Saudi Arabia has become a priority market for international hotel operators as it looks beyond religious and corporate tourism to attract 100 million visitors a year by 2030.

Dubai: Saudi Arabia is taking a multi-tiered approach to hotel development in the kingdom as part of its Vision 2030 diversification plans.

The most-high profile of these are mega-developments envisaged to be destinations in their own right. These include Diriyah Gate and the Public Investment Fund (PIF) owned Amaala and Red Sea Project.

However, a second stream of development from the private sector has been quietly gaining momentum in the kingdom over the past few years, the focus of which has expanded from primary to secondary leisure-based destinations such as Abha, Al Baha, and Hail.

“The Tourism Development Fund (TDF) is championing the development of secondary cities which have been historically popular for domestic visitation,” said Ali Manzoor, head of hotels and tourism at real estate consultancy CBRE Middle East.

“They are providing support and funding for Saudi developers who, in turn, can deliver integrated developments that are financially viable and can enhance the value proposition of specific destinations. Once delivered, these programmes will not only induce demand from tourists who may not have previously thought of visiting, but also extend the length of stay of tourists already familiar with such locations” he said.

TDF signed a $93.3 million contract with Riyadh-based Seera Group in 2021 to build the Raghadan forest resort in Al Baha region, and in January this year it partnered with Jeddah-based Al-Ameen Real Estate to launch a massive $80 million tourism destination in Taif, a city in Mecca province. The projects are expected to transform these two regions and provide a major boost for tourism.

Secondary cities are not well known by foreign visitors, which have tended to be predominantly corporate travellers, mostly to Jeddah and the capital, Riyadh. Now that the country has opened to foreign tourists, secondary cities are coming under the spotlight and the government is supporting smaller real estate developers that have plots of land in such locations.

“Until recently, Saudi Arabia was largely known for spiritual tourism and select cities were in demand for the business clientele. Various visitor restrictions were in place to limit leisure tourism,” Haitham Mattar, managing director for India, Middle East & Africa at IHG Hotels & Resorts told Salaam Gateway.

With the introduction of Vision 2030 and the new tourism strategy, the potential has significantly expanded to secondary and tertiary cities and heritage sites, such as Abha, Taif and Aseer. Which is why IHG is actively pursuing opportunities to bring its brands to these locations, Mattar said.

Half a million hotel rooms

About 100,000 new hotel rooms are under planning, final planning, or have broken ground as of the end of 2021, Manzoor said, referring to data by hotel research firm STR.

Half of these are in Mecca and Medina, where religious tourism is already well developed. Another 34% are spread across Riyadh and Jeddah, and 16% over other cities and regions.

Saudi Arabia launched its first tourist visa in 2019 and established the TDF in 2020 with a capital of $4 billion. By September 2021, the fund had deployed $533 million in tourism projects worth a total of $1.6 billion. The remaining $1.06 billion has come from private sector investments.

Almost every global hotel chain has announced new projects in the kingdom, including Accor, with 33 projects in the pipeline; Hilton Worldwide, with plans to expand from 15 to 75 hotels; and IHG Hotels & Resorts, with 23 projects planned over the next three to five years.

Marriott International is also planning to double its properties in Saudi Arabia to 60 hotels, a spokesperson told Salaam Gateway.

Some brands are arriving for the first time, such as Banyan Tree AlUla, while others like Mariott’s Luxury Collection and Steigenberger Porsche Design Hotels are opening their first development in the Middle East in Saudi Arabia.

For hotel operators, certainty around project delivery and future occupancy levels is mainly driven by the government’s tourism strategy, which seeks to build 500,000 hotel rooms across the country by 2030.

“Whenever hotel operators are looking at a potential deal, the key factor that governs their approach is rooted in the likelihood in delivery,” said Manzoor. “As such, when dealing with government entities, there is a high level of confidence in project execution, which is directly correlated to the acceleration of recent signings. This remains true when dealing with smaller developers which may have a limited track record – where TDF is involved, there is a certain level of assurance there,” he said.

Heritage, culture and sports tourism

To promote Saudi Arabia’s diverse nature and heritage, hotels are increasingly taking up projects in remote regions, coastal cities, historic areas, and on private islands.

For example, Aman Resorts and Cruise Saudi plan to launch a floating hotel superyacht in 2025, while the recently opened Habitas AlUla is nestled in an ancient oasis in the desert canyons of Ashar Valley. The PIF’s new company Boutique Group also plans to transform historic palaces into opulent hotels.

Additionally, new annual events such as the Saudi Arabian Formula One Grand Prix and the Red Sea Film Festival are expected to attract more visitors and boost hotel occupancy.

“The increase in visitation will likely occur in a staggered manner and will initially be driven by domestic travellers. As these destinations continue to be developed out, the increase in visitation will cascade to inbound tourism from the wider Gulf Cooperation Council (GCC) countries, and ultimately, international travellers from the broader market,” said Manzoor.

Saudi nationals have historically enjoyed going on leisure trips to places like Abha, Al Baha, Khobar, and other minor cities. The government has now realised the opportunity of such destinations and that by adding to their appeal tourists will stay longer in the country.

According to the US-Saudi Business Council, domestic tourism was the primary driver of Saudi Arabia’s tourism GDP in 2020, with $12 billion spent within the country compared to $6 billion internationally.

“In locations within Saudi Arabia that have a lot to offer but historically have been underutilised. Efforts are being made to revamp the product offering. Typically, this takes the form of developing integrated internationally branded hospitality developments in favour of the poorly maintained properties that may have previously dominated such destinations,” said Manzoor.

Once secondary destinations evolve to a point where they are better able to compete with international destinations, inbound tourism will follow.

“As these destinations get more developed, the final wave will be international tourists, probably from Europe and China, something similar to what we see in other major markets in the region,” added Manzoor. “Even if curiosity is the initial hook, having a solid value proposition to surpass expectations and have repeat visitations would be the key to success.”

Attracting 100 million tourists by 2030 may be a challenge however. While the kingdom’s Vision 2030 aims to attract 30 million Umrah and Hajj pilgrims, which is considered feasible, 70 million tourists will require Saudi Arabia to become as popular a destination as Spain, which attracted 83 million tourists in 2019, and Italy, which attracted 62 million tourists. Saudi Arabia attracted 15 million tourists in 2018, and 18 million domestic and foreign pilgrims in 2020, according to the General Authority for Statistics.

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