KPMG Al Fozan & Partners report says new hotel rooms will increase the current inventory by 35%
The hospitality market in the Saudi city of Jeddah will receive more than 4,000 new hotel rooms in the coming three years, according to a new report.
The new hotel rooms will increase the current inventory by 35 percent, said KPMG Al Fozan & Partners, an audit, tax and advisory services provider in Saudi Arabia.
It said Jeddah's hospitality market showed an upward trend in key performance indicators in 2018, driven by a surge in tourist numbers and limited supply during the year following a dwindling performance during 2016–17.
KPMG added that it 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. Furthermore, the growing number of pilgrims will have a positive impact on the hospitality market of Jeddah," the report noted.
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 due to which 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."
The KPMG report also 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 travelers grows in the kingdom, budget constraints from companies are fueling demand for three-star hotels," said Hassan.
The report also said that Riyadh will see supply of 2,500 new hotel rooms in 2019, bringing the total number to 16,000 rooms. The future supply in the Saudi capital is expected to rise by 52 percent in the next five years.
Despite occupancy rates improving by 6 percent to 53 percent in 2018, ADR and revenue per available room (RevPAR) fell by 10 percent and 8 percent, respectively, it added.
"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," said Hassan.