Across the board: Expanding capacity to accommodate the growing population and increasing number of visitors

With the population of Makkah expected to double over the next 15 years and the number of pilgrims forecast to continue rising steadily, there is one central theme when it comes to development planning: the need to expand capacity.

This applies to both residents and visitors; there is a need to build capacity for and improve the experience of the ever-increasing number of pilgrims to Islam’s holiest city, as well as to provide for the permanent population and improve the quality of life. Efforts to achieve both of these aims mean the drive for development is extensive and ranges across a number of areas, with Osama Al Bar, the mayor of Makkah, telling local press that ongoing projects in the city – spanning transport, utilities, accommodation and more – had an estimated total value of some SR300bn ($80bn) as of August 2013.

December 2013 saw the appointment of a new governor to Makkah province, Prince Mishaal bin Abdullah, previously governor of Najran.

PILGRIM ARRIVALS: As the main driver of Makkah’s economy, and the focus of many of the city’s development projects, a keen eye is kept on the number of religious visitors to the city.

Performing the Hajj is obligatory for all Muslims who are physically and financially able, and the number of pilgrims visiting the city has followed a largely steady growth trajectory since 1995 as transport costs have declined, making Makkah accessible to many more Muslims from around the globe.

The Hajj season of 2013, which fell between October 13 and 18, however, saw the number of foreign visitors drop by some 21% from 2012 levels, largely as a result of the reduced number of visas issued by the Ministry of Hajj in order to ensure the safety of pilgrims as expansion work continues in and around the various sites involved in the Hajj, and in particular at the Grand Mosque.

This meant that some 1,379,531 visitors arrived in the Kingdom to complete the 2013 Hajj, from 188 countries. Of these foreign pilgrims, the Hajj Supreme Committee noted that 1,292,098 arrived by air, 72,535 by land and 14,898 by sea. In addition, there was also a reduction of more than 50% in the number of permits issued to Saudi nationals, which dropped from 1.4m in 2012 to around 600,000.

INCREASING NUMBERS: Further to Hajj, the Umrah, or lesser pilgrimage, is a continual draw to the city throughout the year, with numbers also steadily increasing of late. While not obligatory for all able-bodied Muslims, completing this pilgrimage is considered by many to be highly desirable.

The Umrah season of 2013/14 got off to a positive start, with 3m visas having been issued already by early March 2014, and plans in place to receive 6m pilgrims over the entire year. The Ministry of Hajj has said that it does not plan any reduction in Umrah visas in 2014, except to limit the number of visas issued during the month of Ramadan, again to ensure pilgrims’ safety.

Combining the visitors for both Hajj and Umrah, more than 11m Muslim pilgrims from 140 countries visited the Holy Cities of Makkah and Medina in 2013 with this figure is expected to rise to 17m by 2025. Traditionally, pilgrims sought accommodation with local residents. However, as pilgrim numbers increased over the years, this became impossible to sustain, and providing accommodation for pilgrims has thus become a mainstay of the local economy. The city has a total of some 61,000 hotel rooms, making it the single largest market for accommodation in Saudi Arabia, and many more hotel rooms are now planned or in the pipeline.

The average stay in the city is 5.1 nights, while overnight stays have been increasing by around 10% a year according to figures from industry website Top Hotel Projects. Occupancy rates throughout the year average around 80%, and can reach 100% during Ramadan and Hajj – such demand levels and the increasing number of pilgrims have resulted in something of a boom in hotel construction in the city in recent years (see analysis).

DEVELOPMENT: As the number of pilgrims continues to rise, the authorities are working to adapt and expand the Grand Mosque, the focal point of several Hajj rituals and indeed Islam itself, as well as improving existing pilgrim facilities and adding new ones in the city. The first phase of the $21.3bn Grand Mosque expansion was opened in July 2013, boosting capacity to around 1.5m worshippers, while the final figure, due to be achieved in a number of years, is set to be around 2m.

Carried out with Saudi Binladin Group as the main contractor, the project goes beyond the previous expansions to the Grand Mosque itself, with the second phase set to include construction of rest rooms, tunnels and other services to ensure the smooth and safe movement of worshippers.

The third phase of the project will add a district-cooling plant, an electricity station and water stations, along with other amenities to further ensure safety and provide comfort for pilgrims. The expansion plans also required expropriation of a number of properties in the area, and the Saudi government has paid out some SR133bn ($35.5bn) to the owners of these properties in compensation.

