Capacity boost: Numerous hotel projects are in the works

With more than 61,000 existing hotel rooms in the Holy City, Makkah is the largest hotel market in Saudi Arabia by far. In comparison the capital, Riyadh, offers 10,000 rooms and Medina 7800 rooms, according to industry website Top Hotel Projects. Despite the large number of rooms, occupancy rates in Makkah remain high. The average from January through April 2013 was 85%, according to an Ernst & Young study, meaning the demand is clearly there. Thus, numerous projects are under way to bring new rooms to market.

NEW OFFERINGS: The largest of Makkah’s hotel developments, the Jabal Omar Development project, will include 38 hotel towers. The project, undertaken by a Saudi-owned company of the same name, is due to be completed in 2017, with the firm investing $3.2bn in the project. The fourth phase of the project, which consists of three podiums and seven hotel towers with a built-up area of around 320,000 sq metres, was awarded to Ruwad Construction Company. A total of 17 towers are under construction in the first three phases. Marriott International, Hyatt Hotels, Blackstone Group, Hilton Hotels and Starwood Hotels & Resorts Worldwide’s Sheraton unit will all manage properties in the project and are expected to begin opening in 2014 and into 2015, with Hilton Hotels launching the first tower at its Hilton Suites Makkah property in March 2014. Upon completion the entire project will add 13,500 rooms to the market.

Another project of note is Jabal Al Kabbah, which will add 7000 rooms upon completion of a cluster of hotels. The flagship of this development is due to open its doors in the first half of 2014. The Anjum Hotel Makkah, as it is known, will bring 1743 rooms to the market. Meanwhile, the Abraj Al Bayt complex, home to the Royal Clock Tower and the world’s tallest hotel, opened for business in late 2012 and contains over 800 hotel rooms, permanent residences and a shopping mall.

While the increasing ease and decreasing cost of international travel are driving pilgrim numbers upwards, there is still a large market for cheaper accommodation in the city, and mid-range hotels and furnished apartments further away from the Grand Mosque are popular options among those pilgrims of more limited means. There is a deficit of branded budget and mid-level hotels. Many international firms are focusing on increasing capacity in this segment. InterContinental Hotels Group, for example, has selected Makkah as the home of its largest Holiday Inn. The 1238-room mid-level hotel is expected to open its doors in 2016.

SPACE FOR EXPANSION: Serviced apartments are also an appealing option for pilgrims, as they can be considerably cheaper than hotels. There is a lack of options in the city, however, with most being leased privately or through small firms, offering little or no guarantee of quality. A Colliers International report published in December 2013 suggests that “there is scope for a further 6495 units over and above the forthcoming supply across the Kingdom of Saudi Arabia between 2013 and 2017. The primary scope for development of these units is in the Province of Makkah,” showing that there is considerable space for branded firms to expand or establish operations in this segment.

Expanding the sector in the city is not without its challenges. During the periods around Hajj and Ramadan occupancy rates can reach 100%, but the city also sees significant seasonal variations. Similarly, pilgrim numbers are subject to changes in policy, such as the government’s decision to limit Hajj visas in 2013. High land prices and human resource issues are other potential barriers to growth in the future.

However, regarding the latter, the number of Saudis working in hospitality is increasing, according to Hany M Jawad, project management office manager at Dyafat Al Balad Al Ameen. “While 10 years ago it was very rare to find Saudis employed in the hospitality sector, this has changed fundamentally. Now the challenge lies in keeping trained and qualified staff,” Jawad told OBG.

In general the forecast increase in the number of pilgrims means Makkah’s hospitality sector will continue to provide numerous investment opportunities.