_Riyadh & Jeddah Hospitality Market Review - Winter 2017

The hospitality markets in Jeddah and Riyadh have faced headwinds throughout the first half of 2017 which were largely attributable to wider economic conditions and recent additions to supply. Despite softening performance, opportunities for hospitality development remain in both locations, underpinned by the government’s long-term ambitions for the sector.

October 09, 2017

In both cities, the supply composition remains heavily imbalanced in favour of five star supply, accounting for 55% and 56% of Jeddah and Riyadh’s key count respectively. As such, from a supply perspective, opportunities lie in the development of quality midscale hotels rather than luxury or upper upscale properties.

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. The 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 H1 2017, attributable to a fall in occupancy levels.

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. 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.

For further information regarding this report or any enquiries you may have please contact Ali Manzoor, Head of Knight Frank’s Hotel Development Consultancy team.