The economic downturn hit the tourist industry around the world last year, but hotel construction continued apace in Saudi Arabia.  In 2009, a number of international hotel groups launched operations in the kingdom. Rotana opened its Al-Marwa Rayhaan hotel in Mecca, Hyatt Hotels & Resorts opened a new Park Hyatt in the centre of Jeddah, and Accor Group opened a Sofitel in Al-Khobar. This year Raffles Hotels & Resorts will open Raffles Makkah Place, its first property in the kingdom.

The dynamics of the Saudi market ensure hoteliers a safer return than many other markets, because it is buoyed by religious pilgrims and business travellers.

The ongoing regeneration of Mecca helps create an enduring demand for hotel space. About 3 million pilgrims visited Mecca for the Hajj in December 2009, and it was estimated that 25 per cent more were kept away by fears of the swine flu epidemic.

Good return

According to projects tracker MEED Projects, $26.8bn of construction projects are earmarked for the city of Mecca, the majority of which are hotel and real-estate related.

The $1.6bn Abraj al-Bait development is due for completion at the end of 2012. Designed by Beirut-based Dar al-Handasah Consultants, the scheme, being developed by the Saudi Binladin Group subsidiary Jiwar Real Estate, has seven residential towers and a five-star hotel. 

In mid 2008, the US’ Fairmont Hotels & Resorts announced it is to open a hotel in the landmark Mecca Clock Royal Tower development. Featuring 1,005 guest rooms and suites, the hotel will be in the tallest tower in the project, reaching 577 metres with 76 -storeys.

Also under construction, through a joint venture of Saudi Binladin Group and Saudi Oger, is the $2.7bn Jabel Omar project, featuring six five-star hotels and seven 35-floor residential towers. It will eventually have 15,000 rooms, with the first phase due to open in the second quarter of 2011. In another development, Malaysian-based Tabung Haji is building a 30-floor hotel about 200m from the Masjid al-Haram (the Holy Mosque) in Mecca. Costing SR1bn ($267m), it will have 1,650 rooms.

Wael Rashed, area director of sales and marketing for the US’ Starwood Hotels & Resorts, says the kingdom is a key market.

“The region in general was not fantastic in 2009, but Saudi Arabia seemed the country least affected,” he says. “It has a lot of hotels in the pipeline and demand still exceeds supply.”

While religious tourism provides a steady stream of income for hoteliers, a question remains over the extent to which the global financial crisis has affected business travel. Income from the 5 million business visitors to Saudi Arabia in 2008 was SR14bn. Business travel was mostly to the cities of Riyadh, Jeddah, Mecca, Dammam and Medina.

Prince Sultan bin Salman bin Abdulaziz al-Saud, president of the Saudi Commission for Tourism & Antiquities (SCTA), is optimistic about the future of travel to Saudi Arabia and predicts business visitor numbers as well as religious tourism will increase significantly in the next 10 years.

Speaking at MEED’s Arabian Hotel Investment Conference in May 2009, he said total visitor numbers were expected to nearly double from 47 million in 2008 to 88 million in 2020. He forecast that the number of hotel rooms would rise from 117,000 to more than 254,000 and the number of apartments would increase from 101,500 to about 186,000.

Jon Bamsey, chief operating officer with the Intercontinental Hotels Group (IHG), agrees that Saudi Arabia is a promising market.

“We see Saudi Arabia as the strongest market in the Middle East region,” he says. “There is strong inward investment, driven by oil cash. Swine flu impacted on visits to the -religious cities, especially during the Hajj and Umrah pilgrimages last year, so, while overall visitor numbers might appear down, we see 2010 as a growth year.”

Business travel is a significant target for IHG and it is expanding its budget hotel arm into the kingdom. “We have just signed contracts for three new hotels to be located in Jeddah and Medina, and a dozen further properties in the kingdom, all under the Holiday Inn Express brand,” says Bamsey.

