Gulf hospitality market banks on hotel-building surge

Amaala

• All Gulf states want to improve tourism’s contribution to GDP
• Saudi Arabia and UAE are planning a combined 136,000 hotel rooms
• Mid-market and budget offerings are of growing interest

Following the chaos of Covid and a surge in visitors for the Fifa World Cup and Expo 2022, the Gulf hospitality market might have been expected to return to a period of relative normality.

But major tourism investment drives are afoot as GCC states seek to further diversify their economies. 

Almost 170,000 hotel rooms are in development or planned across the GCC, according to research firm STR – a 39 percent increase on the existing stock of 436,000 rooms.

However, the activity is not evenly spread and a surge in Saudi Arabia means the kingdom could soon rival the UAE as the biggest hotel market in the region.

The data underscores a generally healthy picture for the Gulf hospitality sector.

“Globally, the Middle East has bounced back the fastest from the Covid-19 pandemic, with impressive traveller and revenue increases,” said Siegfried Nierhaus, vice president for the Middle East at Deutsche Hospitality, which has hotel projects under way in Kuwait, Oman, Saudi Arabia and the Emirates.

The UAE remains the biggest market in the Gulf, with over 208,000 hotel rooms, almost half the region’s total. It is due to add 37,628 more over the coming years, but Saudi Arabia has 99,000 in the pipeline, to add to its existing stock of 138,000 rooms.

• Oman expects tourism sector investments at $7.9bn by 2025
• Abu Dhabi sets up $100m fund to elevate restaurant scene
• Dubai’s Sunset Hospitality Group rises in Morocco

If all these projects go ahead, Saudi Arabia will end up with 39 percent of the region’s hotel rooms, while the UAE’s total will slip back to 41 percent.

“Many of the most anticipated opportunities are emerging in Neom and along the Red Sea coast," Philip Mackenzie, senior Mena hospitality and tourism consultant at real estate consultancy Colliers, said.

"These projects will be further supported by the surge in domestic demand compared to historical norms.”

The kingdom’s raft of billion-dollar hospitality projects all speak to the Saudi government’s ambitions to diversify the economy via its Vision 2030 plan, which includes large investments in the tourism, transport and leisure sectors.

Saudi Arabia attracted 16.5 million international visitors in 2022 and wants 100 million by the end of the decade. 

Other Gulf countries have more modest targets for their own hospitality markets.

Bahrain is aiming for 14.1 million visitors by 2026, up from 9.9 million last year. Oman is hoping for 11.7 million by 2030, compared with 2.9 million in 2022.

Qatar, buoyed by the attention it received with the football World Cup, is aiming for 6 million international visitors by 2030, almost three times the pre-pandemic figure of 2.1 million.

However, the UAE – the biggest regional draw for tourists – will not give up its crown to Saudi Arabia lightly. It is hoping to more than double the size of its tourism sector, from a AED180.4 billion (S41.9 billion) contribution to the economy in 2019 to AED450 billion ($122.5 billion) by 2031.

Dubai Tourism

Market diversity

All these ambitious targets offer enticing opportunities for hotel developers and brand owners.

“As Saudi Arabia moves away from a non-oil economy and continues to heavily invest in its tourism sector, we are working on several new openings,” says Guy Hutchinson, chief executive of Abu Dhabi-headquartered Rotana, which operates under six brands around the region.

“We are developing seven hotels which will almost triple the number of rooms we run in Saudi Arabia to 6,000 over the next four years.”

On top of that, Hutchinson says it is in negotiations to develop five Edge by Rotana properties in Riyadh and another in Al-Baha. This follows the first opening for the mid-market brand in Dubai last year.  

That points to another important regional trend underway – the shift towards investment in mid-market options, as well as serviced apartments and Airbnb models.

For a region that has been dominated by higher-end brands from global giants such as Four Seasons, Hilton and IHG, this is an important change. 

“Major hotel operators are increasingly focusing on establishing mid-scale brands as they foresee growth and potential to diversify their hotel portfolio amid rising demand,” says Sanjay Bhatia, managing director at Dubai-based Alpen Capital.

Nierhaus agrees, pointing to “a growing focus on mid-market and budget offerings to appeal to a broader range of travellers”. He says his firm has seen particular interest from developers and hotel owners for its new economy lifestyle brand Zleep Hotels.

In addition, Tatiana Veller, managing director of Stirling Hospitality Advisors, says there has also been a growing trend towards wellness tourism and more developments in secondary markets, such as Ras Al-Khaimah, Fujairah and Sharjah, to cater to more niche segments like eco-tourism and cultural tourism.

Qatar Tourism

Keeping all the hotel rooms full presents a challenge, but the various initiatives being taken by the region’s governments – from hosting major sporting events to encouraging more international conferences and exhibitions and simplifying their visa processes – should limit the risk of oversupply. 

Hutchinson says mega-events such as Expo 2020 and the World Cup fuel a “ripple effect” in terms of occupancy rates and revenue for hotels across the region. 

The track record of Gulf governments in developing the infrastructure needed to support their hospitality markets and attract and accommodate ever more visitors also offers reason for confidence – not least in terms of the growth of airlines such as Emirates and Qatar Airlines.

The Saudi government’s announcement of new international airline RIA earlier this year suggests that process will continue.

“Over-saturation is not yet a worry,” says Veller. “Tourists enjoy the variety of hotel stays available across the region from five-star luxury resorts to mid-scale business hotels.

"The operational key performance indicators are healthy, and the returns on investment are at more attractive levels than in many other places around the world.”