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Saudi hotel development on the rise

Profile Photo By: H L
April 11, 2013

Saudi hotel development on the rise

SAUDI ARABIA?As Saudi Arabia continues to evolve and refine its national hospitality industry, many of the world?s largest hotel brands are increasingly driving new hotel development there as key components of their overall Middle East strategies.

Despite its insular nature, the country is a hotbed of domestic travel demand within all price points, yet the relative lack of branded hotel products provides an open playing field for savvy developers looking to fill a niche.

The oil industry provides much of the corporate demand in Saudi Arabia, while religious tourism mostly comprises the country?s leisure business. The wide base of demand suggests there is room for a range of hotel products in the market, sources said.

The major hotel chains seem well aware of the potential, and in 2013 there?s a lot more flowing through Saudi Arabia?s pipeline than just black gold.

[quote]?A lot of people talk about Dubai or about Doha (Qatar) and the big numbers, but the big business is actually in Saudi Arabia,? said Bani Haddad, regional VP of Middle East and Africa for Wyndham Hotel Group, which is making a big play in the region across multiple brands. ?Most of our competitors are already present, and most of them have plans like we do and a pipeline like we do.?[/quote]

Building boom
According to data from STR Global, sister company of HotelNewsNow.com, there are 97 hotels in the total active pipeline in Saudi Arabia, representing 29,668 rooms. The total active pipeline data includes projects under construction, as well as projects in the final planning and planning stages.

Hilton Worldwide has a development pipeline of 18 properties in Saudi Arabia, with an existing presence across five brands: Hilton Hotels & Resorts, Conrad Hotels & Resorts, Waldorf Astoria Hotels & Resorts, DoubleTree by Hilton and Hilton Garden Inn. To date, the company has seen strong results from its Saudi hotels, with its Makkah Hilton Towers one of its best-performing hotels in the Gulf region.

[quote]?We had a very productive 2012, with our properties in the Kingdom registering strong,? said Carlos Khneisser, VP of development in the Middle East for Hilton Worldwide. ?The Kingdom is now one of the best performing markets for the company in the Middle East. In 2013, we hope to continue expanding our brand presence in the market, tap into more niche segments like local weddings and adventure tourists, and expand across all the provinces, catering to a balanced mix of leisure and business tourists.?[/quote]

Meanwhile Starwood Hotels & Resorts Worldwide confirmed plans to open six new hotels in Saudi Arabia during the next three years, adding more than 1,500 rooms to the market. Saudi Arabia is already the company?s second largest market in the Middle East, with nine hotels and more than 2,500 rooms in operation across its Sheraton and Le M?ridien brands.

Of the six new Starwood hotels in the pipeline, three will open this year, including the Sheraton Medina and two Four Points by Sheraton properties, in Medina and Riyadh, with an Aloft also slated for Riyadh in 2014. The 376-room Four Points by Sheraton Riyadh Khaldia, which opens in May, will mark the debut of Four Points into the Saudi market.

[quote]?We strongly believe in the growth potential of our select service brands, Four Points by Sheraton and Aloft, in Saudi Arabia,? said Guido de Wilde, senior VP and regional director for Starwood Middle East. ?We are committed to growing in the country and continue to look for opportunities to strengthen our portfolio in the Kingdom, especially in the holy cities of Makkah and Medina.?[/quote]

For Wyndham, the pipeline includes high-profile projects like the 5-star luxury Wyndham Riyadh-King Abdullah Financial District, located in the new economic heart of Riyadh, Saudi Arabia?s capital city. It also includes widespread development in the budget and economy sectors, primarily with its Days Inn and Super 8 brands. With nine midscale Ramada hotels already operating in Saudi Arabia, Wyndham now intends to open 10 Days Inn properties in Saudi Arabia over the next seven years, and 20 Super 8 properties within five years.

Haddad said the new supply will fill a crucial, yet underserved, traveler segment.

