Rooms needed as Kingdom opens its doors
Saudi Arabia’s growing entertainment sector will have a major effect on the hospitality market in the Kingdom with a strong synergy between the two.
The Kingdom has dramatically increased its hotel offering in recent years following growing interest from international hotel groups. Hotel supply in terms of rooms grew by 13 percent in 2017, with rooms in construction set to increase current stock levels by 51.4 percent, or more than 48,000 rooms.
This accounted for a 37.9 percent share of all rooms in construction across the Middle East. Saudi Arabia wants to boost the number of hotel rooms in the Kingdom to 600,000 by 2020.
Several factors are driving hospitality growth in the Saudi market. The expansion of tourism has significantly increased the number of international visitors. Total international overnight visitor arrivals in Saudi Arabia topped 16.1 million in 2017, alongside a 10.5 percent year-on-year increase in expenditure to $14.8 billion. Such encouraging growth is forecast to continue, with international arrivals due to increase by 4 percent per annum to 2025 to reach 22.1 million, according to the World Travel and Tourism Council.
A series of major leisure developments announced in recent months, including the Six Flags theme park, the Red Sea project and the Amaala megaproject, also will boost the hotel offering for domestic and international visitors.
Guest profiles are changing in line with the changing dynamics of the country. While hotels saw a decrease in expat families within the Kingdom, attributed to the introduction of expat levies on dependents, they have had a spike in female guests, influenced by women traveling both for work and leisure.
Another trend is the increasing demand for branded mid-market hotels, driven by growing numbers of budget-conscious guests. With corporate travelers, both domestic and international, also increasingly favoring budget accommodations, there is insufficient supply in the market.
To bridge the shortfall, many hospitality companies will expand their footprint in other cities and across other segments by launching new brands or through mergers and acquisitions transactions. BMG Financial Group recently successfully concluded advising on the first acquisition deal in 2019 between Dur Hospitality Company and Nuzul Shada, which was in line with both companies’ strategies to expand across the Kingdom.
Saudi Arabia remains a key market in the hospitality sector and presents an attractive market for expansion, fueled by increasing demand from tourists. High-quality hospitality is needed to meet the needs of the fast-growing mid-scale segment in line with the Kingdom’s Vision 2030.
Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.