HOW RIYADH HOSPITALITY MARKET IS POSITIONED?
Riyadh Hospitality Market is currently undergoing transition with austerity measures in KSA, plunge in crude oil prices, and rise in Iqama fees and introduction of dependent fees due to Saudization. Riyadh has a mature hospitality market which is home of over ~ hotel rooms in the year 2018. Hospitality sector in Riyadh is highly skewed towards the five star properties which accounted for approximately ~% of the city’s room supply though development opportunities from a supply perspective in the city over the coming years lie in the midscale and upscale sectors rather than the upper upscale and luxury sectors. Local nationals promoting regional tourism within Riyadh generally prefer furnished units and stay for longer duration as a result contributing to a better occupancy.
The hospitality sector is expected to observe the rise in Saudi national participation with tourism sector actively seen as one of the major source of employment of young Saudis. Additional jobs of ~ hospitality related jobs are 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.
Evolution of new physical spaces for accommodation has also changed how people travel. The rise of Air BnB and home sharing spaces has also strengthened the demand for leisure travel
FACTORS INFLUENCING THE HOSPITALITY MARKET IN RIYADH REGION
Rise in International Arrivals and Domestic Tourists
The KSA (Kingdom of Saudi Arabia) is prominent tourist destination for business, leisure & religious tourists. The country has witnessed an increase in the total number of international tourists, from 2017 to 2018. Domestic tourists also witnessed an increase from 2017 to 2018. The increase in number of international and domestic tourists indicates a positive trend for the country’s hospitality sector, as it directly equates to an increase in demand for hotels and tourism services.
Dominance of Business Tourism and Events in Riyadh
Business Tourism in Riyadh is a major contributor for the Hospitality sector demand. It includes Business felicitating activities and events such as exhibitions, conferences, meetings, and others. The economic importance of the exhibitions and conferences is really high in Riyadh.
Riyadh serves as the hub of business dealings and invites a lot of business tourism. The hospitality sector benefits from business tourism as Business tourists directly boost demand for Hotels, Conference rooms, Exhibition halls and others. Along with these, Tourists attending Events and Conferences also impact the demand. The total number of attendees for Exhibits in Saudi Arabia in 2018 depicted a marked increase as compared to2017
Government Initiatives towards Tourism
Saudizations, Reconstruction of Historic Mosques, The Kingdom as a Muslim destination initiative, The Kafalah program initiative, Saudi Seasons Project are some of the Projects run by the Government of Riyadh, in collaboration with various other organizations like the SCTH. Each project aims to solve a different issue or make Travel and Tourism in Riyadh more attractive
Presence of Branded Hotel Operators
Branded hotels have started expanding their presence in Riyadh, with major brands such as the Holiday Inn and Marriott Hotels opening multiple outlets in prominent locations. An increased number of Foreign Hotel Chains in Riyadh will market Riyadh as a go to destination, for leisure as well as business tourism. Multiple options among hotels available for tourists will also promote competitive product offerings for customers.
Increase in Tourist Expenditure
The Government of Saudi Arabia on an average spent USD 0.25 Billion, as of 2019, on an individual in terms of travel and tourism through its various investments in infrastructure, events and promotions. The tourism sector has seen sweeping transformation to enhance its contribution to economic diversification in line with Vision 2030.
CURRENT AND FUTURE DEMAND AND SUPPLY
The Hospitality market in Riyadh is showing significant potential owing to improvement in tourism, surge in personal disposable income among Saudi Nationals, developing infrastructure capabilities, increasing influx of foreign guests and others.
Both domestic as well as international players have been identified as the major target audience for the hospitality sector in the capital city Riyadh who are majorly looking for accommodation within premium hotels and resorts. Apart from tourists, people also come for business events and meetings (local / domestic and foreign expats) and prefer to book conference rooms and exhibition halls for project meetings. Riyadh is also known as the financial hub of the country as it consists of financial districts and business parks which host major conferences and events.
MARKET INSIGHT AND PERFORMANCE
Hospitality market of Riyadh faced a challenging economic / business environment during 2017-2018 owing to volatility / price fluctuations in crude oil after years of relative stability. Apart from that, delays in the completion of hotel infrastructure projects coupled with a decline in terms of business tourism have created a negative impact on the market. However, the market recovered during the year 2018 owing to several government initiatives which led to a higher supply of hotel rooms in the capital city Riyadh.
As the existing properties continue to compete for a higher occupancy in Riyadh, the hotel and resort pipeline for branded operators such as Movenpick, Hilton, Westin Riyadh, Element Riyadh, The Avenues and Airbnb and others is expected to launch new projects which are expected to open in the capital city in next 4-5 years
KEY EXPECTED HOSPITALITY PROJECTS IN RIYADH
With the current Supply Pipeline set to churn out new Keys, the Market should focus on increasing the Quality and supply of Rooms for the upcoming future.
The short term performance of hotel market in Riyadh may remain under pressure. However, in the long run, with the kingdom, investing heavily in the tourism industry and supporting infrastructure, tourist demand will increase, particularly from domestic tourism, which in turn reflect positively on the performance of hotels in Riyadh.
The quality of hotel supply within Riyadh is majorly skewed towards the five star hotels. However, in the near future development opportunities lie in the mid-scale and up-scale sectors. As a result of which, expected increase in average occupancy rate will be driven majorly by price sensitive customers who usually look towards economic hotel class.
Within Riyadh, the mid-market hotel segment is giving a stiff competition to the luxury hotel segment, which has dominated the Riyadh hospitality sector in terms of supply and pricing for a long period of time. The mid-market hotel segment includes mid-range priced hotels with modern amenities at lower costs. It has helped to generate market demand from emerging countries thereby, increasing occupancy rates yet causing a downward pressure on ADR
RECOMMENDATION FOR CONSTRUCTION OF 3 STAR HOTELS IN RIYADH
When it comes down to either the construction or the operations and maintenance of constructed facilities especially for hotels, parameters such as climatic conditions, floor-area, glass and non-glass facade and occupancy rate are collectively recognized as the top-ranked factors for 3 star hotels in Riyadh.
In accordance with the Saudi Commission for Tourism and National Heritage, the KSA hotel industry is evaluated as one of the leading attractive investment destinations across the entire Middle East. Within the hospitality industry, guests’ impression is considered as an important criterion which is attained by perfect operations as well as management of the services systems of a particular hotel.
Hotel facility has different spaces for different usage that has different timetables & utilization such as restaurants, guestrooms, health club, retail store, laundry, event room, swimming pool and other functional areas that are requirement of various engineering systems and are usually operated 24 hours all year around.
These costs include the direct cost of maintenance resources such as labor, materials and plants & tools while the indirect costs include administrative cost and cost management and maintenance overhead costs.
For more information on the research report, refer to below link:
Ankur Gupta, Head Marketing & Communications
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