Riyadh’s midscale hotel sector offer great growth potential: report

Three-star hotels offer the best growth opportunity for developers in Riyadh, since the Saudi government has undertaken a $23 billion beautification project and hosted a number of entertainment events in the capital, consultancy firm Drees & Sommer said in a recent report.

“The three-star market will only account for approximately 19 percent of the total hotel market in 2019, and an estimated 17 percent in 2020. Therefore, developing this segment could have the potential to return the greatest success for developers and the capital’s long-term tourism growth aspirations by attracting budget-conscious guests and families,” said Filippo Sona, managing director - global hospitality division, Drees & Sommer.

Several high-profile sporting events have underscored Riyadh’s reputation as a sports and entertainment destination in recent years. The ABB FIA Formula E Championship’s inaugural event took place in Ad Diriyah last year and will return later this year. The capital also hosted some of WWE’s biggest stars during the Crown Jewel event in November 2018. 

According to the report, Riyadh’s hotel market witnessed growth in revenue per available room (RevPAR) and occupancy of seven percent and three percent respectively this year. An anticipated 4,500 keys expected to be delivered across three-, four- and five-star accommodation by 2020, which will take the total stock to 21,573 units.

The luxury segment continues to dominate the bulk of inventory coming online, which will rise from 7,243 rooms in 2018 to 9,584 rooms in 2020.

Meanwhile, average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a one percent increase year-on-year, even though larger hotel room inventory could put downward pressure on rates.

The report further suggested developers to focus on emerging markets such as China and India, reducing dependence on local markets and religious tourism, and developing the quality and diversifying the F&B offering to attract new visitors to the capital.