Challenges and opportunities
One of the most common challenges that the hospitality sector in Makkah and Madinah is confronted with, is the need to grow the skilled workforce.
To combat this problem, IHG has introduced the IHG Academy to train staff. Blanc explains: “The number of visitors are expected to increase significantly in the coming years, and the industry will need a strong supply of skilled workforce that can cater to guest needs. To overcome this challenge and to increase the proportion of the employable workforce, we have a programme called the IHG Academy, which is a pioneering global collaboration between IHG and local education and community providers.”
There are also challenges related to inventory, according to STR, specifically, fluctuations in inventory. At certain times of the year, owners occupy shares of their own inventories, so these properties need to react to changes in rooms available for sale during these times. This makes planning difficult and impacts revenue compression.
The markets are also largely controlled by the authorities, so pure market dynamics and conditions are not at play, which leads to inconsistencies in demand at certain times of the year.
The addition of new hotels also presents a challenge for operators in the market.
“The industry is currently experiencing the strain of oversupply. In the long-term, we anticipate the market will do well with the expected increase in number of religious tourists’ arrivals,” Blanc states.
In fact, operators are banking on increasing religious tourist arrivals as evidenced by the market’s pipeline.
“The expansion of Emaar Hospitality Group’s operations into Saudi Arabia is underpinned by the renewed focus of the Kingdom to strengthen its tourism sector and continued investment in the two holy cities,” Harnisch notes.
In addition to Emaar’s entry in the market, for operators IHG and Hilton, both Makkah and Madinah are important segments.
Hilton vice president operations, Saudi Arabia & Levant, Kamel Ajami states: “With the extensive investments, projects and policies in place, the demand for accommodation in Makkah and Madinah is set to grow. Saudi Arabia features Hilton’s largest development pipeline in the Middle East, several of which are in Makkah or Madinah; including DoubleTree by Hilton Makkah, Jabal Omar. We look forward to welcoming guests to this 668-guest room hotel once it is open.”
The growing demand for mid-scale and extended stay properties also offers an opportunity for operators.
Aboobacker says: “Makkah and Madinah markets offer significant opportunities across all accommodation segments, including good quality economy, mid-scale and upscale hotels and serviced apartments. Currently, good quality accommodation in these cities are largely limited to international five-star hotels, which are mainly concentrated close to the Grand Mosques. The locally branded economy and mid-scale hotels largely fare poorly in terms of their facilities and service offerings, although there are a few exceptions.”
“In addition to new developments, these markets also offer substantial opportunity for investors and operators for redevelopment and re-branding of existing properties, as well as for franchising,” Aboobacker adds.
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