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.

TravTalk - Middle East - - GUEST COLUMN -

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

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