Visas, F&B, services propel Saudi hotel expansion
Visas, F&B, services propel Saudi hotel expansion
26 APRIL 2018 8:15 AM

Big change is coming to hotels in the two Holy Cities of Saudi Arabia, Makkah and Medina—including F&B, visas, pilgrim distribution channels and higher quality—but Western firms will remain largely bystanders at least in the short term.

RAS AL KHAIMAH, United Arab Emirates—Saudi Arabia’s Holy Cities of Makkah and Medina are experiencing huge growth and expanding their offerings, but do not expect the door to open wide in regards to foreign direct investment, at least in the short term, sources said.

Speaking during a session at the Arabian Hotel Investment Conference titled “Holy Cities,” panelists said both pilgrims and other guests are having their distinct needs catered to directly by hotels and new developments.

Abdellah Essonni, chief hospitality officer at Maad International Company, a joint venture between two of Saudi Arabia’s largest conglomerates, Dallah Albarakah and Wadi el Khalil, said the company has worked with such international hotel firms as Marriott International and InterContinental Hotels Group in franchise and management agreements.

The conglomerate is developing 21 hotels, with the first phase to open this summer. Also included in the overall project is a 12-kilometer (7.5-mile) Champs-Élysées-style avenue. All are within walking distance of the Sacred Mosque and the Kaaba, the holy black building in its middle.

Non-Muslims are not permitted to enter the two Holy Cities.

Saudi Arabian companies have offices in Jeddah, approximately 40 miles from Makkah, to do business with international firms.

Muslins have an obligation, if possible, to visit Makkah at least once in their lifetimes, Essonni said.

Hotels have recently seized on this opportunity, Essonni added, even if initially things were slow to get going.

“For two decades, the Holy Cities had no brands. There was no sense of quality, but that has all changed, even though in Makkah, which has 100,000 rooms, less than 10% is branded,” he said.

“All these hotels. They, too, serve pilgrims,” he added.

According to STR’s March 2018 pipeline report, Makkah had 35,889 rooms operating with 23,839 more in construction. (STR is the parent company of Hotel News Now.)

Essonni mentioned a goal of 100,000 rooms for Makkah, while Hassan Ahdab, president of hotel operations at Saudi Arabian firm Dur Hospitality mentioned a target of 80,000 rooms for Medina.

“Maad has earmarked a couple of developments in Medina but not on the same scale as those in Makkah,” Essonni said.

“It makes sense to offer two-city packages,” he added.

But there will be hurdles to reaching those benchmarks.

“Mega-projects do have their challenges, but we have not faced too many. The authorities have been very cooperative,” Ahdab said. “It is difficult, but putting the extra work in to find that management, and in controlling costs, does pay off.”

Upping offerings
Makkah and Medina hotels are no longer just about providing beds for pilgrims.

Essonni said Maad, which only builds in the Holy Cities, has started offering “spiritual concierges.”

“Other hotels might confuse pilgrims with other visitors, but they have different needs. We put in people who know the city intimately. No one is more of an expert than a native of the city,” Essonni said.

The new face of Makkah will include a revolution in food and beverage, which is all about extending guest stays, Essonni said.

The pilgrim season also is being extended beyond Ramadan and the hajj. Visas are free to first-time hajj pilgrims, and there has been a doubling of the quota for hajj visas, panelists said.

And to get all those guests there, the Saudi government is developing a hotel-booking platform for all the city’s hotels, Essonni added, and has devised a 30-day visa for pilgrims.

It is hoped, Ahdab said, that this will help defer some of the challenges hotels still have in demand generation.

“The bumpy roads are increasingly being straightened,” Ahdab said.

One bump has been the devaluation of the Egyptian lira, which affected discernible income and thus demand for the Holy Cities, Essonni said.

Outside influence
Do not expect the floodgates to open for international finance and direct management, Essonni said.

“There is a new, massive offering in retail and residential in Holy Cities, and this economy does allow the doors to widen a little in regards to foreign involvement if not in foreign direct investment,” he said.

Panel audience member Khaled Y. Zowayed, associate at law firm Baker & McKenzie, said it would be wrong to expect any changes to allow international hotel owners to get their feet in the door.

“It is pretty restricted. Muslim investors can get two-year hotel leases with renewals, but this is not often bankable to outsiders,” he said.

He noted more indirect investments might also be problematic.

“Alternative structures sit on wobbly ground,” Zowayed said. “It is tough to say they are legal. It is hard for them to pass the tests.”

No one knows if this policy might be relaxed now, but it would be wise to think it certainly would not be the case in the immediate timeline, he added.

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