Business | Property

Hoteliers expand in Makkah

Opening of Fairmont hotel’s clock royal tower triggers influx of investment in hospitality infrastructure in Saudi Arabia

  • Bloomberg
  • Published: 20:29 July 6, 2012

A general view of the Grand Mosque in the city of Makkah
  • Image Credit: Reuters
  • A general view of the Grand Mosque in the city of Makkah. Saudi Arabia has begun the expansion of Islam’s holiest site to raise its capacity to receive more pilgrims, the state news agency SPA said.

Makkah The pilgrimage starts with a private jet to an exclusive airport in Saudi Arabia, where passengers are treated to a buffet while travel-company employees process their immigration documents. The visitors are then taken in luxury cars and buses to the InterContinental Hotel overlooking the Grand Mosque in Makkah.

“We try to make it a little more comfortable for our clients, that’s all,” said Abdul Rahman Mohammad Al Shaya, a sales executive for Kuwait-based Al Marwa. The company offers wealthy pilgrims a seven-day package for the Haj, the pilgrimage every able-bodied Muslim is obliged to make, for about 5,500 Kuwaiti dinars (Dh71,959).

Rising wealth in Islamic countries from the Gulf to Indonesia is boosting demand for a higher standard of accommodation as about 3 million pilgrims prepare to descend on Makkah for the annual Haj in October. That’s contributing to a surge of hotel investment in Saudi Arabia by companies, including InterContinental Hotels Group, Hyatt Hotels Corp and Starwood Hotels & Resorts Worldwide.

Hilton Worldwide, owned by Blackstone Group, plans to more than double the number of hotels it operates in the country to 14, including six in Makkah. It currently runs six in Saudi Arabia. UK-based InterContinental will increase its room numbers by about 50 per cent to 7,300 in the next three to five years. Hyatt, whose only Saudi hotel opened in 2009, expects to have eight more in five years.

Starwood, the Stamford, Connecticut-based owner of the luxury St. Regis and W brands, has plans to manage five more hotels, adding about 1,300 rooms. It currently has 10 hotels with about 3,000 rooms.

The boom in Saudi Arabia will increase the number of branded hotel beds available by 58 per cent in the next few years, research company STR Global estimates. While international companies can operate hotels in Saudi Arabia, they are not allowed to own property in the country.

Strategic base

“The tourism industry in Saudi is rapidly expanding and our development plans reflect the growing demand for high- quality hotels in that market,” said Christophe Landais, Middle East managing director for Paris-based Accor. “The kingdom constitutes a strategic base for us.”

Accor, Europe’s largest hotel operator, will open a 1,315- room Pullman hotel in Makkah and another property in the south of the kingdom, Landais said. The Paris-based company plans to increase its properties in Saudi Arabia to 17 by 2015 from the current 12.

The Abraj Al Bait Towers, a hotel complex across from Makkah’s Grand Mosque, transformed the ancient city’s skyline when it was completed in 2010. The 601m clock tower at its centre houses an 858-room Fairmont Hotel. Swissotel plans to open a 1,562-room hotel in the complex this year, according to the company’s website. Both hotel operators are part of Colony Capital’s FRHI Holdings.

Local companies are tapping the growing market as well. Saudi Hotels and Resorts has 10 hotels across the kingdom and plans to add four in Makkah, Jeddah and Madinah within a year. Makarim Group, which manages the hotels, isn’t worried about competition from foreign operators, marketing director Majdi Saqer said by e-mail. “There will always be demand for local-flavour five-star hotels,” he said.

Average daily rates in Makkah hotels rose 15 per cent to 631.79 riyals ($168) in the first three months of 2012 while falling 2.7 per cent in Riyadh. Revenue per available room in Makkah jumped 43 per cent to 403 riyals in the first quarter compared with a 10 per cent drop to 638 riyals in Riyadh, according to STR Global.

State investment

Rising wealth in parts of the 1.57 billion-strong Muslim world isn’t the only force driving hotel growth in Saudi Arabia. A $500 billion Saudi government spending programme on homes and infrastructure is lifting demand for short-term accommodation from foreign consultants, engineers and other professionals who stay in cities such as Riyadh and Dammam, according to real estate broker Jones Lang LaSalle.
Resort-style tourism of the type offered in neighbouring UAE is shunned by Saudi Arabia, a conservative kingdom that strictly enforces Islamic laws such as a segregation of men and women and a ban on alcohol.

About 53,000 branded hotel rooms are currently available across the kingdom, about the same as Dubai, according to STR Global. Those mostly provide five-star rooms with a few in the four-star bracket. About 19,000 are in Makkah and another 13,000 in Madinah.
Most pilgrims stay in furnished apartments, mainly supplied by individuals and small businesses, said Chiheb Bin Mahmoud, head of hotel advisory for the Middle East and Africa at Jones Lang LaSalle. That’s also the most common type of accommodation for professionals in cities like Riyadh and Jeddah and holiday travelers in the south of the country.

“The practice of camping and unauthorised accommodation does exist,” he said. “Every year, the Saudi authorities crack down on it while trying to be sensitive because of the religious motive for the trips.”

Religious visits including the Haj and Umrah pilgrimages and trips to Madinah, the resting place of the Prophet Mohammad [PBUH], still dominate Saudi Arabia’s tourism industry. Last year, the country hosted 10.6 million pilgrims and religious visitors out of 15.4 million foreign arrivals overall, according to Business Monitor International. BMI estimates arrivals will increase by an average 6 per cent annually until 2016.

The Saudi Ministry of Haj says it expects a record number of pilgrims this year. In 2011, 2.5 million passed through Jeddah’s airport on 10,650 flights.

“There is some kind of a catch-up in terms of capacity building,” Jarmo Kotilaine, the Jeddah-based chief economist at National Commercial Bank, said by phone on June 14. “There has been a long period when there was very little addition.” Rising visitor numbers only tell part of the story. The government’s drive to improve health and safety standards in Makkah and Madinah during the Haj is triggering demand for hotels by discouraging the centuries-old practice of accommodating pilgrims in people’s homes, said Jones Lang’s Ben Mahmoud.

“Branded hotels, regional or global, currently form the backbone of inventory in Makkah,” Bin Mahmoud said. “The trend will continue as stricter guidelines for health and safety are implemented and because a higher standard of comfort is being demanded by pilgrims.”

The market for a better class of accommodation is being fuelled by economic growth in Muslim-majority countries. Turkey’s economy expanded 8.5 per cent last year, the third-most among Group of 20 nations after China and Argentina. Indonesia, the world’s most populous Muslim nation, grew by 6.5 per cent, the most since the Asian financial crisis that ended in 1998.

“While most of the high-quality hotel supply has been five-star and four-star, Accor is seeing the emergence of real demand for other products like the economy three-star segment,” Landais said. “For the moment, that’s only fulfilled by local and unbranded hotel supply that lacks high quality standards most of the time.” International hoteliers are also seeing opportunities in smaller cities such as Jizan, Yanbu, Khobar, Jubail and Hofuf, he said.
 

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