We noticed you're blocking ads.

Keep supporting great journalism by turning off your ad blocker.

Questions about why you are seeing this? Contact us

Font Size

- Aa +

Wed 24 Aug 2011 12:40 PM

Font Size

- Aa +

Cities of gold

A growing stream of tourists make Saudi's holy cities a lucrative investment for hoteliers

Cities of gold
More than 13 million religious tourists are expected to visit Saudi each year by 2019

The holy cities of Makkah and Madinah are a cornerstone in the Saudi Arabian hospitality market. Typified by religious tourism, the cities annually play host to 7.8 million of the world’s 1.8 billion Muslims; a figure which Jones Lang LaSalle (JLL) predicts will rise to 13.75 million visitors by 2019.

In addition to the number of external visitors to Saudi Arabia’s holy cities, the country has a population of 27 million and does a booming trade in domestic tourism — particularly to Makkah and Madinah — which has contributed to the need to develop the infrastructure around the holy cities.

The hospitality market in Makkah and Madinah is unique — there is an almost rock-solid guarantee that a minimum number of pilgrims will visit each year — making it a sensible investment for shrewd hotel companies.

It is this stability in an often fluctuating industry which makes the holy cities so appealing to hoteliers, explains Rotana executive vice president and COO Omer Kaddouri, referencing Rotana’s Makkah hotel — the Al Marwa Rayhaan by Rotana — which was the company’s first property in Saudi Arabia.

“If you are opening a property in one of the holy cities, you know that you are guaranteed business,” Kaddouri explains.

“It is pretty much a certainty to do well in Makkah — the Muslims of the world congregate there, not just through Ramadan and the Hajj times, which is the key period, but also throughout the rest of the year, so it is a good place to be as a hotel company. We have a large hotel that has done well since it opened,” he continues.

The ongoing demand for properties is likely to increase as developments like the planned 2012 Haramain high-speed railway, which will connect holy cities Makkah and Madinah with Jeddah, mean more Muslims can safely visit the holy cities. Developments such as this mean that the market is increasingly viewed by hotel companies as a guaranteed financial investment.

Jones Lang LaSalle Hotels managing director, MEA, Jalil Mekouar explains: “When you look at the number of potential pilgrims in terms of the number of Muslims around the world, and bear in mind that in a number of countries the visas for Hajj and Umrah are extremely restricted, you have a crying demand for visits to Makkah and Madinah and this will always be there.”

Hotel companies doing business in Makkah or Madinah will also be serviced by a number of travel agents, who are guaranteed to bring visitors in to the holy cities. Global information publisher Euromonitor International’s April 2011 industry report Travel and Tourism in Saudi Arabia highlighted travel agents as beneficiaries of tourism in the holy cities.

The report said: “Saudi Arabia’s travel retail market continues to be characterised by a large number of travel agencies, exceeding 1000, with a large number of these specialising in Hajj and Umrah services only.

Competition in this market continues to be driven by religious tourism, and the leading agencies in this market, such as Al Tayyar Travel and Elaf Group, are all licensed for Hajj and Umrah, as this is the best way to survive and to generate high returns. It is, nonetheless, still possible to become a leader by specialising in Hajj and Umrah packages, given the large number of domestic and international religious tourists visiting the holy cities every year, and opportunities in this segment remain numerous.”

Despite the ongoing appeal of the holy cities, operating in Makkah or Madinah is not without its drawbacks. Although an estimated 1.8 million Muslims take part in Hajj and Umrah every year, the destination is heavily affected by seasonality, and there are periods of the year when hotels must expect to suffer low occupancy rates.

The issue of seasonality has been recognised by the Saudi Commission for Tourism and Antiquities (SCTA) which has attempted to encourage visitors to extend their stays for longer with the ‘Umrah Plus’ strategy; but it is still an issue for hoteliers who often face occupancy rates of just 30% during the low season.

“It has been difficult because it is a restricted market; building business between the various seasons — especially when you have foreigners who can’t get visas — is very challenging,” says JLL’s Mekouar.

“However, in terms of building the local market, there is something which can be done during shoulder season: hotels can look at holding seminars for religious tourism, or creating events which locals would be interested in attending. There are more than 25 million people in Saudi Arabia, so I am sure there is something which can be done to de-seasonalise the area and maximise profit out of season,” he adds.

The investment in infrastructure around Makkah in particular may make a difference to the length of visitors’ stays adds Soraka Al Khatib, head of JLL Saudi Arabia, Jeddah Branch.

“It will help with pilgrimage and it will definitely help a lot with the hospitality business and the office market. There will be good transportation and a lot of developments in Jeddah, [and] there is also a lot of investment in Makkah — they are looking at not only expanding the infrastructure, but also at merchandising, if you will; creating enough interest in Makkah for people to spend extra time there,” he says.

