Saudi Arabia has more than 64,000 rooms across the three phases of the hotel development pipeline, according to data from STR. That room total represents 76% of the more than 84,500 existing hotel rooms in the country.
As shown in STR’s January Pipeline Report, there are 187 hotel projects total in Saudi Arabia between the Planning, Final Planning and In Construction stages. The construction phase represents the largest portion of the pipeline with almost 40,000 rooms in 94 projects.
At the market level, Makkah is set to receive the largest amount of new supply with more than 23,000 rooms In Construction and more than 32,000 rooms total in the pipeline. Jeddah and Riyadh are each approaching 10,000 rooms total in the three phases of the pipeline.
Ahead of his presentation at the Saudi Arabia Hotel Investment Conference (SHIC) on Monday, 26 February, STR’s area director for the Middle East and Africa, Philip Wooller, comments on the market’s supply development:
“Saudi Arabia’s hotel market is going through a period of massive supply expansion,” Wooller said. “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.”
Wooller notes that Vision 2030 was announced in 2017 as an initiative aimed at reducing the country’s dependence on oil. Included in the plan were major investments in the country’s tourism sector. The most notable project in the tourism segment is the Red Sea beach resort project, a new luxury destination along part of Saudi Arabia’s west coast, scheduled for construction to begin in 2019. According to STR analysts, this attraction has the potential for strong tourism business, with indications that some restrictions of the country’s religious customs will be eased in this area.
Wooller stresses the importance of considering these long-term developments when assessing Saudi Arabia’s hotel performance. In 2017, the country recorded a 5.2% decline in occupancy and a 4.4% drop in average daily rate (ADR), resulting in a 9.3% decline in revenue per available room (RevPAR) compared with 2016. Figures for January 2018 show that occupancy rose 6.4%, while ADR dropped 5.2%, resulting in a year-over-year RevPAR increase of 0.9%.
“As oil prices continue to rise, we should see performance levels start to recuperate over time,” Wooller said. “Although there will likely be a delayed effect, in the long run Saudi Arabia’s investment in tourism infrastructure should help protect the market’s hotel sector during future periods of lower oil prices and help boost performance growth when oil prices are high.”
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