Saudi Arabia's capital city Riyadh has great potential for midscale hotel growth, according to a study by Drees & Sommer.
Research from Drees & Sommer’s specialised global hospitality team has identified Riyadh’s three-star hotel market 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, titled Drees & Sommer Market Cockpit – Riyadh Midscale/Upscale Hotels Market 2019, managing director of Drees & Sommer’s Global Hospitality division, Filippo Sona, said: “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,” he noted.
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 in November 2018.
“The three-star market will only account for approximately 19 per cent of the total hotel market in 2019, and an estimated 17 per cent 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,” added Sona.
The research also revealed Riyadh’s hotel market witnessed growth in revenue per available room (RevPAR) and occupancy of 7 per cent and 3 per cent 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 per cent 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 per cent of total rooms in 2018 with 7,243; this figure is expected to increase by 11 per cent to 8,042 in 2019 and by 19 per cent 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 per cent increase.
Average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a 1 per cent increase year-on-year, although a larger hotel room inventory could put downward pressure on rates.
“In order to absorb ADR decline and preserve profitability, there is a greater need for clustering by international operators or groups of private hotels. This will help with HR and accounting savings, as well as food and beverage costs, for example,” added Sona.
Looking to the future, the research paper outlines several ways Riyadh could attract a range of new visitors by diversifying its offering from corporate visitors and government. Examples include focusing on emerging markets like China and India, reducing the dependence on local markets and religious tourism and also by developing the quality and diversifying the F&B offering by introducing superior food and service standards.
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