Hoteliers are looking to benefit from the extraordinarily high demand created by Makkah’s continuing flow of pilgrims, who represent 90% of the city’s hotel guests. The demand stems not only from the fact that pilgrim numbers look set to increase, but also from a government drive to improve health and safety standards during the crowded Hajj season, which is discouraging an old tradition whereby pilgrims are accommodated in residents’ homes. In fact, most of the existing 50,000 hotel rooms in Makkah are not up to international standards, said a 2010 report by Jones Lang LaSalle (JLL), increasing the urgency of the situation. However, development projects valued at SR18bn ($4.8bn) are now under way that will increase available hotel rooms by around 24,500, according to a 2012 report by the Saudi Commission for Tourism and Antiquities (SCTA).
Makkah’s largest hotel development is being undertaken by Saudi-owned Jabal Omar Development. At a cost of $3.2bn, it includes the construction of 38 hotel towers which, upon completion in 2017, will be managed by 28 companies – including Marriott, Starwood, Hilton and Hyatt, all in a joint venture with a Saudi partner – and add 13,500 hotel rooms to existing capacity. The first 10 of the towers are due to open in August 2013. Also substantial is the Jabal Al Ka’bah project, set to add 8500 hotels rooms in a total of six towers, the first phase of which is due to open at the start of 2013 with the Anjum Makkah Hotel.
The new developments are largely targeting the four-and five-star ranges, at a time when growing wealth in the Islamic world, particularly in the Gulf and Indonesia, is increasing pilgrims’ purchasing power. Hilton plans to expand its total number of hotels in the Kingdom from five to 14, of which six are to be in Makkah. Local firms, too, are cashing in, with the Saudi Hotels and Resorts Company planning to add four hotels in the pilgrimage cities of Makkah, Jeddah and Medina in 2013.
Capturing New Segments
Some believe there is further scope for lower-end hotel capacity as well. “Whereas in nearby Jeddah the greatest need is in the four-star category, in Makkah we are seeing strongest demand across the two-, three- and four-star hotels,” said Khalil Al Arab, manager of retail and corporate solutions in Jeddah at JLL. Pilgrimage tour operators echoed the need for mid- and lower-end accommodation. “Over the next five years, I expect to see growth mainly in three-star options,” said Majid Hameedi, the managing director of the Siddiqui Hajj Group.
Nor is it only hotels that are in demand. “Most of the foreign pilgrims who come to the Kingdom stay in Makkah for as long as a month and therefore tend to rent out furnished apartments rather than stay in hotels. There is currently a real undersupply of such apartments,” Khalid Al Jehani, the former general manager of Al Mukramoon, a Hajj pilgrimage operator.
Business tourism is also noted as an area to watch, as the city’s many development projects mean the arrival of foreign consultants and other businesspeople. However, Jeddah is likely to remain the location of choice, not least because non-Muslims are prohibited from entering the restricted zone of Makkah.
Supply & Demand
Existing hotels have usually done very well off the rising numbers of pilgrims, especially during the seasonal peaks of the Hajj – during which hotel revenues can reach as much as SR4bn ($1bn) – and the holy month of Ramadan. Occupancy rates have been known to reach 100% at these times. Yet Makkah’s hotel sector has also proven vulnerable to swings in supply and demand. In the 2011 Hajj season, for example, occupancy rates in the central area fell by 10% and rentals fell by 30-50% relative to the 2010 season, according to the Makkah Chamber of Commerce and Industry, as new hotels and apartments licensed for that Hajj season added to supply. Hoteliers are also dependent on the steady and predictable operation of the Ministry of Hajj, whose visa policies have sometimes had an adverse effect on hotel reservations. The SCTA has also introduced unpopular pricing caps, according to JLL. Yet such obstacles have not damaged the allure of what all agree to be a highly profitable market.
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