MARKET UPDATE: Jeddah stop over
Positive outlook for Jeddah as city starts the year with high demand
The outlook for Jeddah is a positive one as the city kicks off the New Year with growing demand in the corporate, domestic leisure and religious tourism sectors, and limited supply provides opportunities
The port city of Jeddah is starting 2013 on a positive note, with a good balance between supply and demand.
According to TRI Hospitality Consulting consultant Christopher Hewett, the city continues to benefit from strong demand in the corporate, domestic leisure and religious tourism markets.
Occupancy increased by 6.2% between January and October 2012 compared to the same period in 2011. The average occupancy stood at 80.7%, significantly higher than occupancy levels reported in any other city in Saudi Arabia.
Furthermore, average daily rate was up 11.7% to US $227.26, in turn bumping up RevPAR 21.1% on 2011 figures to $189.39.
“Jeddah is really driven by two factors; it is predominantly a corporate-based market because of its proximity to the Red Sea and its large port, so corporate demand is very strong. But also you get a lot of demand from domestic tourism,” explains Hewett.
As would be expected in Saudi Arabia, meetings, incentives, conferences and events (MICE) make up the bulk of hotel business in the city.
“The corporate market is about 85% of our business, which is very strong and we’re going to see if we can increase that particularly as the tourist arrivals in the corporate segment are going to increase this year,” says Kevin Brett, cluster general manager of Jeddah Hilton and Waldorf Astoria Qasr Al Sharq.
He explains that much of the MICE business is generated through government-related activities – with a welcome boost over the summer as the government relocates its headquarters from Riyadh to the cool Jeddah coast – and conventions.
“This hotel has the best reputation in the Kingdom for hosting large conferences so we hope those numbers are going to go up,” he says.
A key event the hotel will be banking on in March is the annual Jeddah Economic Forum set to take place at the Hilton, attracting hundreds of government officials and the private sector related to Saudi Arabia’s economy.
Another key business driver currently, according to Brett and Saudi Hotels and Resorts Co (Sharaco) CEO Badr Al Bader, is infrastructure developments.
“We have seen against all odds and surrounding political turmoil that the Saudi Economy has stood grounds and expected growth in the industry is promising,” says Al Bader, citing projects such as the upcoming Jeddah Airport expansion, which is expected to triple the seat capacity when it launches.
Brett adds: “There are lots of infrastructure projects throughout Jeddah — whether it’s a creation of extra marina space on the corniche or the railway system or the underground or construction of more malls or residential villages... There is huge development here and corporate managers are being brought in be it financers, engineers, construction experts or interior designers, for example.
The corporate sector is driven by manufacturing opportunities here, but mainly infrastructure.”
Another lucrative market in the MICE sector is the traditionally-large Saudi Arabian weddings.
“It was actually a nice feeling at a recent meeting when our F&B manager said we’re only doing two weddings today, when often we do four,” says Brett, explaining that the large wedding receptions centred around the bride cause operational challenges as they require a team of all-female staff to cater to these events.
On the upside, the MICE business, combined with the Hilton hotel restaurants, drive significant revenue with Brett estimating the revenue split between rooms and F&B at 60:40.
“This is really high considering our average room rate is one of the highest in the GCC. The menu prices for banqueting and restaurants are very high and the wedding business is very profitable. Food is a big feature of Saudi life. If you get it right you’re able to command that price advantage over your competitors,” he asserts.
In fact the F&B sector is expected to grow by as much as 7% within the next two years, according to industry research. Latest figures released by Business Monitor International (BMI) predict the number of visitors to KSA will increase to 15.8 million by 2014; approximately 2.8 million more than in 2010, which in turn has translated into a steady increase in demand within all hospitality-related sectors, including F&B.
Brett adds that he is hoping to maintain that ratio this year by selling more rooms in line with an expected rise in corporate demand.
However, he says the hotel is performing well with average occupancy at above 80% in 2012, and average room rate up 11% on the previous year in line with the market average.
Driving further growth in 2013 is an anticipated increase in the domestic leisure market stopping over in the more “relaxed” coastal city of Jeddah on weekend breaks or en route to the country’s nearby religious spots.
“There’s been some talk of leisure demand increasing in Jeddah. Religious travel for Hajj and Umrah can be peak periods for us as these religious travellers will spend pre- and post- their religious obligations in Jeddah.
We think there will be a 5% increase in leisure business to this property next year,” says Brett. Golden Tulip MENA president Amine Moukarzel agrees: “People find it a great opportunity to visit Jeddah and stay over in Jeddah during religious travel. It’s one important niche.”
So does Sultan B. Al-Otaibi, GM of Makarim Hospitality Group, the operating arm of Sharaco, who claims to have identified a “big opportunity” in Jeddah on the back of religious tourism.
Another local operator MENA Hotels & Resorts, part of Al Hokair, observes that this sector is “increasing unbelievably”.
“The visitors to Mecca and Medina come to Jeddah as well for a couple of nights either on the way there or on the way back,” observes director Fadi Mazkour. “They like to stay at least one night for shopping – there are the old souks in Jeddah, the modern mall etc. so people can pass by and pick up souvenirs on their way home,” he says.
Christie & Co director John Podaras adds: “Jeddah has always been seen domestically as the high-end destination and there’s been a lot of developments along the corniche, and also in the leisure facilities offered — to a great degree in terms of the family areas, fairgrounds, fast-food kiosks and that sort of thing.
If you’ve been to Jeddah in the summer you’ll see families turning up en masse, walking up and down the corniche. The corniche is the most popular part of Jeddah.”
But Podaras reaffirms that while the domestic market is growing, corporate business is still the majority in Jeddah, as with the whole of Saudi Arabia, and this is unlikely to change.
However, Jeddah is also unique in another respect – the slow pace of supply coming online in 2013, especially when compared to other key cities such as Riyadh, where a number of new hotels will open this year.
“Future supply is limited in 2013, providing the market an opportunity to capitalise on growing demand,” says TRI Hospitality Consulting’s Christopher Hewett.
According to pipeline data recently provided by leading hotel chains, only a small number of hotels are due to come online in 2013 in Jeddah, including one property to be launched by MENA Hotels & Resorts plus the 141-key Best Western Jeddah.
“In Riyadh there are a lot of hotels still coming online in 2013 — a lot of supply — but it seems quite limited in Jeddah this year. Most of the competition, we understand, will be opening between 2014 and 2017,” says Hilton’s Brett.
Future developments include one Rotana property and three Accor hotels slated to open in Jeddah in 2014, followed by five properties by Rotana, Kempinski, Rezidor, IHG and Hyatt in 2015 and 2016.
However, even with this additional future supply, TRI Hospitality Consulting says “average daily rates are expected to remain strong as hoteliers apply yielding strategies in order to improve revenues”.
“Speaking to my colleagues here and speaking to the competition, I think 2013 is going to provide opportunities for continued growth. The Saudi economy is expected to see 6-7% growth in GDP next year and there’s confidence because of that as well as population growth and all of the infrastructure projects,” concludes Brett.