Dec. 24, 2011--JEDDAH -- Saudi Arabia's tourism industry is unique in that despite the country's limitations on entrance visa regulations, the industry is observing strong growth potential. However, regional uncertainty may place downward pressure on Saudi Arabia's tourism arrivals. Forecasts indicate that the number of tourist arrivals will grow by a YOY average of 6 percent until the end of 2015. One of the main drivers for the industry is religious tourism, Colliers International said in its Saudi Arabia Overview Report which was released on Thursday.

A regional comparison reveals that at an average occupancy of 59.3 percent during the first eight months of 2011, Saudi Arabia's hospitality industry follows Qatar at 59.4 percent and UAE at 69.2 percent. The data also suggests Saudi Arabia's average daily rate (ADR) of $197.93 between January and September 2011 is compara- tively lower than the regional standard. This indicates room for improvement within the Kingdom's hotel industry, the report said.

Riyadh experienced the highest national ADR over the first 9 months of 2011 at an average rate of $266. This 6 percent increase from the same period last year is largely attributable to increases in corporate tourism. A comparison of regional ADRs reveals that Riyadh outperformed all other key cities in the Middle East, with a higher daily rate than Manama, Kuwait City, Muscat and Dubai.

Jeddah's average occupancy exceeded that of all other cities in Saudi Arabia. The city was bolstered by a strong leisure segment between January and September 2011, exhibiting average occupancy levels of 69.6 percent -- up by 1.4 percent from the same period in the previous year. On a regional level, Dubai was the only city to outperform Jeddah with occupancies of 73.2 percent. Riyadh and Makkah observed the second and third highest national occupancy for the defined period, at 63.0 percent and 60.2 percent, respectively.

Performance indicators

Saudi Arabia's overall ADR between January to September increased by 9.0 percent from the same period in the previous year. This increase was felt in most major cities throughout the Kingdom with Jeddah and Riyadh experiencing moderate ADR growth, and Makkah and Madinah experiencing significant YOY growth. The exception to this trend was Alkhobar, which experienced a fall of 2.3 percent in ADR due to the city's increasingly aggressive pricing strategies. Much of the national growth in occupancy rates was driven by Alkhobar, Makkah, and smaller emerging cities such as Hail, Abha, Jazan, and Taif.

Saudi Arabia's national revenue per available room (RevPAR) over the first 9 months in 2011 increased by 19.1 percent from the same period in 2010 due to a surge in domestic and international demand. Alkhobar and Makkah exhibited the highest RevPAR growth, while Jeddah and Riyadh observed the least growth at 8.4 percent and 12.4 percent, respectively, the Colliers report said.

Hotel supply

With 61,319 hotel rooms, Makkah features the most hotel accommodation in the region.

This dwarfs that of other major cities in Saudi Arabia with Alkhobar, Madinah, Jeddah and Riyadh offering 12,186, 7,890, 11,500, and 10,514 rooms respectively.

Makkah will likely observe more hotel expansion than its counterparts as an additional 13,200 rooms come into the market over the next three years, representing an 18 percent increase in supply. It is anticipated for Madinah to see an injection of 5,436 rooms into the market over the same period, representing a 41 percent increase in supply.

Market outlook

Al-Ahsa

Named after the Al-Ahsa-Oasis, Al-Ahsa is the largest governorate in the Eastern Province, covering more than 25 percent of Saudi Arabia's land area. It is primarily a leisure destination, with major attractions including Juwatha Mosque, Ibrahim Castle, Al-Uqair Fort, King Abdulla Park, Gara Mountain, Ahsa Heritage Museum, and Uqair Beach Resort. Al-Ahsa's summer festivals are also major demand generators, the most prominent of which is the Al Ahsa Summer Festival, which attracted 125,451 tourists to the region in 2011.

Hail

Located in the north of Saudi Arabia in close proximity to Madinah and Qaseem, Hail Province covers approximately 6 percent of the Kingdom's land area. VFR, leisure and shopping encompass approximately 77 percent of total visitation to Hail, confirming the province's significance as a major leisure destination.

Al-Hofuf

Hofuf lies in the Eastern Province of Saudi Arabia at the center of the Al-Ahsa Oasis. The district's economic significance is largely due to its proximity to Ghawar Oil Field, one of the largest land based oil fields in the world. The most significant tourist attraction in Hofuf is the Qasr Ibrahim, a fort of historical importance.

