Riyadh’s midscale hotel sector has opportunity for growth

The study by Drees & Sommer also reveals how the city could “attract a range of new visitors”

Average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a 1% increase year-on-year, although a larger hotel room inventory could put downward pressure on rates
Average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a 1% increase year-on-year, although a larger hotel room inventory could put downward pressure on rates

Saudi’s capital city Riyadh has great potential for midscale hotel growth, according to a study by Drees & Sommer.

The study revealed that this is a good time for the sector as “the capital undergoes a period of rapid economic diversification with the introduction of a myriad of attractions, theme parks, sporting events and concerts”.

“The three-star market will only account for approximately 19% of the total hotel market in 2019, and an estimated 17% in 2020. Therefore, developing this segment [in Riyadh] 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 MD of Drees & Sommer’s Global Hospitality division, Filippo Sona.

The research also revealed Riyadh’s hotel market witnessed growth in revenue per available room (RevPAR) and occupancy of 7% and 3% respectively this year, with an anticipated 4,500 keys expected to be delivered across three, four and five-star accommodation by 2020. This takes the total to 21,573 in the capital, from a base of 17,073 in 2018, a 26% increase.

The room count for the five-star market in Riyadh accounted for 43% of total rooms in 2018 with 7,243, this figure is expected to increase by 11% to 8,042 in 2019 and by 19% in 2020 to 9,584. In the four-star market, the total key count is expected to top 7,522 this year and 8,265 in 2020, a 10% increase.

Average daily rates (ADR) are also predicted to become more resilient, with 2019 anticipated to return a 1% increase year-on-year, although a larger hotel room inventory could put downward pressure on rates.

“In order to absorb ADR decline and preserve profitability, there is a greater need for clustering by international operators or groups of private hotels. This will help with HR and accounting savings, as well as food and beverage costs, for example,” added Sona.

Data also revealed that Riyadh could attract a “range of new visitors by diversifying its offering from corporate visitors and government. Examples include focusing on emerging markets like China and India, reducing the dependence on local markets and religious tourism and also by developing the quality and diversifying the F&B offering by introducing superior food and service standards”.

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