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| 20 November, 2017

Hospitality market in Riyadh and Jeddah in favor of 5-star supply

Image used for illustrative purpose.
A general view shows the spa relaxation room of hotel castle Elmau in Kruen near the southern Bavarian resort of Garmisch-Partenkirchen March 25, 2014.

Image used for illustrative purpose. A general view shows the spa relaxation room of hotel castle Elmau in Kruen near the southern Bavarian resort of Garmisch-Partenkirchen March 25, 2014.

REUTERS/Michaela Rehle

Opportunities lie in the development of quality midscale hotels rather than luxury or upper upscale properties over the coming years.

JEDDAH - The supply composition of the hospitality market in Riyadh and Jeddah remains heavily imbalanced in favor of five star supply, accounting for 55% and 56% of Jeddah and Riyadh’s key count respectively, Knight Frank’s latest report titled ‘Riyadh and Jeddah Hospitality Market Review, Winter 2017 edition’ revealed.

As such, from a supply perspective, opportunities lie in the development of quality midscale hotels rather than luxury or upper upscale properties over the coming years.

Historically a corporate market, business tourism remains the largest source of demand for hotels in Riyadh, and while internationally branded hotels have remained the preferred choice of corporate guests, there have been increasing instances of major corporate entities renting units within residential compounds for ad-hoc employee use. In Jeddah, the corporate and leisure segments, which primarily stem from the domestic market, represent the majority of demand, accounting for 41 and 34 percent of total demand respectively. Primary interviews indicate that a more price-sensitive guest profile has resulted in a ‘flight to affordability’ in recent months, as guests have been actively looking to downgrade their choices of hospitality accommodation.

In terms of performance, citywide RevPAR (Revenue per Available Room) levels have been under pressure in both cities. In Riyadh, RevPAR decreased by 16% in 2016 and a further 19% in H1 2017 which was largely driven by a fall in average rate. In Jeddah, RevPAR decreased by 9% in 2016 and a further 16% in H12017, mainly attributable to a fall in occupancy levels.

Jeddah’s hospitality market has been facing challenging conditions, both from a demand and supply perspective. In terms of demand, a more price sensitive guest profile has resulted in a flight to

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affordability. While looking at supply, the recent influx of keys as a result of the materialization of delayed projects has resulted in rate compression. Development opportunities in Jeddah lie in the establishment of quality internationally branded midscale offerings, the report said.

Moreover, the report said historically corporate markets and business tourism remain the largest

sources of demand for hotels in Riyadh.

While internationally branded hotels remain the preference of corporate guests, there have been increasing instances of major corporate entities renting units within residential compounds for their

employees to use on an ad-hoc basis due to the affordability, space, and facilities on offer in relation to traditional hotel accommodation.

The Vision 2030 plan and the National Transformation Program have shown that the government is making coordinated efforts to not only diversify from oil dependence, but make meaningful changes to the traditional ways of doing business. More leisure related initiatives such as cultural events and ‘Entertainment City’ indicate that steps are being taken to present the Kingdom as a more leisure friendly destination and diversify the demand base. From the standpoint of the authorities, the tourism industry is seen to be one which can be a major source of employment for young Saudis, with an additional 375,000 hospitality related jobs anticipated by 2020. By diversifying the demand profile of potential guests to the capital, sustained demand growth can be stimulated in the medium term, which will in turn create additional employment for the domestic market.

Ali Manzoor, Associate Partner and Head of Knight Frank’s Hotel Development Consultancy team, said: ‘Given the scale of the various initiatives aimed to stimulate visitation, it is clear that the government has long-term ambitions for the hospitality sector." - SG



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