saudi arabia q1 2016 review - colliers international · 3 saudi arabia q1 2016 review | may 2016 |...
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Saudi Arabia Q1 2016 Review5 Key Cities
Quarterly Report
Saudi Arabia | Hotels
Q1 2016
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International
Contents
Riyadh ...................................................... 3
Jeddah ..................................................... 4
Makkah .................................................... 5
Madinah ................................................... 6
Khobar, Dammam & Dhahran .................. 7
2
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International3
RiyadhSUPPLY
Notable hotels currently in the pre-opening phase include
the Nobu Riyadh, the Crowne Plaza ITCC and the Hyatt
Regency Olaya, all of which are expected to officially open
within the next 2 months.
Riyadh s pipeline is centred around 4-and 5-star room
stock accounting for 53% and 41% of supply respectively
while 3-star supply represents the remaining 6%.
The current market gap is for internationally branded 3-star
hotels, which would see a good fit in Riyadh s corporate-
focused market.
MARKET PERFORMANCE
Corporate demand represents 70% of roomnights booked in
Riyadh. Due to a decline in oil prices, corporations have
been less willing to spend on rooms due to cost-cutting
tactics. This has resulted in a gradual dip in ADR witnessed
from Q3 2015 until Q1 2016.
In addition, occupancies have faltered due to lower
business travels however this is expected to pick up
should oil prices recover.
OUTLOOK
Low oil prices are expected to continue shifting demand
towards more affordable travel and accommodation options
as companies implement cost reduction initiatives.
Some parts of King Abdullah Financial District are expected
to be repurposed into hotels, which would result in further
increases in hotel supply.
Investors in hospitality real estate should have a long term
view in mind and build assets which are able to target the
domestic leisure market, as existing properties in Riyadh
are mainly focused on the corporate segment.
KPIs | YOY % CHANGE
OCC
ADR
+6% +0% -6% -9%Occ 52%
-6%USD220
-7% +1% -10%
RevPAR
Source: Colliers International
Note: The above graph covers only branded hotel supply, and takes into account potential
cancellations and delays.
Q1 2014
Q1 2015
Q1 2016
Forecast FY 2016
Source: STR Global, Colliers International
Midscale and Economy Hotels
Price Sensitivity
Overhaul of Development Plans
Demand is expected to shift
towards midscale and economy
hotels amidst reduced spending
on travel and accommodation.
Saudi Vision 2030 calls for an
overhaul of planned economic
cities.
Reduced oil prices expected to
continue suppressing corporate
demand and apply pressure on
achievable rates.
WHAT TO EXPECT?
PROJECTED HOTEL SUPPLY │NO. OF KEYS
6,0817,473
9,993
13,289
15,720
Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International4
JeddahSUPPLY
Jeddah has historically experienced delays in hotel
development, with some projects also being put on hold
indefinitely.
53% of Jeddah s branded hotel supply is represented by
the 5-star segment, while the 4-star and 3-star segments
account for 29% and 18%, respectively. With regards to the
pipeline, 53% of room supply is within the 5-star segment,
with 4-star and 3-star hotels accounting for 33% and 14%
respectively.
Q2 2016 is expected to witness the opening of the Centro
Shaheen which features 248 keys.
MARKET PERFORMANCE
The influx of supply in 2016 is expected to put additional
pressure on both rates and occupancies, as many projects
are materialising. A dip in corporate demand was witnessed
in Q1 due to lower oil prices, and this was accompanied by
lower domestic leisure demand, as more Saudis travelled to
Europe to take advantage of a weaker Euro.
As Jeddah is a transient city for pilgrims heading to Makkah
and Madinah, the hospitality market is also impacted by
demand to the Holy Cities. Q1 2016 saw a dip in religious
demand versus last year, and Jeddah has also been
impacted by this decrease.
OUTLOOK
Continuous supply increases in the 5-star and serviced
apartment segments are expected to further increase
competition within the market. This highlights the
opportunity to develop differentiated lifestyle concepts to
remain competitive in this growing market.
Market fundamentals in Jeddah are expected to remain
strong despite the expected increase in competition in the
short to medium term.
KPIs | YOY % CHANGE
-1% +0% -9%-7%
Occ69%
-5%
USD240+6% +1% -5%
Source: STR Global, Colliers International
RevPAR
Q1 2014
Q1 2015
Q1 2016
Forecast FY 2016
OCC
ADR
Source: Colliers International
Note: The above graph covers only branded hotel supply, and takes into account potential
cancellations and delays.
Maturing Serviced Apartment Market
Rate Compression
Importance of families
Recent opening of internationally
branded serviced apartment
combined with forthcoming supply
expected to increase competition.
Increasing price sensitivity along
with large forthcoming supply of 5-
star properties may apply downward
pressure on 5- star rates.
