JLL: Demand grows for Makkah hotel sector in Saudi
With the entry of international hotel brands like Conrad, Marriott, and Best Western into Saudi Arabia's Makkah, the hospitality sector continues to reflect market confidence, according to a new report.
In its first report on Makkah, A City within a City, real estate consultancy, JLL, addresses an almost unlimited global demand for hotel and other tourist facilities in the area due to the continued growth of religious tourism, creating huge opportunities for both developers and investors to upgrade existing properties and create new ones.
Earlier this year, JLL signed a Memorandum of Understanding (MoU) with the Makkah Chamber of Commerce & Industry to help improve transparency in the Saudi real estate market. As part of the collaboration, JLL worked with key players and stakeholders in Makkah to release this first comprehensive report on the city’s real estate market.
The report states that the Saudi 2030 Vision recognises the crucial role religious tourism can play in diversifying the economy away from dependence upon the oil and gas sector with religious pilgrims currently contributing 2% - 3% of Saudi’s GDP. There are plans to roughly double the capacity to accommodate both Umrah and Hajj visitors to around 15 million and 5 million respectively by 2020.
Jamil Ghaznawi, national director and country head of JLL Saudi Arabia, said: “Increasing religious tourism in line with Saudi Vision 2030 will create huge opportunities in the retail, hotel and broader accommodation sectors in Makkah. The long-term prospects for the hotel sector are extremely positive given the reliance on accommodation providers to support the global unlimited demand of religious pilgrims to Makkah.
“More than ever, the key to capitalising on the growth of the real estate market is the strong co-operation between public and private sectors to invest in new and existing accommodation. An added benefit is the maxim of ‘build it and they will come’ which applies more aptly to the Makkah market than any other city in the region.
“In addition to increasing accommodation, the success of the Saudi Government’s plans to expand the number of religious visitors also relies heavily on the ability to address transportation capacity. While there have been significant investments to improve the networks serving Makkah, many of the projects have been affected by the stringent 2016 budget.”
The report also says that although there is a great opportunity for Makkah’s real estate sector to flourish from increasing the number of pilgrims, there is currently a restraint on the number of pilgrims due to a cap on the number of quotas for each country. This has had a negative impact on the performance of Makkah’s hotels and pilgrim accommodation but the quotas are expected to be relaxed upon completion of major infrastructure improvements in 2017 and 2018.
It continues: "Beyond the buoyant hotel and accommodation sector, Makkah’s retail sector is also heavily dependent upon trade from religious pilgrims particularly during a period of weakening spending power amongst residents. Despite this, retail lease rates in the Markazia remain substantially higher than in other parts of the city.
"The traditional residential sector continues to suffer from a shortage of affordable homes and poor quality infrastructure projects. Compared to other major cities in Saudi, the office sector remains a relatively minor market which is reflected in lease rates which are considerably lower when compared to Jeddah and Riyadh."