[quote]?There?s definitely a shortage of quality supply in certain cities. The branded budget and economy sector is virtually nonexistent, and contrary to what people think, 80% of the Saudi population is mid- to low-income,? Haddad said. ?They definitely need this type of branded, good quality budget hotel stay. This is where the opportunity is, and this is why we?re excited to develop the brands like Days Inn and Super 8.?[/quote]

Brand proliferation

Hotel performance in 2013 in the Kingdom is significantly outpacing 2012. In February, occupancy in Saudi Arabia was 73.7%, up 6.6% over February 2012. Average daily rate was 717.67 riyals ($191.37), up 5.2%; and revenue per available room was 528.89 riyals ($141.03), up 12.1%.

The growing demand in Saudi Arabia has been driven by two primary sources: the oil business and all its related trade and multinational activities, as well as meetings and incentives business; and religious tourism, primarily to the holy cities of Makkah and Medina.

The oil-driven corporate demand is funneled into 4- and 5-star hotels, which are already in good supply in most major cities. The lager hotels are also more viable to develop in the city centers because land prices are typically steep.

?It?s very difficult to develop a budget hotel in a city center, with the high land prices,? Haddad said.

Outside of the big oil demand, however, the picture changes.

Domestic Saudi tourism is relatively brisk, with some 27 million travelers last year. The Saudi government is aiming to attract 88 million visitors by 2020, yet sources said these travelers are largely under-accommodated when it comes to branded hotel products.

Domestic leisure tourism also continues to rise, primarily in the thriving seaside city of Jeddah, which doubly benefits by being a common stop for pilgrims on the route to Makkah.

Hotel companies hoping to capitalize on this potential are now especially targeting sites outside of the immediate city center.

Last year, Wyndham awarded a master franchise for Super 8 to Saudi Automotive Services Company, for the 20 new hotels. SASCO, the largest petrol station operator in Saudi Arabia, plans to integrate Super 8 into a series of proposed oasis-type tourism locations scattered across the Saudi highway system.

But it doesn?t end there. Sources indicated that branded extended-stay products are also poised to explode in Saudi Arabia, since both business and leisure travelers within the country often make their trips along with their families. Furnished apartments have been a staple product for many years in the region, yet these individually or locally run properties often don?t measure up in terms of quality.

[quote]?We see huge demand for extended-stay in Saudi Arabia, and we?re actively looking at developing our brand, Hawthorn Suites by Wyndham, in that market specifically,? Haddad said. ?After budget and economy, we see extended-stay as the next real big opportunity in Saudi Arabia.?[/quote]

Changing times
All of this aforementioned growth in Saudi Arabia is spurred by the efforts of the Saudi Commission for Tourism & Antiquities, a central governing body led by Sultan bin Salman bin Abdul Aziz. Sources said the SCTA has made great strides in recent years to define, regulate and communicate hotel practices within the country, opening the door for a more branded, international presence. The SCTA?s efforts, along with recent and planned infrastructure upgrades, are driving tourism demand to new heights in the region.

[quote]?We see tremendous potential in the Kingdom, with new developments that will fuel tourism in the country,? Starwood?s de Wilde said. ?The government is making significant investments to increase business and tourism, including plans of airport developments to boost overall passenger capacity. Along with that, the Kingdom is investing in large-scale railway developments to realize its potential as a leading global transport and logistics hub.?[/quote]

With Riyadh and Jeddah both experiencing rapid overall growth, business and meetings demand perpetually on the rise and Mecca and Medina calling increasing numbers of religious pilgrims each year, sources expect the current development climate in the Kingdom to continue its upward trend, even if the country is still primarily focused on accommodating the demand simply within its own region.

[quote]?There are quite a lot of developments taking place within the country, to keep the Saudis within their country, and discover their own country,? Haddad said. ?As Prince Sultan said, ?In Saudi Arabia, build it and they will stay.??[/quote]

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