Saudi Arabia's hotel pipeline is 76 percent of existing stock

Saudi Arabia's pipeline has more than 64,000 guestrooms in development, according to the latest numbers from STR. These totals make up 76 percent of the more than 84,500 existing hotel guestrooms in the country.

“Saudi Arabia’s hotel market is going through a period of massive supply expansion,” Philip Wooller, STR's area director for the Middle East and Africa, said in a statement. “In the short term, we’ve already seen this growth affect performance levels, and this trend should continue as more and more properties start to come online. But it is important to note that this is part of a major long-term investment for the market to further develop its infrastructure to accommodate millions of annual visitors, which come for religious pilgrimages and as new tourism attractions spring up as part of Vision 2030.”

As of January, Saudi Arabia has 187 hotel projects in the planning, final planning and in construction phases. The construction phase, which makes up the largest portion of the pipeline, has approximately 40,000 guestrooms in 94 projects.

The hotel market in Makkah (also known as Mecca) is set to have the largest number of new hotels with more than 23,000 guestrooms under construction and more than 32,000 guestrooms in the holy city's pipeline.

Meanwhile, Jeddah and Riyadh are each close to reaching 10,000 guestrooms in the planning, final planning and construction phases.

Dubai has the largest number of guestrooms under construction in MENA.

Vision 2030, an initiative announced in 2017, will further expand Saudi Arabia's hotel industry with major investments in the country’s tourism sector, including a Red Sea luxury beachfront resort. STR analysts predict the project, which is scheduled for construction to begin next year, has the potential for strong tourism business, especially if some restrictions that maintain the country’s religious customs are eased at the site.  

STR predicts Saudi Arabia's slumping hotel performance will increase along with the supply boost. The country recorded a 5.2-percent decline in occupancy and a 4.4-percent decline in ADR last year. The sharp declines pushed RevPAR down 9.3 percent compared with 2016.

However, performance data for January 2018 has already shown that performance is on the rebound. Occupancy rose 6.4 percent while ADR dropped 5.2 percent, driving RevPAR to increase 0.9 percent year-over-year. “As oil prices continue to rise, we should see performance levels start to recuperate over time. Although there will likely be a delayed effect, in the long run Saudi Arabia’s investment in tourism infrastructure should help protect the market’s hotel sector during future periods of lower oil prices and help boost performance growth when oil prices are high,” Wooller said.