Pilgrims pique investor interest in Makkah
Pilgrims pique investor interest in Makkah
20 SEPTEMBER 2012 7:09 AM

The Islamic holy city will welcome 30 new hotels by 2015, headlined by a 26-hotel, multibranded complex from Jabal Omar Development Company.

MAKKAH—Hotel investors are making a pilgrimage of their own to capitalize on the millions of religious tourists flocking to the Islamic holy land of Makkah-tul-Mukarrama, or Mecca.

Located in western Saudi Arabia, the holy city is set to receive more than 13 million Muslim travelers going on Hajj and Umrah pilgrims by 2019—up from 3.8 million during 2010, according to John Podaras, director Middle East & North Africa for Christie + Co. Makkah only admits Muslims.

“Approximately 50% of Saudi Arabia’s international tourist arrivals are for the purpose of religious tourism, said Adrian Jonklaas, associate director at PKF The Consulting House.

Muslim tourists to the Kingdom are expected to grow annually between 6% and 8% over the next two to three years, reaching more than16 million tourists, he said.

Hotel developers are working furiously to keep pace. Christie + Co. counts some 13,000 branded rooms among 30 new properties scheduled to open by 2015. “The others are either locally branded or still at the planning stages,” Podaras said.

According to PKF The Consulting House, the existing supply of 60,000 hotel rooms will grow by 15% during the next two to three years.

John Podaras
Christie + Co.

The Saudi Arabia government is contributing “tens of billions of dollars” to facilitate the building boom, Jonklaas said. The King Abdul Aziz International Airport in Jeddah, known as the “Gateway City” for religious tourists, is undergoing a capacity expansion from 12 million to 14 million passengers per year, with later phases expected to double and eventually quadruple capacity in the mid to long term.

The government also is expanding the Al Haramain High Speed Rail from Jeddah to Makkah and Madinah.
JODC dominates the development landscape
Headlining hotel development is the Jabal Omar Development Company’s 26-hotel, multiphase project being built on 24 million square feet of land.

U.S. firm Equinox Hospitality is overseeing the project, which has a development cost estimated between $6 billion to $7 billion. Phase one, comprising 2,900 rooms, is expected to open during the second half of 2013. An additional 21 hotels will roll out in four subsequent phases, with openings expected in the next 24 to 30 months.

Each hotel will be branded. Hilton Worldwide, Hyatt Hotels Corporation and Marriott International already have signed on to manage nine of the 26 properties. The agreements for the remaining hotels are under negotiation and likely to be concluded in the next six months, according to Firoz Moti, GM of Equinox Hospitality Group.

“This is the largest mixed-use development project in the world today, comprising retail and residential components as well,” he said. “The initiatives of the Saudi government to transform the holy city of Makkah into a modern smart city (have) gained momentum with the development of a number of other projects as well,” he added, pointing to these infrastructure initiatives.

Parsing performance
The JODC development had been on the drawing board for years, but the global economic crisis and resulting debt-financing drought delayed plans. But even the worst economic downturn could not deter traveler interest.

“Makkah is a demand-starved market where gross operating profits generated by hotels are the highest in the region,” Moti said.

Average occupancy in Makkah August year to date was 67.3%, a 5.8% increase from the prior-year period. Average daily rate was up 7.5% to 777.12 Saudi riyals ($207.23), and revenue per available room increased by 13.8% to 522.92 Saudi riyals ($139.45), according to STR Global, sister company of HotelNewsNow.com.

Demand during the same period was up 22.6%.

“In addition, the numbers of Muslims worldwide is expected to grow by 35% in the next 20 years, from 1.6 billion in 2010 to 2.2 billion in 2030,” said Christie + Co.’s Podaras.

“With the development of infrastructure, more and more Muslims from other parts of the world will be able to come, especially from Europe and Asia,” said Olivier Granet, director of development for Accor Middle East.

Accor is in the process of finalizing its own management agreements and the construction of two Sofitels, one Novotel and one Adagio Serviced Apartments within the JODC project.

“Teams are mobilized and work done by the technical team with the architects and designer is progressing well,” Granet said.

Accor also is rebranding the existing ZamZam Hotel under renovation as a Pullman to open by the end of this year. The group’s objective is to eventually operate at least 5,000 rooms in Makkah.

“(Makkah) is an attractive market with still a lot of opportunities to match the hotel infrastructure to the needs of the pilgrims. … We would like to develop other segments and introduce new concepts such as economy hotel concept with our brand, Ibis,” he added.

While competition between Accor and other major global chains is getting fierce, operators admit there’s more than enough demand to go around.

Guido DeWilde
Starwood Hotels & Resorts

“Our two hotels in Makkah are performing extremely well and have seen revenue growth of nearly 150% over this time last year, thanks to a focus on emerging feeder markets such as Indonesia, Malaysia and Turkey,” said Guido DeWilde, senior VP and regional director of the Middle East for Starwood Hotels & Resorts Worldwide.

Starwood has had a presence in Saudi Arabia since 1978 with Le Méridien Medina and today the company operates 3,000 rooms in the country, three of them in the holy cities of Makkah and Medina. Other existing hotels include entries from Fairmont Raffles Hotels International and Swissôtel.

Makkah generates strong demand year-round—this despite a natural peak season during the Hajj annual pilgrimage and restrictions on visas for those wanting to perform Umrah, a spiritual visit to Makkah, which should be done once in a Muslim’s lifetime.

“Whilst peak demand will continue unabated, Makkah hotels are still affected by the seasonal fluctuations in demand, especially in the two months following the Hajj when visas are not granted,” to prepare for the next pilgrimage. Consequently, it is likely that although occupancies will remain unaffected in the high 90s during the peak season, the low season will witness a drop in occupancies to 30(%) or 35%,” Podaras said.

Executives at Hilton Worldwide, which will brand six of JODC’s hotels, are confident occupancies can be maintained year-round, said Essam Abouda, Hilton’s VP of operations, Arabian Peninsula and Indian Ocean.

“This market attracts diverse traveler segments throughout the year. Our existing properties perform well, with high occupancies year round,” he said.

Hilton has further plans for a Hilton Makkah Convention Hotel and Hilton Suites Makkah family venue to be built adjacent to shopping center in the city.

“This will further attract (meetings, incentives, conferencing, exhibitions) business from neighboring cities like Jeddah and Taif during the off-peak seasons,” Equinox’s Moti said.

Although the first phase of the JODC project will feature hotels skewed toward the higher end, the finished development will have 42% of rooms in the mid market and 30% in the budget segment, he added.

“We went through a stringent process of categorization of brands based on a number of factors, which included location and view of the holy mosque from the hotel,” Moti said.

No Comments

  • Isworo September 21, 2012 3:13 PM

    Just FYI I have to wait for my turn to go for hajj until 2020 due to the long queue following the fast growing number of middle class in Indonesia.We have quota of 240000 person per year and our government is trying to get bigger quota other wise we have to wait for more than 10 years to get our turn for Hajj.

Comments that include blatant advertisements or links to products or company websites will be removed to avoid instances of spam. Also, comments that include profanity, lewdness, personal attacks, solicitations or advertising, or other similarly inappropriate or offensive comments or material will be removed from the site. You are fully responsible for the content you post. The opinions expressed in comments do not necessarily reflect the opinions of Hotel News Now or its parent company, STR and its affiliated companies. Please report any violations to our editorial staff.