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Investor interest in the Saudi hotel sector is growing, so why are there so few rooms outside the cities?
RIYADH: In recent years, there has been a remarkable increase in the number of companies whose owners are interested in investing in the hotel sector in Saudi Arabia. Yet, at the same time, many observers continue to wonder why there are still so few hotels outside the major cities of the Kingdom.
Amir Lababedi, Hilton’s Managing Director of Development in the Middle East and North Africa, said, “Saudi Arabia represents our largest development pipeline in the Middle East, with plans to expand our presence to more than 75 hotels in the years to come.
“We plan to expand into locations in major primary and secondary cities in Saudi Arabia. We see potential for our midscale brands Hampton by Hilton and Hilton Garden Inn, as well as DoubleTree by Hilton and our lifestyle brand, Canopy by Hilton.
Meanwhile, Radisson Hotel Group announced this week that it plans to expand its operations in Saudi Arabia and increase its Middle East investment portfolio to around half of its total investments by 2026.
There is a strong demand for hotels rated three or four stars. The local population, as well as visitors – pilgrims, tourists and business people – prefer three or four star hotels because they are available all around and are very affordable for the general public. Commercially, their operating cost is lower and therefore they generate more revenue than a five-star hotel.
Saleh Al Habib, Executive Director, Jiwar Real Estate Development
Saudi Tourism Minister Ahmed Al-Khateeb said: “Radisson Hotel Group’s commitment to developing new hotels in the Kingdom and opening a regional office in Riyadh is an effective contribution to strengthening the Kingdom’s efforts to achieve its goal of receive 100 million visitors by 2030.”
Mahmoud Al-Saeed, general manager of Pereira Resorts in the Eastern Province, which is managed by Boudl Hotels and Resorts, said the company aims to meet the needs of all sections of society.
“Since a large part of society prefers three-star hotels for their quality and reasonable prices, the company has created a chain of Aber hotels,” he said. “He launched the brand in 2018 to meet the needs of the greatest number with a group of modern hotels, in terms of design and concept, at affordable prices while guaranteeing high quality and professionalism in the provision of services. .”
The three-star Aber hotels are “between apartment hotels and four-star hotels”, according to Al-Saeed. “The economic concept that Boudl is keen to present with this group of hotels has become an important issue for many travelers and those looking for a change from the usual way of life,” he added.
Boudl also owns the four-star Pereira and five-star Narcissus hotels. Al-Saeed said the company plans to expand into major cities and increase the number of three-star hotels in a number of Saudi cities. These hotels are seeing an influx of tourists from inside and outside the country, he added.
Al-Saeed, who has worked in the industry for nearly two decades, said hotels currently face a number of challenges, particularly “in light of COVID-19 precautions. These include the postponement of many events that usually take place in hotels and the cancellation of reservations for rooms used for celebrations or official meetings, due to the coronavirus and the problems that accompany it.
He added that the Saudi authorities are aware of the problems and are working to develop the hotel sector.
Thamer Alrajeeb, a former member of the tourist accommodation committee of the Riyadh Chamber of Commerce and Industry, said investments in the tourism sector in major cities were encouraging, particularly in Riyadh in support of tourism initiatives. the Saudi Entertainment Authority. It is, however, not profitable in other cities, where operations are seasonal for a period of a few months each year, usually coinciding with school holidays or good weather.
“For the rest of the year, the operation is a loss for the investor,” he said.
Alrajeeb described investing in hotels other than five-star establishments as “doable”. He said lower operating costs and prices are affordable for a wider range of customers, but added that “many requirements from the Ministry of Tourism weigh on investors”.
He said it was possible to meet the needs of visitors with average levels of financial solvency, especially outside the three cities of Riyadh, Jeddah and Dammam. This can be done by investing in hotel suites in particular, which are characterized by low start-up costs, “allowing their rental prices to be more commensurate with the creditworthiness of a wide range of travellers”.
The cornerstone for the development of hotel investment in the different regions of Saudi Arabia lies in facilitating the financing process for investors in the sector while meeting the requirements of the Ministry of Tourism, Alrajeeb said, adding that the focus should be put on efforts that help to improve quality in the sector and meet customer needs.
Fadil Munakeal, Manager of Jabal Omar Jumeirah Hotel in Makkah, stressed the importance of providing products and services that match a hotel’s star rating, which he said positively reflects investments in the sector. He urged the Ministry of Tourism to continue its supervision and monitoring efforts to make the sector more reliable and improve the image and perception of all types of hotels.
Munakeal, who is also a member of the hotel committee of the Makkah Chamber of Commerce and Industry, urged owners of less expensive establishments, especially in three-star categories and below, to invest in marketing techniques modern and to direct them towards a particular target. groups. They must also develop products and services that meet the needs of these target audiences, he added.
He said many domestic tourists, especially families, prefer to stay in hotel apartments as they have a negative perception of some hotels below four stars.
Saleh Al-Habib, Executive Director of Jiwar Real Estate Development, said: “There is a strong demand for hotels rated three or four stars. The local population, as well as visitors – pilgrims, tourists and business people – prefer three or four star hotels because they are available all around and are very affordable for the general public.
“Commercially, their operating cost is lower and therefore they generate more revenue than a five-star hotel.
“It is a popular choice for almost all classes of society, especially the middle and lower middle classes. The availability of such semi-luxury hotels and apartments is plentiful. With affordable rates, they meet the needs of families, business travelers, as well as people looking for leisure.
Al-Habib, who is also a member of the Saudi Association of Tourist Accommodation Establishments, said locals and expats are interested in establishing hotels and serviced apartments in areas such as Abha, Al -Baha, Tabuk, Hafar Al-Batin, Al-Majma’ah and Al-Kharj.
“These interested entrepreneurs are working closely with the National Tourism Fund,” he added.