Budget rooms

In January 2008, IHG signed an exclusive franchise development agreement with the local Siraj Capital to develop the Holiday Inn Express brand in Saudi Arabia. A total of 12 properties will be developed in the next five years. The first three will together offer 575 rooms – 252 at the Madinah Road hotel in Jeddah, 140 at the Knowledge Economic City hotel in Medina and a further 183 in King Abdullah Economic City.

Bamsey points to a growing demand for limited-service hotels for budget-conscious travellers. IHG opened one such hotel – the Crowne Plaza in Al-Khobar – in September last year.

Essam Abouda, vice-president of operations for the US’ Hilton group in the Arabian Peninsula and Indian Ocean, echoes Bamsey’s view of the market, believing it is strong despite the global financial turmoil of 2008 and 2009.

“We have experienced some delays to projects, but overall we are still on target,” he says. “The Saudi hospitality industry is robust and growing. It is one of the most versatile markets in the world, as it caters to three strong tourism segments – business, religious and -leisure. Despite having an oil-based economy, the Saudi government is working towards a more diversified economy, which includes a plan to increase revenue and employment in the -sector.”

The SCTA says employment in the kingdom’s tourism industry will grow from 1.1 million to 1.5 million between now and 2020.

“Saudi Arabia’s market is in positive health. It has a lot of hotels in the pipeline and demand still exceeds supply”

Wael Rashed, director, Starwood Hotels & Resorts

“Saudi Arabia is one of our best-performing countries in the region,” says Abouda. “Our key profit-contributing hotels are there. It is a key development market for us and a priority for 2010.”

The SCTA is targeting the domestic market as well as overseas visitor markets. According to Prince Sultan, more than $10bn is spent annually by Saudis on overseas travel and the kingdom aims to capture 5 per cent of this through a number of major developments. These include the regeneration of Jeddah’s old centre by a consortium led by Lebanon’s Solidere International and including the local Urban Development Company, Siraj Capital, and Kuwait’s Commercial Real Estate.

“There are two major and distinct parts: the modern city centre and the historical district,” says Richard Azoury, project manager with Solidere International. “Tourism and religious tourism play a major part in the project.”

Tourist expansion

The $38bn Red Sea tourism plan approved by Riyadh in May last year has identified 21 new destinations along the western coast of Saudi Arabia, which will also be key to the future of Saudi tourism.

MEED reported in July 2008 how the SCTA had selected Al-Rayis to be the first of 19 coastal towns to be developed.

Osama Halawi, general manager of development areas with the SCTA, says the site, north of Jeddah, will cover 30 square kilometres and will attract $6bn of private investment. The development will be carried out in phases over 25 years.

Millions of religious tourists travel through Jeddah to Mecca and Medina each year and the  Red Sea plan aims to cater their needs. According to the SCTA, 51 per cent of visitors to Saudi Arabia enter on religious visas, spending about SR10bn in the kingdom each year. 

“We see Saudi Arabia as the strongest market in the Middle East region. There is strong inward investment”

Jon Bamsey, chief operating officer, IHG

This seasonal influx of people is a key driver of hotel trade. Bamsey says 55 per cent of IHG’s annual business occurs in just two months during the Hajj pilgrimage season. Hoteliers are keen to broaden this major income stream into a more balanced model.

Starwood’s Rashed says the breadth of development taking place in the kingdom is encouraging and will provide opportunities.

“We have 20 to 30 hotels in the pipeline in the region as a whole and Saudi Arabia is getting a big share of those, in Dammam, Riyadh or Al-Khobar,” he says. “It is a healthy market and we are seeking lots of partnerships.”

In July last year, a market review of the kingdom’s tourism sector by the local National Commercial Bank predicted “prosperous and steady growth” in the Saudi hotel industry for the next five years. And, with the overall economy predicted by local investment firm Jadwa to grow by 4 per cent in 2010, business tourists will continue to visit the kingdom and help to boost the sector.