The hospitality market in Jeddah will receive more than 4,000 new hotel rooms in the coming three years, increasing the current inventory by 35 percent, according to the latest real estate report by KPMG Al Fozan & Partners.
Jeddah's hospitality market showed an upward trend in key performance indicators (KPIs) in 2018, driven by a surge in tourist numbers and limited supply during the year following a dwindling performance during 2016–17.
The report expects the market to remain “subdued in the short term owing to the bulk of supply due to deliver in 2019”. However, the market is expected to witness a steady performance in the long term, backed by the government’s initiatives to support the development of culture, leisure and entertainment projects in Jeddah.
Furthermore, the growing number of pilgrims will have a positive impact on the hospitality market of Jeddah, the consultancy noted.
"Despite the forthcoming supply putting a downward pressure on the performance in the short term, we believe that the demand for hospitality units in Jeddah is likely to remain robust due to which the market is expected to recover in the medium to long term, backed by the government’s initiatives to support the development of culture, leisure and entertainment projects," said Firas Hassan, head of Real Estate at KPMG Al Fozan and Partners.
The report foresees a diminishing trend in occupancy rates and average daily rates (ADRs) in the upscale market segment, primarily due to increased competition.
"Lack of three-star hotels in Jeddah, offers a solid investment option for potential investors. As the number of business travelers grows in the Kingdom, budget constraints from companies are fueling demand for three-star hotels. Further, the demand stems from tourists who cannot afford to stay in expensive four- and five-star hotels and choose to stay in unbranded hotels or service apartments due to lack of quality offering in this asset class," Hassan said.
Riyadh
Meanwhile, the Saudi capital will see supply of 2,500 new hotel rooms in 2019, bringing the total number to 16,000 rooms. The future supply in the Saudi capital is expected to rise by 52 per cent in the next five years. In 2018, 1,700 keys entered the market in the 3-, 4- and 5-star categories.
Despite occupancy rates improving by 6 percent to 53 percent last year, ADR and revenue per available room (RevPAR) fell by 10 percent and 8 percent, respectively.
Despite a broad range of investment opportunities offered in the leisure and entertainment sector, recovery of the real estate market in Riyadh is expected to be led by the hospitality and leisure sectors.
"We expect limited improvement in performance in 2019 compared to last year, as supply continues to increase, occupancy levels and ADR decline moderate and heavy reliance on business travelers," Hassan concluded.
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