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%, according to the latest real estate report by KPMG Al Fozan & Partners, an audit, tax and advisory services provider in Saudi Arabia.
Reportedly, 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 KPMG 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.
Speaking about the hotel supply data, Firas Hassan, head of real estate at KPMG Al Fozan and Partners, said: "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.
“[This is] due to [the fact that] 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,” he added.
The report also highlighted forecasts 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 travellers grows in the Kingdom, budget constraints from companies are fuelling demand for three-star hotels,” said Hassan.
He also said that 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.
The Saudi capital of Riyadh will see supply of 2,500 new hotel rooms in 2019, bringing the total number to 16,000 rooms, the report also revealed.
Reportedly, the future supply in the Saudi capital is expected to rise by 52% 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% to 53% in 2018, ADR and revenue per available room (RevPAR) fell by 10 and 8% respectively, the report showed.
The reported also said that 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 travellers," added Hassan.