Saudi hotel projects boom amid economic slowdown, thanks to push for more pilgrims

Photo: MECCA, SAUDI ARABIA, 16 October 2015: Clock Tower in Mecca, Saudi Arabia / Drpyan / Shutterstock.com

Saudi Arabia's focus on promoting religious tourism and attracting foreign Muslims from the Gulf Cooperation Council and the West continues to feed the demand for hotels in the hotspots of Mecca, Jeddah and Medina.

Riyadh has also experienced a boom in hotel construction, as pilgrims have the freedom to explore the kingdom once their religious obligations are completed in Mecca and Medina during the umrah season.

To the surprise of hoteliers, Saudi Arabia's economic slowdown has had little impact on construction.

"The economy has no effect and there are many, many hotels going up," said Sati Mufti, owner of Jeddah-based FKM Hospitality Consulting.

Most hotel construction projects are funded by private investors with an eye towards long-term revenue returns.

The hajj and umrah seasons have always been the hotel industry's best periods, with virtually a 100 percent occupancy rate in Jeddah, Mecca and Medina. Jeddah has demonstrated a resilience, with a year-round flow of religious tourists, even during the off season, since its airport serves travelers to Mecca.

JEDDAH

In the off season of 2015, Jeddah hotels had a 77.2 percent occupancy, which was down slightly from 78.4 percent in 2014, according to Hotstats, a hotel data-gathering firm. The industry throughout the Middle East saw a 2 percent reduction in occupancy in 2015. Riyadh hotels with a more business-oriented clientele had an off-season occupancy rate of 62.8 percent in 2015, up slightly from 2014.

However, Jeddah hotels show healthy revenues for 2015, with a gross operating profit per available room of just over $150. Mufti said hotel operators can easily achieve 100 percent occupancy during the religious holidays and maintain reasonable off-season occupancy rates, with the Commission on Tourism and National Heritage anticipating a 400 percent increase in foreign and domestic visitors.

MID-SCALE PROJECTS

Mufti noted that although brand hotels are getting all the attention, proposed mid-scale accommodation in close proximity to the Grand Mosque in Makkah and the Prophet's Mosque in Medina are flourishing.

"We have a couple of three- and four-star hotels going up about 150 meters from the Prophet's Mosque," Mufti said. "One hotel has 125 rooms and the other has 150 rooms."

In Mecca, he said, the land surrounding the Grand Mosque is expensive and nearly built up. His company is consulting on a small 50-room facility and another of 150 rooms about 1,500 meters from the Haram.

MECCA

Indeed, prime real estate in Mecca continues to be a major attraction to hotel investors. Carlson Rezidor is building the mid-range 463-room Park Inn by Radisson Makkah Al Naseem in the southeastern portion of the Holy City. It is scheduled for completion in June and is part of a four-hotel complex that will have 6,000 rooms and a mosque.

Four Points by Sheraton Makkah Al Naseem, owned by Starwood Hotels & Resorts Worldwide Inc, is set to open a 1,139-room hotel just outside central Mecca in the second quarter of the year.

The two Mecca projects are part of plans by foreign and domestic developers to build an estimated 124 hotels with a staggering 47,431 rooms in Saudi Arabia through 2020. About 20,000 rooms will be available in 52 new hotels in 2016, according to a report by TopHotelProjects released last month.

HOTEL CONSTRUCTION ‘OUTPACING’ INFRASTRUCTURE

The additional hotels complement Saudi Arabia's existing 1,360 hotels, which generated more than 11.4 billion riyals ($3.4 billion) in revenue in 2012, according to the Saudi Commission on Tourism and National Heritage.

Aziz Awlya, general manager of Al-Shohada Hotel in Makkah, said hotel construction is outpacing the city's infrastructure, making traffic congestion a major problem. But he said the addition of high-end hotels is turning the Holy City into a sophisticated destination city.

"Mecca is becoming very commercialized," he said. "And that is good because the Muslim traveler in general and hajj and umrah pilgrims in particular are much more savvy about what they want in accommodations and services."

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