After years of high demand, low supply and sky high rates, Riyadh’s hotel market is finally starting to catch up, although with 8000 more rooms on the horizon, is it a case of being careful what you wish for?
For years Riyadh’s hospitality market has been operating between the extremes of high demand and low supply, meaning that hotel operators in the city have enjoyed one of the highest levels of occupancy and average room rates (ARR) in the region.
However, performance like that doesn’t go unnoticed for long and approximately 8000 new hotel rooms are due to come online in the Saudi Arabian capital over the next three years.
| Advertisement |
Now, with further new hotels being announced seemingly every month, established hotels and industry experts are starting to raise concerns about an increasing risk of oversupply as once dominant profit margins begin to be eaten away.
STR Global’s Middle East & Africa area director Philip Wooller understands that Riyadh’s established hotels are not going to be comfortable with an increase in competition, and admits that “if I was a hotelier, I’d be worried.”
“However, Riyadh has to move forward and develop as a market and can’t continue with such a small supply of hotel rooms where demand is able to force up the rates. At present things are almost unsustainable, but as it begins to develop as an expanding market everyone is going to benefit from that,” adds Wooller.
Growing pains
However, market data from fellow analysts TRI Hospitality Consulting reveals that extra supply may already be having a negative effect on the market as Riyadh’s 2012 average occupancy level fell to 58.5% from 60.20% in 2011, while ARR was down slightly at US $253.05, 3.6% lower than 2011’s average of $262.62.
These are results that TRI partially attributes to the recent trend in Riyadh's hospitality market of rapidly expanding midscale and economy hotel brands.
“Riyadh has always had a very upmarket and luxury orientated hotel supply. However, a lot of three and four-star hotels will be soon be entering the market, which will mean that instead of having no choice but to spend $300 dollars a night at a luxury hotel, guests can now look at good quality midscale hotels at a fraction of the price.
This is therefore going to cause luxury hotels in the city a problem as they try to maintain the same rates and occupancy levels they enjoyed before these new segments entered the market,” explains TRI Hospitality Consulting’s Christopher Hewett.
Article continues on next page ...
Search our database of more than 2,700 industry companies
