Investment in tourism driving KSA’s hospitality sector: report

Investment in tourism driving KSA’s hospitality sector: report
In Riyadh, average annual rents for super regional and regional malls increased by 9 percent and 8 percent, respectively.
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Updated 12 August 2023
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Investment in tourism driving KSA’s hospitality sector: report

Investment in tourism driving KSA’s hospitality sector: report

The Tourism Development Fund announced signing an agreement with the General Authority for Small and Medium Enterprises as part of efforts to offer support and expand SME operations in the tourism sector. Furthermore, in addition to ongoing visa reforms, a well-planned events calendar is driving the Kingdom’s performance in the hospitality sector, according to JLL’s KSA Real Estate Market Overview Report for Q2 2023.

These factors largely underpinned the strong performance across both Riyadh and Jeddah’s hospitality markets last quarter. The latest data from STR shows Riyadh’s occupancy reached 62 percent and the average daily rate climbed to $196 for year to June 2023, which led to revenue per available room rising by 15 percent year-on-year to $120.

Similar improvements were also noted in Jeddah’s hospitality market, with the occupancy rate increasing to 64 percent for YT June 2023. Additionally, for the same period, ADR rose to $215, which consequently resulted in RevPAR increasing by 21 percent to reach $137 when compared to the same period last year.

While the total existing hotel stock remained stable at 21,000 keys in Riyadh and 16,000 keys in Jeddah in the second quarter, approximately 1,400 keys are scheduled to be handed over in the capital and 600 keys are planned to be completed in Jeddah in the remainder of this year. 

Today, the Kingdom is being recognized as one of the world’s biggest investors in tourism, with existing and new investments set to drive its growth.

Saud Alsulaimani, country head, Saudi Arabia, at JLL

“As the Kingdom intends to draw 100 million visitors by 2030 in line with its ongoing diversification efforts, the robust performance in the hospitality sector reflects the success of its numerous strategic initiatives that are helping to boost tourism,” said Saud Alsulaimani, country head, Saudi Arabia, at JLL. “By streamlining visa processes, increasing air connectivity, developing multiple tourist attractions — and ultimately market accessibility — and hosting several local and global events, the Saudi government has made significant efforts to attract investment into the country. Today, the Kingdom is being recognized as one of the world’s biggest investors in tourism, with existing and new investments set to drive its growth and position it as a year-round tourist destination.”

The second quarter saw retail space in Jeddah grow by approximately 102,300 square meters to 1.9 million square meters, whereas the completion of two small neighborhood malls and an expansion of a regional mall added approximately 49,500 square meters of retail gross leasable area in the capital, increasing the total stock to 3.4 million square meters. 

In Riyadh, average annual rents for super regional and regional malls increased by 9 percent and 8 percent, respectively. However, Jeddah’s retail market softened, and average rents for super regional malls decreased by 17 percent year-on-year in Q2. Conversely, average rents in regional malls in Jeddah increased marginally by 1 percent when compared to the same period last year. 

Undergoing rapid growth and transformation, retail developments in the Kingdom are no longer seen as a place to shop alone. 

Malls have evolved into a place to socialize with an increased focus on enhancing the customer experience. Additionally, in line with the growing popularity of online e-commerce, there has been an increasing shift toward omnichannel retailing. As retailers aim to cater to the evolving needs of customers, they are offering the ability to shop online, in-store or through a combination of both channels. 

Meanwhile, the Kingdom’s residential sector continued to respond to market dynamics. Despite the addition of around 8,000 new units, pushing Riyadh’s residential stock to 1.4 million units, and about 4,000 units handed over in Jeddah in Q2 2023, a slowdown in residential transactions was observed due to increasing prices. The total number of transactions decreased by 2 percent in the capital and 17 percent in Jeddah, according to the latest data from the Real Estate General Authority. Demand for apartments and small units has been rising across the Kingdom owing to their relative affordability.