Hoteliers are moving into Saudi Arabia with individual assets and mega-projects as the kingdom fine-tunes its Saudi Vision 2030 amid government initiatives around education, tourism and visa processing.
ABU DHABI, United Arab Emirates—Hoteliers are working hand in hand with Saudi government departments to boost tourism in the kingdom and align themselves with the country’s ambitious Saudi Vision 2030 master plan, which has both religious and leisure tourism at its heart, according to sources.
Individual hotels will open in the decade before 2030, but there also are a series of mega-projects that will open in phases leading up to that year. Two such projects include the 10,800-square-mile Red Sea Project, an initiative of the Public Investment Fund of Saudi Arabia on the country’s west coast between the cities of Umluj and Al Wajh, and the 160-hectare Mayasem development north of Jeddah, a project overseen by the Shamayel United Development Company.
“We’re aligned with (Saudi Vision 2030) in terms of job creation, entertainment and planning how to create a new destination,” said Claude Attala, Shamayel’s chief hospitality and retail officer. “Three or four months ago, we took the blueprint for the vision as an exercise to see if the two merged, and the plan we set out four or five years was in line. That is pleasing to see. Our project has a 10- to 12-year development cycle, and I have seen incredible changes in the five years since I have been here.”
It is not just Saudi-based companies getting on board. Jakarta, Indonesia-based operator Archipelago International plans to open Makkah’s first 5-star hotel, according to VP of Business Development Norbert Vas.
“We would not have pushed for our first Middle East asset to be in Saudi Arabia if we did not think the landscape is correct,” he said.
Archipelago International has opportunities to grow in Saudi Arabia, Vas said.
“Indonesia has the fastest-growing Muslim population,” he said, adding that since the Saudi population is playing catch-up in terms of service provision, operators currently have a huge responsibility on their shoulders.
Abdellah Essonni, chief hospitality officer of MAAD International Company, said the 2030 vision includes very ambitious aims to redesign Saudi Arabia to have a lower dependency on oil.
“Tourism was 3% of (gross domestic product), but that number now is up to 10%,” he said. “That is massive, and that is helped by the government’s input, which needs to go far beyond the interests of the shareholders. There is a holistic approach.”
MAAD has thrown its support behind a 21-hotel project comprising 11,283 rooms in Makkah, a destination for religious pilgrimages. The project’s first stage of development with 4,408 rooms is nearly complete.
Attala said improvements in education and service have aided the country’s master plan.
“I have been encouraged by the younger generations in Saudi Arabia, and I am confident,” he said. “There are big strides taking place. The population is keen to learn and very educated.”
That education is mirrored in the increased knowledge of Saudi owners, sources said.
“Maybe some big players have taken advantage of a general lack of expertise, but that has changed now,” Vas said. “The sophistication of local owners has led to them realizing both parties must get something out of (a development). It has created a new level of fairness.”
Franchising is gaining momentum in Saudi Arabia, Essonni said.
“We are seeing more and more branded hotels,” he said. “Fifteen years ago, there were only two, but now that number is now slightly more than 10% in existing inventory, so that is an interesting shift. And all these brands are getting expert advice.”
Owners are also becoming more sophisticated, Attala said. “Owners are learning it is a long-term commitment,” he said. “International investors have seen the infrastructure has been put in, but even more onus on transparency will of course benefit everyone.”
There are risks and challenges in Saudi Arabia, but heads on beds is not one of them, sources said.
“Build it and they will come is particularly true,” Essonni said. “Currently there is a quota for the hajj of one person for every 1,000 in the population, so if the government doubles that quota, there will be absolutely no problem about filling supply. During Ramadan, there is almost guaranteed 100% occupancy, although overall seasonality is varied. But religious tourism has the ability to help other destinations. I do not see there being a problem in oversupply.”
Vas said there’s still room to grow demand. “Archipelago has 80 million in our database yearning to stay in Makkah, but as everyone has the same distribution (technology) and there is 60% to 65% occupancy, it remains competitive,” he said.
Attala said more work needs to be done in simplifying the visa process. “Special exemptions do exist for some events, but (visa processes need) to be more flexible. That is changing,” he said.
Essonni said one unknown is how the domestic market will react to the new tourism.
“Saudi does spend $30 billion in outbound, so if a tiny part of that stays in the country, that’s a big win,” he said. “And it is not as though the government does not have plans to market the country globally.”