Article continues on next page...

But vice president and managing director of Fairmont Raffles Hotels International (FRHI) Makkah KSA, Mohammed Arkobi, says that hoteliers looking to open properties in the holy cities must be prepared for the inevitability of low occupancy rates for some of the year.

“We are looking at trying to promote the hotel to locals and GCC nationals during low season, so we are trying to balance it out, but this is the trend of the market and we cannot do much about it. There is a big target for us in the local market in Saudi Arabia, and they often come during weekends in low season — which may move the occupancy to 70 or 80%, but then you may be at 30% during the week.

“This is something you have to accept if you open in Makkah or Madinah. Whatever you make you cannot bring it up, because the low season comes directly after Hajj, so the pilgrimages are done and they will not come back for about 40-45 days,” he explains.

That said, hotel companies do not seem at all deterred by the prospect of low occupancy rates during off-season, in fact, many of the large international hotel chains are already in either Makkah or Madinah, and most have their eye on the cities for future expansion.

Hilton Worldwide is set to open up six properties in Makkah — all slated for 2014 — and Marriott and Hyatt are both adding to the number of rooms in the holy cities, with three properties each planned for Makkah.

Madinah too will be playing host to new hotels from Starwood Hotels & Resorts: these developments are an indicator of how popular the cities continue to be with big brands.

The holy cities seem to have escaped the threat of saturation, as the limitless supply of potential visitors to Makkah and Madinah provides a certain amount of insurance against this.

Rotana’s Kaddouri says “We have a large hotel that has done well since it opened. I don’t think [the area] will get too saturated in all honesty. There are so many more thousands of rooms that are being developed there as we speak, and when they are opened there will be many more, but it all depends how far away they are — the prime hotels are going to be the ones closest to where everybody wants to go.”

Having the right property is a comfort in an ever-expanding market, adds JLL’s Mekouar.

“The performance [of Makkah and Madinah] has been doing well,” he says, “and it is still somewhere hotels want to be, because there is a comfort in knowing that there is a great demand for those cities.

“I think the key for Makkah and Madinah isn’t the number of hotels that are there, it is the quality — as in the positioning — of your hotel. Hoteliers need to ensure that they are fitting the right product with the right clientele. You have such a big demand, and it’s looking at the demand and thinking what kind of people are these, where do they want to stay and catering for that particular demand. That will make the difference,” he adds.

There is also a need to look for gaps in the market which can still be exploited. FRHI’s Arkobi believes that there are some categories of accommodation which are yet to reach their full potential.

“The infrastructure for Makkah can accommodate a lot of people, and the piece of cake is huge so it can be shared. In my opinion, there is a need for five-, four- and three-star hotels and apartments, and I think we are a little bit short cut the time being in those categories, plus there is a lot of demolishing, building and expanding of the mosque and the new Makkah so there is still a need for accommodation,” he says.

The fact that there is still room for development in Makkah demonstrates the ongoing business potential for hotels in the holy cities, agrees Sami Nasser, vice president Sofitel Middle East, Africa and Indian Ocean and general manager, Sofitel Dubai Jumeirah Beach.

“[The holy cities of] Saudi Arabia are huge business for the hospitality industry and they still need good hotels — they need different hotels,” he explains.

And due to the holy cities’ yearly influx of guaranteed visitors,which is predicted to continue rising year-on-year, hotel companies will continue to clamour for a piece of Makkah and Madinah’s hospitality market — with the increasing number of international brands planning to open in the cities demonstrating the long-term potential of the destination.

Muhammad Al-Amir, founder and managing director, Riyada International Hotels agrees: “Almost all of the big hotel brands are in Saudi Arabia. If you go to Makkah, for example, you have probably one kilometre squared where all the five-star brands in the market are based, and that also reflects the real estate investment and the drive for demand for the Saudi market.

“Hajj and Umrah is still the single biggest event that attracts more than 6 million people from around the world yearly, which is a huge amount,” he concludes.

Hajj is one of the five pillars of Islam, a duty which must be undertaken at least once during the lifetime of every able-bodied Muslim who can afford to do so, and is the largest pilgrimage in the world. Taking place between the 8-12th day of the 12th month of the Islamic calendar, Hajj sees thousands of people making their way to Makkah to carry out a series of rituals and celebrate the three day festival of Eid al-Adha.

The Umrah is a pilgrimage to Makkah which can be undertaken at any time of year. It can be done either in conjunction with Hajj, or separately. Pilgrims doing Umrah perform a series of symbolic acts.


Arabian Business: why we're going behind a paywall