to September at a reasonable $149.34. It would have been better if it wasn’t for low average occupancies of 59.6% due to a rough summer partly attributed to the temporary relocation of government offices from Riyadh to Jeddah.

Average occupancy was as low as 29% in August 2012, compared to an average occupancy of 79.10% in Jeddah.

“In the summer months the majority of people go on vacations with their families and activity slows down, particularly in Riyadh. It has a seasonality aspect,” explains Hewett.

Christie+Co director John Podaras believes: “Riyadh doesn’t do great in the summer months because it’s a corporate destination. Riyadh’s also seen quite a ramp up in supply compared to three or four years ago with a number of projects coming online”.

Best Western Orchid Hotel opened in Riyadh most recently in August, alongside other new openings.

However, Podaras says there is still “a lot of room” in the midmarket and serviced apartment sectors in Riyadh, something the operators are looking to capitalise on.

Golden Tulip, part of Louvre Hotels Group, already operates 20 three- and four-star hotels in Saudi Arabia, five of which are in Riyadh.

Of the hotels in Riyadh, Golden Tulip operates three under its three-star Tulip Inn brand and two under its four-star Golden Tulip brand.

The firm has another four signed properties in the pipeline for Riyadh, comprising two four-star hotels and two three-star hotels.

While the operator also has plans to open a hotel under its five-star Royal Tulip brand in Riyadh, Golden Tulip MENA president Amine E. Moukarzel agrees that the majority of opportunities lie in the mid-market sector.

“I will develop one Royal Tulip in Riyadh, which is already under negotiation, but [we’re targeting] five Golden Tulip and five Tulip Inns,” he says, adding that in the time it takes to develop a luxury property, several mid-market hotels can be established.

Podaras adds that these mid-market properties are popping up across the kingdom “like mushrooms”. This suggests the number of properties coming up in this segment may be significantly greater than those forecast in the current pipeline.

“One example is the Hilton Garden Inn, a conversion, which popped up in only nine months,” says Podaras.

Only last month, Wyndham inked a deal to open 10 economy hotels in the Kingdom under its Days Inn brand. It did not state in which cities these hotels would open.

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Future focus
Looking ahead, our experts believe 2013 will also be a strong year for Saudi Arabia, in spite of a number of hotels coming online.

“The Saudi Commission for Tourism & Antiquities [SCTA] has put all its energy to pave the road for operators and investors in the hospitality industry in Saudi Arabia,” says Al Bader.

“We have seen, against all odds and surrounding political turmoil, that the Saudi Economy has stood grounds and expected growth in the industry is promising,” adding that large infrastructure projects are expected to drive and enable greater numbers of tourists in the future.

Meanwhile, Podaras says the architects and contractors involved in these projects will fill the hotels.

Al Bader cites projects such as the Riyadh Metro; Jeddah Airport expansion to triple its capacity; the ongoing expansion project of Mataf (the area around kaaba with a current capacity of 50,000 people per hour, to be increased to 150,000 people per hour after completion); the haram expansion project, Makkah monorail, as well as a number of other road and rail projects as key drivers.

“As all projects in the pipeline do come to light, we may see equilibrium by 2014,” predicts Sharaco’s Al Bader.

However, a more immediate challenge remains: “Hotel operators and investors are in agreement that the challenges will be in the talent acquisition and Saudisation. Both must attract, train, develop, retain and career path the best talent in coordination with various government programmes,” he says.

“For the future of Saudi’s hotel industry it will be very important to have education and training, they’re the most important platforms needed to maintain the momentum of growth of the hospitality sector, and to provide jobs for locals,” concludes Moukarzel.