As operators increase targeting of
leisure, provision of space and family
orientated services will become an
essential requirement.
WHAT TO EXPECT?
PROJECTED HOTEL SUPPLY │NO. OF KEYS
4,1454,924
5,926
7,815
10,700
Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International5
MakkahSUPPLY
Makkah s branded hotel stock is heavily weighted towards
the 5-star segment, accounting for 86% of total supply. The
largest establishments in the market include Swissôtel
Makkah (1,488 Keys), Le Méridien Towers Makkah (1,322
Keys), and the Pullman Zamzam Hotel Makkah (1,315 keys).
Makkah hotel room supply is expected to reach 25,890
branded hotel keys by 2018 despite delays in hotel openings
seen in the past.
Of the total announced hotel supply until 2020, AccorHotels
holds a share of 13.4%, while Millennium Hotels & Resorts
and Hilton Worldwide represent 20.2% and 11.4% of
forthcoming supply, respectively.
MARKET PERFORMANCE
As of Q1 2016, the pilgrimage visa quotas were still in place
due to ongoing construction activity around the Haram.
Since January 2016, the market has seen a relatively large
drop in Iranian Umrah pilgrims. The drop in Iranian tourists
traveling to Makkah is expected to contribute to a
downward effect on full-year performance, with
occupancies forecasted to be 61% and ADR at USD 209.
The larger hotels outside the central area (more than 800
keys) were particularly affected by this decrease in
demand, and resorted to even lower room rates than usual
during low season (mostly during Safar and Shawwal).
OUTLOOK
Makkah s hospitality market is expected to truly prosper in
2017 onwards, as visa quotas are lifted and multiple
infrastructure projects gradually come online, including the
Haramain High Speed Railway (2017), the first phase of the
Makkah Mass Rail Transit system (2019).
Source: STR Global, Colliers International
KPIs | YOY % CHANGE
+6% -5% -6%-2%
Occ 61%
-8%USD 209
-3% -3% -4%
OCC
ADR Q1 2014
Q1 2015
Q1 2016
Forecast FY 2016
RevPAR
Source: Colliers International
Note: The above graph covers only branded hotel supply, and takes into account potential
cancellations and delays.
New Projects in Secondary Market
No Change in Visa Quotas
International Branding
Increased competition within the
secondary market (located 1km+
from Masjid) due to high land cost
within proximity to the Masjid
Ongoing visa quotas due to
continued construction activity
until at least Q4 2016
Lack of internationally branded
midscale supply, existing branded
supply continues to see improved
performance.
WHAT TO EXPECT?
PROJECTED HOTEL SUPPLY │NO. OF KEYS
10,37712,269
16,453
20,513
25,890
Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International6
MadinahSUPPLY
Al Madinah s internationally branded hotel supply is
primarily represented by 4- and 5-star hotels each of which
accounts for 14% and 86% of supply, respectively.
In February 2016, Madinah saw the pre-opening of the
Pullman Zamzam Al Madinah hotel which would feature a
total of 834 keys once all inventory is released. In the next
two years, notable new hotel openings include the Ibis
Madinah Quba a in 2017 and the Grand Millennium Hotel
Madinah which will introduce 250 and 299 keys
respectively.
MARKET PERFORMANCE
Since Madinah s branded hospitality market is equivalent to
almost half of the supply in Makkah, the level of competition
is lower. As a result, the Madinah market has been less
impacted than Makkah by the pilgrimage visa limitations.
RevPAR is expected to dip marginally, only decreasing by
3% in full-year 2016. This is mainly the result of the lower
number of Iranian Umrah pilgrims.
With the opening of the Pullman ZamZam in February 2016
and the Coral Madinah in Q3 2016, the market s ADR levels
are expected to benefit, however occupancy is also to be
impacted as more rooms are added to the market.
OUTLOOK
Due to Madinah s status as a religious destination, impact of
the reduced oil price is expected to be subdued compared
to other markets in the Kingdom.
As new supply enters the market replacing older supply
which is dated and of low quality Madinah s ADR is
expected to increase in the mid to long term.
KPIs | YOY % CHANGE
Source: STR Global, Colliers International
+4% +0% -8% -5%Occ 59%
+2%USD161
-4% +5% +2%
OCC
ADR Q1 2014
Q1 2015
Q1 2016
Forecast FY 2016
RevPAR
Source: Colliers International
Note: The above graph covers only branded hotel supply, and takes into account potential
cancellations and delays.
Demolition on Hold
Knowledge Economic City
Resilience to Oil Price Declines
Indefinite halt of demolition in
Northern Area as government
funds are reprioritised.
Majority of future Madinah supply to
be featured within KEC, however
Central Area will continue to have
the strongest rates.
Due to its status as a religious
destination, the impact of lower
oil prices is likely to be subdued.