In addition to increasing the capacity of the holy sites, the entire city of Makkah is the subject of a development strategy aimed at meeting the needs of the growing population as well as improving living standards. Through its investment arm, Al Balad Al Ameen (ABAM), the Makkah Municipality is engaging the private sector to execute this strategy, covering areas such as slum redevelopment, housing, transport and utilities, mainly through public-private partnerships (PPPs) – providing many opportunities for investors in the coming years.

TRANSPORT: The existing transport infrastructure both inside and outside the city has been strained by the increasing number of visitors and residents. A considerable part of the development strategy being undertaken by ABAM is focused on upgrading and creating new transport links within and beyond the city. The Al Haramain High-Speed Rail Project, a 450-km passenger train line linking Makkah and Medina via Jeddah, King Abdulaziz International Airport (KAIA) and the King Abdullah Economic City, while also catering for local business and leisure travellers, promises to vastly improve transport for pilgrims between their port of arrival (usually Jeddah seaport or airport) and the Holy Cities. Work is well under way on this project, although some delays have been experienced so far. Originally scheduled to be operational in late 2014, officials are now saying that the project will be delayed by around a year.

This rail link will complement the ongoing expansion project at KAIA in Jeddah, which is set to be operating at its new capacity of 30m passengers per year as of the first half of 2015. Delays at the airport are common and the expansion work should help to address these, while the direct rail link between this entry point and the Holy Cities will reduce travel time to and from the airport.

The expansion of Taif airport, which also receives international flights, will help take some of the pressure off of KAIA by offering a new port of entry for pilgrims. Work is under way to expand the airport with the aim of increasing annual passenger traffic from 350,000 to 750,000, according to the General Authority of Civil Aviation. At present, the airport is served by flights from Egypt, Turkey, UAE and Kuwait, as well as from 23 domestic airports. The completion of a new road between the mountain city and Makkah by the end of 2015 will complement the expansion work, providing pilgrims easy access to the city either by public transport or by taxi and private car up to the Al Shimaisi checkpoint, then public transport to the Grand Mosque.

Within Makkah itself, plans are also afoot to expand the mass transport infrastructure. Opened in 2010, the 18-km Al Mashaer Al Muqaddassah light rail, which links the pilgrimage sites of Mina, Muzdalifah and Arafat, has reduced journey times for pilgrims from over five hours to two hours, but it does not have the capacity to deal with the demand placed on it at peak times. At present, it can handle around 1m of the 2.5m-3m Hajj pilgrims. To address this issue, ABAM established a subsidiary company, the Makkah Mass Rail Transit Company, which is working on plans for a fully integrated mass transport system that will include four lines with a total length of 114 km and 62 stations (see analysis). In addition to this, an expansive network of buses linking all districts with important sites will be established. Phase 1 will include 12 lines, which will consist of five bus rapid transit lines and seven local lines due to be in service by mid-2016, with tenders expected to be issued in mid-2014.

Makkah’s road network is also being upgraded. In addition to work on the Makkah-Jeddah highway, as well as the aforementioned link between Taif and Makkah, the city’s roads are also getting a significant makeover. The long-awaited third ring road is set for completion in 2014, after some seven years of delays, while progress continues on the fourth ring road; both roads promise to ease traffic congestion and reduce travel times within the city. The former will enable travellers from Jeddah to directly access the Lady Aisha Mosque by linking the Jeddah Road with the Al Taneem district via a series of tunnels and bridges, while the latter will link the holy sites with the Makkah-Jeddah Expressway via the King Faisal Bridge and Batha Quraish.

HOUSING: Land prices in Makkah are some of the most expensive in the world, ranging from SR500,000 ($133,300) to SR1.5m ($399,900) per square metre in 2012, according to comments made by Mansour Abu Rayash, chairman of the real estate committee at the Makkah Chamber of Commerce and Industry, to the local media. As the number of pilgrims coming to the city increases and infrastructure is further developed, prices look set to continue to rise. Accordingly, affordable housing is a real issue for the residents of Makkah, and the government is working to build affordable housing for them.

The Bawabat Makkah, or Makkah Gate project, on the outskirts of the city will be a self-sufficient suburb with a range of amenities, including a university, medical centres, an entertainment and education complex, park, cultural centre and so on, as well as housing for some 690,000 residents. This project, owned fully by ABAM through its subsidiary Bawabat Makkah Company (BMC), is being developed in several stages, using a number of different models to engage various private sector players in publicprivate partnerships (PPPs), in order to help with the development of the site.

The first of these phases, the Sumou Suburb Project, which will provide some 6000 units, is on track and completion is targeted for the end of 2017. This project company is 25% owned by BMC and 74% by Dahiat Sumou. In addition to this, the recent establishment of the Bawabat Makkah First Real Estate Development Fund looks set to provide an opportunity for smaller investors, as well as a total of some 5800 housing units.

