Affordability is the key for Saudi hotel expansion

• 362,000 rooms due by 2030
• Opportunities in middle market
• Target of 150 million tourists

Al Farhan Group, a family-owned company with 16 three- to four-star hotels across Saudi Arabia, plans to open at least one hotel every year for the next several years.

Its ambitions reflect those of the Saudi government, which wants to encourage more domestic and inbound business and leisure travel and almost double the number of hotel rooms in the country by 2030. 

Executive manager Farhan Bader Al Farhan’s father started the company in 2006 with a single hotel in a rented property. 

Since then it has expanded from its base in the capital Riyadh around the Arabian Peninsula, including eastwards to Jubail and westwards to Jeddah, the kingdom’s second city.

“My father never expected it would be like this,” Al Farhan said of the growth. “We still haven’t got to the point that Dubai has got to but we’re getting there.”

Saudi Arabia’s turning point came in 2017 when then 32-year-old Mohammed bin Salman became the crown prince, following a string of much older leaders who had been in their seventies and eighties. 

At the heart of the kingdom’s transformation since then has been its Vision 2030 economic and social development strategy, designed to diversify its economy away from oil and create jobs and other opportunities for its growing and relatively young population of 20 million Saudi nationals.

Business and tourism are central to this strategy, but regional competitors – such as Dubai, Abu Dhabi and Qatar’s Doha – have had a head start.

According to property consultants Knight Frank, about 362,000 hotel rooms are due to come to market in Saudi Arabia by 2030 as part of a $110 billion investment in the hospitality sector. By contrast, Dubai has more than 150,000 so-called hotel keys today.

Much of the expected and planned expansion in Saudi Arabia is set for Riyadh, but Mecca and Medina – home to Islam’s holiest sites – will also receive their fair share. Saudi Arabia is targeting to host as many as 30 million pilgrims by 2030, compared with about 18.5 million last year. 

Across the kingdom, hotels are by and large skewed towards the upper end of the market. Knight Frank estimates that two-thirds of availability today is “luxury, upper-upscale, and upscale”. 

This creates an opportunity for investors to serve a growing middle market. 

Saudi Arabia is aiming for 150 million visitors by 2030, most of whom – in the country of roughly 35 million – will be domestic.

The number of people visiting Saudi Arabia for conferences, meetings and sporting events, and the kingdom’s roughly 15 million foreign residents, support demand for more affordable three- and four-star hotels, like those of the Al Farhan Group.

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Knight Frank projects that the MICE sector – meetings, incentives, conferences and exhibitions – will grow by some 8 percent per year in income generated, contributing to “a lot of opportunities in the affordable segment”, according to Oussama El Kadiri, head of Knight Frank’s hospitality, tourism and leisure advisory.

“You don’t have some Ibis equivalent,” El Kadiri said, in reference to the France Accor’s budget brand. Accor operates 44 hotels in the kingdom and plans to double this by 2030, Arab News reported, citing Accor’s regional CEO.

Despite the rise of local chains such as Boudl and Narcissus – offering more affordable accommodation and marketed towards local tastes and customs – no local brand has yet managed to take a significant swathe of the market for itself.

Rising input costs, however, could make expansion challenging. 

Figures released by the General Authority for Statistics this week show that real estate prices continue to climb, with prices in the first quarter up more than 4 percent on the same period last year.

“I foresee land prices to remain an important obstacle,” said El Kadiri. Should prices grow beyond roughly one third of the project budget “it will become less enticing for investors”.