WHAT TO EXPECT?
PROJECTED HOTEL SUPPLY │NO. OF KEYS
KEC
5,5876,421
6,981 7,2317,770
Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International7
Khobar, Dammam & Dhahran
SUPPLY
Branded hotel supply within Khobar, Dammam and Dhahran
is expected to grow at an annual rate of 16% between 2016
and 2018. Furthermore, hotel development is concentrated
within the 4- and 5-star segments, each accounting for
36% and 48% of total forthcoming supply, respectively.
Notable openings in 2016 include the 218-key Al Othman
Kempinski in July 2016, and the 236-key Aloft Dhahran in
August.
Delays in project delivery are still expected to continue on a
similar trend to 2015 due to unstable oil prices, as well as
poor project planning and budgeting in some projects.
MARKET PERFORMANCE
Both corporate demand and leisure demand are prevalent
in the coastal cities, however these segments both saw a
dip in demand from Q3 2015 through to Q1 2016. The ADR
has been impacted in the last six months, as oil and oil-
related companies have engaged in cost-cutting due to the
production of lower revenues.
OUTLOOK
Reduced oil prices has resulted in a strong increase of
price sensitivity, particularly from the corporate segment.
This has resulted in an increased use of third party travel
agents which seek the most attractive contracts.
On a positive note, Al Khobar / Dammam is in a good
position to further diversify its segmentation away from the
traditional corporate market and more towards leisure and
educational travels. One such initiative is the soon-to-open
King Abdulaziz Centre for World Culture, which is estimated
to have cost SAR 1.8 billion.
PROJECTED HOTEL SUPPLY │NO. OF KEYS
WHAT TO EXPECT?
KPIs | YOY % CHANGE
+2% +8% -15%-14%
Occ 57%
+4%USD176
+2% -7% -6%
Q1 2014
Q1 2015
Q1 2016
Forecast FY 2016
RevPAR
Source: STR Global, Colliers International
OCC
ADR
Source: Colliers International
Note: The above graph covers only branded hotel supply, and takes into account potential
cancellations and delays.
Opportunity for Resort Products
Price Sensitivity of Corporate Market
Decreasing corporate demand and
price sensitivity will see an
increase in leisure demand for the
market as rates are dropped.
Opportunity to develop within Half
Moon Bay Area catering to families
from Al Khobar and Dammam, as
well as neighbouring cities.
Shift of demand to more affordable
accommodation options. Important
to attract demand from third party
travel agents.
Rising Leisure Segment
3,649 3,7394,507
5,660
6,989
Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)
Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International8
Colliers International Hotels
Colliers International Hotels division is a global network of specialist consultants in hotel, resort,
marina, golf, leisure an spa sectors, dedicated to providing strategic advisory services to owners,
developers and government institutions to extract best values from projects and assets. The
foundation of our service is the hands-on experience of our team combined with the intelligence
and resources of global practice. Through effective management of the hospitality process,
Colliers delivers tangible financial benefits to clients. With offices in Dubai, Abu Dhabi, Jeddah,
Riyadh and Cairo, Colliers International Hotels combines global expertise with local market
knowledge.
SERVICES AT A GLANCE
The team can advise throughout the key phases and lifecycle of projects
• Destination / Tourism / Resort / Brand Strategy
• Market and Financial Feasibility Study
• Development Consultancy & Highest and Best Use Analysis
• Operator Search, Selection and Contract Negotiation
• Pre-Opening Budget Analysis and Operational Business Plan
• Owner Representative / Asset Management / Lenders Asset Monitoring
• Site and Asset Investment Sale and Acquisition/Due Diligence
• RICS Valuations for Finance Purposes and IPOs
Our hotels team in the MENA region:
$9 39,200 8,880billion keys Hotel keys
investment value of valued under asset management
projects advised
About Colliers International
Colliers International is a leading global real estate services company with more than 16,000 skilled professionals operating in 66 countries. With an enterprising culture and significant employee ownership, Colliers professionals provide a full range of services to real estate occupiers, owners and investors worldwide. Services include strategic advice and execution for property sales, leasing and finance; global corporate solutions; property, facility and project management; workplace solutions; appraisal, valuation; customized research; and thought leadership consulting. Colliers professionals think differently, share great ideas and offer thoughtful and innovative advice that help clients accelerate their success. Colliers has been ranked among the top 100 outsourcing firms by the International Association of Outsourcing Professionals Global Outsourcing for 11 consecutive years, more than any other real estate services firm.
In MENA, Colliers International has provided leading advisory services through its regional offices located in Dubai, Abu Dhabi, Riyadh and Jeddah since 1996. The latest annual real estate survey by Euromoney named Colliers International Best Advisor in the MENA region, UAE, Qatar and Saudi Arabia.
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Colliers International, 2016
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