Hospitality development in Saudi Arabia surges ahead

Amaala

Keen to make a mark on the global tourism stage, Saudi Arabia has opened the country to international tourists and is working towards its goal of 100 million visitors annually by 2030 – part of the country’s Vision 2030 programme. Buoyed by the government’s support in developing giga-projects and tourism destinations, hotel and tourism companies have flocked to the market.

Growing number of hotel projects

The numbers show development is in full swing with no signs of abating. According to STR data, Saudi Arabia is leading the world in hotel supply growth. With 73,057 hotel rooms in the pipeline across the planning, final planning and construction phases, the country is projected for a 67.1% increase in room supply once all projects are completed over the next two to three years.

These increases are distributed across several regions of the country, with four of six STR-defined submarkets expected to grow supply 75% or greater if all projects are completed. To put it into perspective, of the 1,975 STR-defined submarkets around the globe, less than 2% (34) show projected supply growth of greater than 75%. In all, based on percentage growth, the collective regions represent what is currently the world’s most robust hotel pipeline.

Olivier Harnisch, CEO of PIF (Public Investment Fund) Hotel Management Company, said that the potential of Saudi Arabia as a tourism destination is enormous. 

“Currently there are around 120.000 hotel rooms of international standard in Saudi Arabia, the large majority being in the Holy Cities of Makkah and Madinah. Hence the development activities in hospitality, both within the PIF ecosystem and in the private sector, are extremely strong. Saudi Arabia has one of the largest hotel pipelines in the world,” he said.

A map of Saudi Arabia

The numbers back that up, with the holy cities of Makkah and Madinah having the largest projected increases. In Makkah, the growth is centred in the city centre, according to STR. More than 19,000 of Makkah’s rooms in planning or construction are located less than a mile from the Kaaba. Additionally, the hotels under development Makkah and Madinah are massive. With average sizes of 315 and 558 rooms, respectively, these projects are upwards of four times larger than the average pipeline project—with six projects having more than 2,400 rooms. Globally, of the 11 largest hotel projects under development (in terms of room count), six are in Saudi Arabia. Of those, five are in Makkah. This surge in massive hotels is a sign that developers have confidence that there will be plenty of demand to fill these rooms.

Finally, STR data reveals that with more than 60% of its total pipeline assigned to upscale and above segments, the growth is largely driven by higher-end hotels, which could bode well for future rate growth.

Mark Willis, CEO, TIMEA (Turkey, India, Middle East and Africa) of Accor, noted during a panel discussion at the ATM Saudi Arabia Tourism Summit that there’s a huge momentum with regard to interest and investment. Calling the country a “wonderful development opportunity” for Accor, Willis outlined that the company has more than 30 hotels in operation at the moment with more than 15,000 keys and plans for more.

Data from TOPHOTELPROJECTS shows that Holiday Inn Hotels & Resorts leads the list of Saudi Arabia’s top brands, with eight openings and 5,067 keys. IHG currently operates 38 hotels across 5 brands in Saudi Arabia, including: InterContinental, Crowne Plaza, Holiday Inn, Staybridge Suites and voco with a further 20 hotels in the development pipeline due to open within the next three to five years. Novotel is also in the list of top brands in the country’s development plan and is set to open eight properties with 3,847 rooms. Radisson Blu Hotels & Resorts is next, with seven upcoming launches and 1,332 keys being planned. Elie Milky, vice president business development, Middle East, Cyprus, Greece and Pakistan, Radisson Hotel Group, commented at a signing of three new properties that the hotel company is working towards doubling its Saudi portfolio within the next three years.

Giga-projects in progress

The growth in the country is propelled further by the development of giga-projects, from Neom in Tabuk, to the Red Sea Project and Amaala and more.

The Red Sea Project, for example, is being developed over 28,000 km² and an archipelago of more than 90 islands, mountain canyons, dormant volcanoes and ancient heritage sites. On completion in 2030, the destination will deliver 50 hotels, up to 8,000 hotel rooms and around 1,000 residential properties across 22 islands and six inland sites. 

“We are one of several giga-projects that are central to the country’s broader and longer-term diversification programme, which is already seeing the Kingdom open up and welcome visitors from all over the world. For example, when Saudi announced its new E-visa portal in 2019, some 400,000 e-visas were issued to people from more than 49 countries eager to explore a new frontier in tourism,” Anton Bawab, head of operations at The Red Sea Development Company, said.

“The tourism industry is a substantial growth area for the country and is expected to contribute 10% to the country’s GDP by 2030, up from 3% as it stands currently. The Red Sea Project alone is set to contribute SAR 22 billion ($5.8bn) to GDP from 2030 onwards and will also employ around 70,000 people either directly, indirectly or induced. I see opportunities for not only tourists but local businesses and young Saudis alike.”

Other massive projects include the development of AlUla, which recently revealed its US$15 billion masterplan. This will include 5,000 hotel rooms and an overall target of 9,400 rooms by 2035. Hotel brands that are already confirmed for this project include the likes of Aman, Banyan Tree and Habitas.

Development trends

These all point towards a growing trend of integrated hospitality, which Christopher Lund, director, head of hotels, MENA Region, Colliers discussed at the ATM Saudi Arabia Tourism Summit. He explained that “people want to stay in a destination than just stay in a hotel room. This is an overarching trend that we are seeing at the moment.”

Accor’s Willis added over the last five to 10 years, there have been movements towards dual asset investments where “investors are putting together an office, hotel and residence along with supported shopping facilities”. He continued: “It’s a key element of our business – being associated with residences and hotel apartments.”
The other trends in Saudi Arabia that Lund highlighted included: lifestyle hotels in mixed-use developments; beach, desert and mountain resorts; and culture and heritage hotels that tie in with the concept of experiential lodging.

Willis concluded: “You’ll see Saudi Arabia move forward very quickly. They have intent, they have desire, they have finances, they have infrastructure from an investment perspective, and you’ll start to see GCC and global investment come into the country. People see it as a relatively secure location to invest in and do business. I see Saudi Arabia bringing itself to the forefront as a leisure destination or a tourism destination.”