Riyadh’s hotel market provides the greatest opening for developers

Saudi Arabia

Research from Drees & Sommer specialized global hospitality team has identified Riyadh’s hotel market with three-star as the best opportunity for growth as the capital undergoes a period of rapid economic diversification with the introduction of a myriad of attractions, theme parks, sporting events and concerts.

Commenting on the research, Managing Director of Drees & Sommer Global Hospitality division, Filippo Sona, said that the Saudi tourism market has witnessed promising growth in recent years, particularly in domestic tourism and of course religious tourism.

In Riyadh specifically, the government is undertaking a $23 billion beautification project which will incorporate green spaces, recreational areas and art installations to improve the quality of life for residents but to also prepare the capital for a more diversified tourism offering.

Several high-profile sporting events have underscored Riyadh’s reputation as a sports and entertainment destination in recent years. The ABB FIA Formula E Championship’s inaugural event took place in the historic surrounds of Ad Diriyah in 2018 and will return later this year with a crowd of 100,000 people expected. The capital also hosted some of WWE’s biggest stars during the Crown Jewel event, held on November 2018.

The Riyadh’s hotel market with the three-star market will only account for approximately 19% of the total hotel market in 2019, and an estimated 17% in 2020. Therefore, developing this segment could have the potential to return the greatest success for developers and the capital’s long-term tourism growth aspirations by attracting budget-conscious guests and families.

The research also revealed Riyadh’s hotel market witnessed growth in revenue per available room (RevPAR) and occupancy of 7% and 3% respectively this year, with an anticipated 4,500 keys expected to be delivered across three-, four- and five-star accommodation by 2020. This takes the total to 21,573 in the capital, from a base of 17,073 in 2018, a 26% increase.

The luxury segment continues to dominate the bulk of inventory coming online, the room count for the five-star market in Riyadh accounted for 43% of total rooms in 2018 with 7,243, this figure is expected to increase by 11% to 8,042 in 2019 and by 19% in 2020 to 9,584. In the four-star market, the total key count is expected to top 7,522 this year and 8,265 in 2020, a 10% increase.

Average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a 1% increase year-on-year, although a larger hotel room inventory could put downward pressure on rates.