However, Harb is cautiously optimistic: “Ambitious investments in tourism infrastructure and the continued development of the city’s leisure and commercial areas will allow the hotel market to perform well throughout the rest of 2015/2016 and in the near future. We do, however, forecast a rate correction as new supply is well absorbed in the overall Saudi Arabia market.”

On the topic of rates, Hewett agrees and comments: “The outlook for Jeddah over the next 12 months is mixed, as the city is poised for a significant influx of new supply, particularly in the mid-scale segment and serviced apartments. This greater supply can potentially erode ADR levels as new hotels adopt aggressive pricing strategies in order to penetrate the market and establish their market share of demand.

“The outlook for Riyadh is cloudier as the continued low price of oil impacts government revenue streams. With large government-backed projects driving demand in the capital, potentially reduction in spending could have a flow on effect through reduced demand for the city’s hotels. With a strong pipeline of hotel rooms expected to enter the market over the next 12 months, the city’s hoteliers are bracing for a challenging period ahead.”

Story continues below
Advertisement

According to Sona’s research, although Riyadh is a corporate destination, weekend occupancy has improved in the past decade due to growing demand from domestic families, while supply has remained fairly stable with only one new addition to the market, the 88-key Suite Novotel Riyadh Centre.

“Internationally, branded hotel keys account for 55% of the market’s total hotel supply, 57% of which are five-star rated. Locally branded and unbranded supply account for 9% and 36% of the hotel supply respectively. Opportunities for hoteliers in this market lay in the lack of serviced apartments, with 98% of the total serviced apartment supply being locally branded and unbranded establishments.”

Hewett also cites this opportunity stating: “A trend of significant growth of quality international mid-market hotels and serviced apartments continues in Riyadh with the city having a significant future supply in the midscale segment. However, the capital will also see a number of key upper-upscale and luxury hotels in the market, located within or proximate to key developments. Lifestyle hotels are yet to gain traction in KSA, as they are normally found in more mature markets. Furthermore, this emerging style of hotel could face challenges largely due to the conservative nature of the country.

“However we anticipate that there are opportunities for a watered down version that adheres to religious and cultural norms. Jeddah is also on the cusp of witnessing a significant growth of quality international mid-market hotels and serviced apartments. With the existing supply being dominated by either high-end luxury hotels or old dated mid-market or locally operated properties, the city has been eagerly waiting for a new and fresh style of hotel to open. New midscale brands dominate the supply pipeline with a number of international operators boasting multiple properties in the city.”

Millenium & Copthorne is one such operator, as Alzaabi explains: “Despite high demand, the three- and four- star hotel market in KSA is under-supplied and instead dominated by a multitude of five-star hotels. The government is working on a long-term strategy focused on economic diversification and encouraging business travel, meaning the opportunity to build affordable and budget accommodation is lucrative.

“Operators, including ourselves, are now looking at how they can attract this market segment. We have developed our Studio M and Millennium Executive Apartment brands to target these markets. Meanwhile, our upscale serviced apartment brand, Millennium Executive Apartments offer flexibility, space and convenience for medium long term stay business travellers.

“However, there are still plenty of opportunities for growth in the luxury market, particularly in Riyadh, which is witnessing large-scale infrastructure developments in a bid to boost the city’s tourism industry. We have chosen the city to introduce our iconic Biltmore brand and believe that with a unique luxury offering and bespoke service it will thrive in this market.”

Article continues on next page...