Saudi Arabia is aiming to increase the number of hotel rooms in the country to 600,000 by 2020 from 500,000.
The move was part of efforts by the kingdom to move its economy away from dependence on oil to the more sustainable tourism sector.
The Saudi Commission for Tourism and National Heritage it had prepared a national strategy to develop around 22 new tourist sites and would look to the private sector for funding. It said: “A conducive atmosphere will be created to encourage the private sector invest in the tourism activities.”
The body said that it would be looking in particular at locations away from the kingdom’s urban developments, “to create a balanced development across regions and will promote migration from big cities to the countryside”.
Saudi Arabia ranked highest in total number of hotel projects for the construction pipelines of the Middle East according to Lodging Econometrics, with STR adding that the kingdom’s pipeline had more than 64,000 guestrooms in development, making up 76% of the more than 84,500 existing rooms in the country.
Philip Wooller, STR’s area director for the Middle East and Africa, said: “Saudi Arabia’s hotel market is going through a period of massive supply expansion.
“In the short term, we’ve already seen this growth affect performance levels, and this trend should continue as more and more properties start to come online. But it is important to note that this is part of a major long-term investment for the market to further develop its infrastructure to accommodate millions of annual visitors, which come for religious pilgrimages and as new tourism attractions spring up as part of Vision 2030.”
Vision 2030 has three main pillars: the status of the country as the “heart of the Arab and Islamic worlds”; the determination to become a global investment powerhouse; and finally to transform the country’s location into a hub connecting the three continents: Asia, Europe, Africa. The Kingdom plans to create 1.2 million new jobs in the industry, and last year saw the state allocate USD2.64bn for six tourism projects, with further investment expected this year.
Earlier this year Marriott International reiterated its commitment to Vision 2030. Saudi Arabia is the company’s second -argest market in the Middle East with 23 operating hotels. Marriott International operates nine brands in Saudi Arabia and in June signed three deals in Jeddah to introduce the Middle East’s first Delta Hotel by Marriott along with Jeddah’s first Marriott Executive Apartments and Four Points by Sheraton.
Alex Kyriakidis, president and managing director, Middle East and Africa, Marriott International, said: “We are delighted to work with the Al Murjan Group on three exciting new projects in Saudi Arabia. In doing so, we will be expanding our brand portfolio in the region.
“We remain committed to supporting the growth of the hospitality sector in the kingdom with the addition of properties, training programs and jobs with the purpose of enhancing the country’s mission to build a thriving economy.”
As part of the Saudi Vision 2030, Marriott International has plans to double its properties in the country.
InterContinental Hotels Group has also looked to Saudi Arabia, signed a master development deal with Al Hokair Group to bring the Holiday Inn Express brand to the region.
Matthew Tripolone, VP, development – Middle East & Africa, IHG, told Hotel Analyst that Saudi Arabia was an area the group had looked at before, “but we didn’t think that the market was ready, Saudi Arabia was an upper-upscale market. That’s changed now with downward pressure on rates, development costs rising and there is a growing segment of the market looking for more value for money – both owners and guests.”
The rapid expansion in Saudi Arabia has taken its toll on performance. In January hotel supply rose by more than 9%, resulting in a 5.2% fall in average daily rate despite a 16.4% rise in demand. revpar rose marginally, 0.9%.
Part of Vision 2030 has seen the kingdom target religious tourism, a strategy borne out by this year’s hotel performance, when Makkah saw occupancy of 74% during Ramadan this year, with the city one of the four best performing in the Middle East during the holiday.
HA Perspective [by Katherine Doggrell]: There’s black gold in them there hills and it has seen Saudi Arabia and the surrounding countries become rich enough to build snowdomes in the desert for skiing, because, one assumes, not everyone likes raclette. But you don’t need a geology degree to work out that it won’t last forever and Saudi Arabia is not the only country looking to travellers, both business and leisure, to pick up the future tab for those lift passes. There are Visions being had all over the region.
As has been reported, the short term pain of rapid rooms expansion is hitting performance. The likes of Marriott and IHG are not deterred, buying into the long-term vision. Saudi Arabia has so far resisted pressure from Donald Trump to release more oil onto the market and save him from going into the midterms facing voters angry at the cost of petrol. Given that OPEC is one of the more effective cartels and given that the oil will reduce to a drip at some point, it’s hard to see the incentive to flog off the remaining reserves cheap, particularly when the income from tourism is not yet up to speed.
The good news for the oil producers is that Trump has no interest in renewable energy, determined as he is to reinvigorate mining, tweeting frequently about something called “clean coal”. While the polar bears try to work out what that might be, the market in the US at least is still primed for what comes out of the pump. There will be time yet to bed in the gushers of rooms coming to market.