Diversified Saudi economy drives development
20 NOVEMBER 2014 8:22 AM
Saudi Arabia enjoys a strong domestic market, leading the way for new hotel development with healthy ROI, according to sources.
GLOBAL REPORT—The Kingdom of Saudi Arabia might still primarily be known for religious tourism, but efforts to diversify into business and leisure tourism are opening doors to a slew of development opportunities, according to sources.
“Saudi Arabia is the largest economy in the region and one of the most self-contained economies worldwide. Its strong domestic market, resilience to global economic tremors and untapped wealth has driven us to explore various hotel opportunities across the Kingdom,” said Basel Talal, GM of the Radisson Blu Hotel Riyadh and district director for the Kingdom of Saudi Arabia for the Carlson Rezidor Hotel Group.
“Saudi Arabia’s (return on investment) is one of the best in the region, and this is expected to remain the case for the foreseeable future,” he added.
The group operates six properties with 1,000 rooms in Saudi Arabia, and its pipeline spells 15 properties with more than 2,600 rooms under its Radisson Blu and Park Inn by Radisson brands. And while it is still focusing on the major markets Riyadh, Jeddah, Makkah and Medina, the company is also targeting Al Khobar, Dammam, Jizan and Unaizah, according to Talal.
Opportunities for growth
With religious tourism visitation in the millions, it will likely remain the No. 1 growth sector in Saudi Arabia, but opportunities elsewhere are flourishing, according to sources.
Samer Abou Aleiwi, GM at Al Mashreq Boutique Hotel, speaking on the “Why Saudi Arabia is worth long-term investment” panel at the Vision Conference Hotel Show in Dubai, United Arab Emirates, said the holy cities were still in need of mid-market hotels.
“The pilgrim market will only grow. The investor money is on the table; it’s just a question of grabbing it to build economy rather than luxury hotels,” he said. Al Jouf, Jazan and Jeddah as growth areas, he added.
Talal said business and investment opportunities in the Eastern Province and upcoming secondary cities were driven by the government’s proactive approach to spread wealth across the country, causing yearly growth of internal travel and international inbound travel.
Mahmoud Mokhtar, VP of operations, KSA, Hilton Worldwide Holdings, speaking during an interview with HNN, pointed to oil and gas centers Dhahran and Yanbu maintaining a constant stream of local and international travelers.
At the same time, new demand is being generated by international companies looking for a share of Saudi’s booming market keen to invest in manufacturing facilities that contribute to the country’s strategic aim to diversify into non-oil sectors, he added.
The government also has invested massively into infrastructure, including air, road and rail transport, as well as commercial and residential real estate developments.
“Given all these highly favorable factors, we believe the long-term investment outlook for the hospitality sector in KSA is very positive,” Mokhtar said.
The country features the group’s largest pipeline in the Middle East, expanding on its existing portfolio of eight hotels with 3,000 rooms with an additional 23 hotels with 7,763 rooms spread between Riyadh, Tabuk, Yanbu and Dharhan, in addition to spanning its brands from the luxury Waldorf Astoria down to its midscale Hilton Garden Inn.
Riyadh is open in particular to midscale and upscale segments, also applicable to secondary cities thanks to the economic diversification, according to Mokhtar.
Ismail AlKamal, Director at AlKamal International Interior Design & Contractors, speaking on the panel at the Vision Conference, noted an increased demand for mixed-use developments around the country and spotted another trend.
“Our clients in Saudi Arabia are increasingly demanding more sophisticated designs wanting to build a memorable experience,” he said.
Aleiwi welcomes the news. “We are only full during the week because we’re part of an office complex, but if we had next to us a mall or a hospital, we could bring the families. The Saudi population is expected to triple over the next decade,” he said.
Rezidor welcomes a mix of corporate, leisure and religious travelers in the Western Province, while Riyadh and the Eastern Province attracts business individuals, government groups and crew, still led by domestic and regional, rather than Western travelers.
The Saudi Commission for Tourism and Antiquities has been working on creating leisure destinations. According to Talal, these would widen the segment of travelers influencing pipeline plans and increase ROIs.
The meetings, incentives, conventions and exhibitions segment also has come into the spotlight with expansion and renovation of exhibition spaces around the country.
“What is really needed is a more relaxed visa process for the participants allowing international exhibitors to plan for their events more effectively,” Talal said.
The Saudi Exhibition & Convention Bureau is working toward that aim.
“We are working with all the stakeholders, such as the Ministry of Foreign Affairs to help remove barriers of visa entry for foreigners, as well as with customs. The good news is that we have yet to find an agency that is not willing to work on this,” said the SECB’s Strategic Planning Consultant & Development Manager Jerad Bachar, speaking on the Vision Conference panel.
“The phenomenal hotel expansion has raised concerns about future demand as the majority of new hotels are luxury inventory. Hotels, including, boutique in combination with a conference center could remedy this,” he added.
Hilton supports the SECB’s activities, according to Mokhtar.
”We consider the MICE segment, domestic and regional, to be an extremely important source of business from a domestic and regional perspective,” he said.
In terms of tourism only Umrah/Hajj visa holders can now become tourists as well. Talal sees this as the first positive move benefiting Jeddah and Riyadh as visitors would extend their stay to shop or relax.
“We are in a fast-changing dynamic region, and Saudi Arabia is a key market. We have seen so many changes during the past 10 years toward the easing of visa regulations. We foresee that the tourist visa for international travelers, as well as other regulations, will eventually be implemented,” he said.