A fund manager (FM) has already been selected and is preparing a submission to the Capital Markets Authority. The fund will focus on raising equity from retail investors in order to give a larger section of the population an opportunity to invest. Currently, the BMC is preparing the land deed, master plan and infrastructure plan and calculating infrastructure costs. It will then contribute a portion of the land value to purchase its share of the fund. The BMC will be the development manager, acting for the FM, and the developed land will be sold by auction by the FM, with profits being ploughed back into the overall Bawabat Makkah project for trunk infrastructure such as mains electrical substations connecting to the national grid, main sewer lines to treatment plants and pump stations, main water lines and storage tanks, as well as other developments. BMC also expects to have a master and infrastructure plan in place by August 2014 for the zone 9 region of Bawabat Makkah, which is expected to include around 4000 units and some 15,000 dwellings. When this is done, a contractor will start on a two-year project to install the infrastructure for this zone, upon completion of which plots in this development will be sold at auction.

UTILITIES: Makkah has also somewhat outgrown its utility infrastructure, and efforts to develop this are also seen as central to its future prosperity and the comfort of permanent residents and visitors. The National Water Company (NWC), in a PPP with Saur Group and Al Zamil, is developing 60 projects to upgrade water and sewage infrastructure at a total cost of SR5.5bn ($1.5bn). These projects include the implementation of new facilities as well as the repair and rehabilitation of old main lines and subnetworks in addition to household connections for both sewage and water. In Batha Quraish and Al Awali more than 200 km of piping will connect some 13,000 households to water supplies, while in Afaiha the sanitation network will be extended to 11,000 more households. A project to replace drainage systems in Al Aziziyah at a total cost of SR170m ($45.3m) will also be implemented. In addition, the NWC is expanding the treatment plant at West Makkah (Hada 2) to increase capacity by some 125,000 cu metres per day to a total of 250,000 cu metres, while storage capacity is also set to be boosted to around 1.3m cu metres, along with infrastructure to deliver water to the holy sites.

As of September 2013 local and international consortiums were bidding for the establishment of a solid-waste processing plant in Makkah with investments estimated to reach SR3bn ($799.80m). The project will occupy an area of 2.5m sq metres and process between 750,000 and 1m tonnes of waste produced by the city annually.

RETAIL: The Kingdom’s retail sector is experiencing significant growth, resulting from a young population with increasing levels of disposable income. Research by Squires Sanders suggests the sector will be worth almost $74bn by 2014, up from $68bn in 2012. Makkah’s retail sector, however, is almost entirely oriented around serving pilgrims, and as such it is much more heavily impacted by the ebbs and flows of visitor numbers than the retail sectors in other Saudi cities. Thus, 2013 was a tough year for retailers in Makkah, as the lingering effects of the global financial crisis, the political instability in the wider region and expansion work at the Grand Mosque hit visitor numbers, their spending power and in turn retail profits.

As is traditional, many visitors to Makkah choose to buy gold jewellery for family and friends, and News reported in October 2013 that bullion prices in the Makkah retail markets were around SR160 ($43) per gram, compared to SR200 ($53) in 2012. Anecdotal evidence also points to a general decline in footfall in the usually popular shopping areas around the Grand Mosque. Early reports from 2014, however, suggest that a strong start to the Umrah season has provided some much-needed custom for the city’s retailers, with hopes that a return to normal Hajj numbers will translate into better sales over the course of the year.

Much of the retailing that takes place in Makkah is in the relatively informal setting of roadside stalls and individually owned stores. This is changing though, as more formalised retail platforms are being developed, particularly as part of the large-scale projects taking place around the Grand Mosque. The Jabal Omar Development, for example, is a $5.3bn project that will include 4360 commercial and retail units in a 2.2m-sq-metre site, and upon completion in 2017 it will be the country’s largest mall.

OUTLOOK: The growing ease of global travel as well as the increasing affluence of both the global Muslim community and the Saudi population mean that pilgrim numbers will undoubtedly continue to rise.

Work to develop transport and utilities infrastructure as well as major projects to build housing and expand hospitality offerings look set to help accommodate the increases in the local population and the number of visitors to the city. Realising all of this, however, will not be without its challenges. Land prices and speculation remain major issues, as does the seasonality of visitor numbers. The crowded nature of the city and its acute need for transport infrastructure development will mean that any delays to projects in this area could have knock-on effects on other projects in the city.

However, recognising these challenges, the new governor of Makkah has made such projects a priority. Coupled with the Holy City’s perennial draw for Muslims from around the world, this means that the coming years will likely much potential as Makkah moves forward with its development programme.