Saudi Arabia’s hotel sector has faced declines in the third quarter of 2017 despite nearly 1,300 keys being added to the market, a new report finds.
According to Colliers International's market review, though several new hotels have come online in Riyadh, Jeddah, and Makkah, new supply and lower demand has resulted in a dip in RevPAR, most distinctly in the Saudi capital.
Despite the opening of two branded hotels – Swiss Spirit and Centro Waha – adding another 370 keys, Riyadh’s hotel market saw a third consecutive year-on-year percentage decline in Q3 RevPAR performance, a dip that is expected to carry into the next three months.
The Colliers report projects the hotel market in the city to see an overall drop of 18% in RevPAR for full-year 2017.
In spite of an expectation of a subdued short-term market performance, major upcoming developments such as KAFD and Entertainment City are predicted to induce hotel demand.
In Jeddah, the opening of the Radisson Blu Jeddah Al Salamah saw the addition of 142 keys to the city’s hotel market, in which 5-star hotels account for more than 55% of the city’s total branded hotels.
Though delays in hotel openings by one or two years are expected in Jeddah, it will continue to be one of the fastest growing markets in Saudi Arabia.
In fact, RevPAR performance in the city has increased by 7% compared to the same period last year, enabled by a stronger domestic leisure and transient pilgrim demand during the quarter.
Although a short-term market performance slowdown is anticipated in Jeddah, medium to long-term prospects are more positive moving forward due to a number of major project launches.
The Makkah hotel market has witnessed the introduction of the M Hotel Makkah with 785 additional keys, though the market experienced a decline in both occupancy and average rate compared to the same period last year.
The report also examined the hotel markets in Madinah – where no internationally branded hotels opened in Q3 – and found an 8% decline in RevPAR.
Dammam also saw no new branded hotel openings, with less than 60% of announced openings in 2017 taking place due to delays.
Greater Dammam continues to demonstrate a sharp decline in performance as RevPAR dropped 22% in the third quarter, with a short-term market slowdown expected to continue.
Overall, Greater Dammam represents a market with large potential, with development of leisure offerings expected to further reduce market reliance on oil and gas related activities going forward.
Saudi’s hotel market outlook is generally set to slowdown temporarily, but major project launches and further development of the tourism sector led by Saudi Vision 2030 initiatives will help boost the sector in the long-term.