Abha

Located 3,200 above sea level in southwest of Saudi Arabia, Abha is known for its attractive mountainous landscape. Abha is a popular vacation destination for people across the region, due to its moderate climate and major tourist attractions such as the Al-Miftaha Art Village at the King Fahad Cultural Center, Aseer National Park, and Shada Archeological Palace. Only 4 percent of Abha's visitation is business related, while approximately 94 percent visit the region for VFR, leisure and shopping.

Jazan

Situated on the Red Sea, Jazan is a major shipping port in the southwest region of Saudi Arabia. Approximately 95 percent of the region's tourism is VFR, shopping or leisure related; with corporate tourism representing 3 percent of the city's total visitation. According to the SCTA, Jazan offers only 3 hotels while the city's 47 furnished apartment establishments are largely characterized as unbranded stand alone assets.

Taif

Largely a leisure destination, Taif's major tourist attractions include The King Fahd Park, Taif Gardens, Shubra Palace, Wahab Crater, the Turkish Fort, Souq Okaz, Al-Qua Mosque, Okaz Museum, The Ekrima Dam, Kakki Palace and Al-Katib Palaces. Only 2 percent of Taif's visitation are business related while 95 percent visit for VFR, shopping or leisure purposes.

Market gap

Riyadh

The Riyadh hospitality market is the strongest in the Kingdom with inbound corporate tourism comprising the bulk of the city's total visitation. High average room rates for all segments in Riyadh have lead to occupancy thresholds which are supportable by the market.

Due to the high number of quality hotels in the pipeline, upscale hotels should be considered only for prime and exclusive locations within the city centre. Full service and midscale hotel may be considered for strategic sites or as dual brand combinations.

Jeddah

Jeddah outperformed all cities in occupancy levels on the backdrop of a strong domestic leisure segment which will be compounded in the future by the redevelopment of the Corniche area. This leisure demand profile will be further augmented by Makkah's expansion plans which will have a knock on effect to Jeddah as the "gateway to the holy city." Jeddah's lack of quality serviced apartments represents an under-served segment within the real estate industry.

Makkah

With the major redevelopment projects around the Haram area such as Jebel Omar, Jebel Khandama, the infrastructure development programs, and the King Abdul Aziz Road Project, it is clear the government is preparing Makkah for increased religious visitation.

The Haram area is underserved by upscale and full service hotels offering quality F&B, and health and fitness facilities while there remains a market gap for midscale hotels and serviced apartments within walking distance of the Haram. There is ample opportunity for the development of mid market, modern hotels throughout Makkah and on available land within 2km of Haram, given the hotels are to be constructed as a part of a mixed use scheme offering good quality retail outlets and/or shopping arcades.

Madinah

Similar to that of Makkah, Haram and its surrounding areas are undergoing significant redevelopment and expansion. The land north of Haram is a prime location for hospitality developments due to its existing infrastructure and ease of access to the Holy Mosque, whereas the land south of the Haram is an important secondary market.

Upscale and full-service hotels may be introduced to northern Haram while branded serviced apartments could be viable south of the Haram.

Dammam/Alkhobar

The Dammam/Alkhobar market experienced strong occupancy rates and RevPAR growth between 2010 and 2011, which is a trend likely to continue throughout 2012. With a strong corporate profile, the oil industry will continue to bring significant corporate demand to the region for the foreseeable future.

Upscale hotels may be considered along the Corniche with strong supporting health and recreation activities while high-end branded serviced apartments could be considered on or in close proximity to the Corniche.

Conclusion

Over the last 12 months, Saudi Arabian market observed a high level of capital injection into the hospitality industry by domestic investors. Many projects recommenced as domestic investors moved their focus back to Saudi Arabia as a result of the recent global economic uncertainty. Although unprecedented expansions are expected as the industry matures, the quality branded serviced apartments segment is still underserved by the country's hospitality sector.

The Colliers report said Kingdom's hospitality market continues to represent opportunity for modern, branded mid market hotels. Branded boutique hotels located in key cities such as Riyadh and Jeddah will likely capture the unsatisfied demand of the Kingdom's Generation Y. This generation currently constitutes circa 50 percent of the population and will be a major influence on the Kingdom's future economy.

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(c)2011 the Arab News (Jeddah, Saudi Arabia)

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