The number of hotel rooms in Saudi Arabia is set to increase dramatically as international hotel chains expand their presence and others enter the market for the first time. Investors are also increasingly looking at the middle and lower ends of the market, which have traditionally been left to local operators.

Room For Expansion

Examples of expansion include Best Western, which opened its first two hotels in the country in 2012 and plans to add nine more in the next two years, bringing its number of rooms to over 1500. Starwood intends to open five new hotels, representing a total of around 1300 rooms, to its existing portfolio of 3000 rooms. France’s Accor is aiming to add five more establishments over the next five years, bringing its total to 17, while Hyatt intends to bring its number of hotels to nine, up from one, in the same period. IGH is working to add nine more properties with 2700 rooms to its Saudi portfolio, while Kempinski is building three hotels, to open in 2013 and 2014, with 683 rooms, as well as suites and serviced apartments.

Plugging The Gap

While investment in the five-star segment continues, foreign operators are also increasingly looking at the middle and lower ends of the market. “Historically, firms in Saudi Arabia tended to think only of five-star hotels. Foreign investors and major companies tended to leave the lower end to locals to erect self-service apartments,” Salah Al Bukayyet, vice-president for investment at the Saudi Commission for Tourism and Antiquities (SCTA), told OBG. “However, companies started to realise there was a gap in the market, and now we are seeing a lot of firms investing in three- and four-star hotels. It is good for the economy and the local middle class, which prefers brand names.”

The SCTA switched to the international star-based rating system after it took over regulation in 2008, a move which Al Bukayyet said stimulated investment in this segment, while also providing better destination integrity and transparency for the consumer. “At present there is a boom in investment in tourist accommodation facilities. For example, in the holy city of Makkah the world’s largest hotel project is now under way: the Jebel Omar Development features 37 four- and five-star hotels with 10,000 new rooms, shopping arcades and exclusive infrastructural features,” he told OBG.

Room has also opened up following the declassification by the SCTA of a number of low-end hotels because of their failure to meet its quality standards in recent years, allowing international operators to take their place with branded establishments. As a result, 1607 budget hotel rooms are expected to come onto the market between 2012 and 2014, according to professional services firm Christie + Co.


The sub-three-star segment accounted for 68% of hotels and 27% of hotel rooms in 2011, according to the Tourism Information and Research Centre. Occupancy levels in the niche are slightly lower than the market as a whole, at 59% in 2011, compared to an industry average of 63%. However, there does appear to be room for expansion at the lower end in Riyadh – where occupancy rates in the sub-three-star segment stood at 78%, well above the national rate – and in Dammam, where the three-star occupancy rate was 88% and the sub-three-star rate stood at 74% in 2011. Furthermore, the average stay is slightly longer, at 4.1 days versus 3.9 days for the overall market.

On The Road

Examples of investment by major foreign and domestic firms include the signing of a franchise agreement in June 2012 by Wyndham Hotel Group and Saudi Automotive Services Company, the owner of the country’s largest petrol station network, for the launch of 20 of Wyndham’s roadside economy brand Super8 hotels in the Kingdom over the next five years.

Accor is also entering the middle to lower end of the market, opening its first Ibis-branded hotel in Riyadh in December 2012, which will be followed by another property in Yanbu in 2013. The firm reportedly has long-term plans to open 15-20 Ibis-branded establishments. Other mid-scale and budget brands set to enter the market by 2014 include Holiday Inn Express, Tulip Inn, Marriott Residence Inn and Rotana’s Centro.