Meeting mid-scale needs
The hospitality market in Saudi Arabia offers tremendous potential for investors to lay out money on mid-scale hotels. This can in turn help a large demand segment looking for quality and affordable accommodations.
The Saudi market has been conventionally dominated by upscale and luxury hotels without real focus on the change in hotel guests’ needs and decrease in their purchasing power. As a result, Ghina Real Estate has identified a gap in the market that it can fill through the development of midscale internationally branded hotels, targeting the corporate segment and to a lesser extent, the leisure segment.
We have seen over recent years that average room rates in the Kingdom were relatively high compared to the rest of the region, despite a lack of good and acceptable quality offerings. This was coupled with an increase in the supply of economy hotels that are mainly unbranded and of low quality. Based on all of this, we believe that the mid-scale market in the Kingdom can still cater to a large demand segment looking for quality hotels at an acceptable budget.
In addition, the partnership with international hotel operators will help the developer build good quality, calculated budget hotels that can cater to a large segment of guests that are looking for an accommodation that takes into consideration their income – without a sacrifice on quality.
Riyadh, Jeddah and Dammam have been identified as the prime focus areas for the development of these hotels with the potential of expansion to other Tier-II cities. The advantages that the mid-scale hotels offer to the investor are mainly the reduced development budget, the choice of small to medium plot size and a GOP percentage of around 45 per cent that can be achieved from operations. Our feasibility studies show that these factors will help the developer achieve an IRR exceeding 15 per cent for each hotel development – an opportunity that is hard to ignore in the current economic climate.
On the other hand, the management of these hotels by an international hotel operator will provide guests with confidence in the quality of service and reassurance that the rates will satisfy their needs, not to mention the support received from the operator distribution and marketing channels.
The corporate sector and budget-oriented leisure segment provide the strongest target audience for these types of hotels. Tier-II cities will also offer a potential geographical diversification plan, where the supply of these kind of hotels is still limited. As a developer, our priority will be on the efficient design of the mid-scale hotels, the good quality of finishes and providing good service to the guest.
At Ghina Real Estate, we believe that the 2030 vision of the Kingdom will be a booster to the hospitality sector in the country, with a continuous focus from the government on infrastructure projects adding to it the relaxation of visas requirements for visitors and the expansion of the entertainment sector. The hospitality sector still offers a lot of development opportunities for investors, associating good returns with an acceptable level of risk. (The views expressed are solely of the author. The publication may or may not subscribe to the same.)
Riyadh, Jeddah and Dammam have been identified as the prime focus areas for the development of these hotels with the potential of expansion to other Tier-II cities
Samer Sabra* Vice President, Investment & Development, Ghina Real Estate