Saudi Arabia Q1 2016 Review - Colliers International · 3 Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International Riyadh SUPPLY Notable hotels currently in the pre-opening

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)


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%


RevPAR

Q1 2014

Q1 2015

Q1 2016

Forecast FY 2016

OCC

ADR




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?


4,1454,924

5,926

7,815

10,700

Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)


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).


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




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?


10,37712,269

16,453

20,513

25,890

Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)


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


+4% +0% -8% -5%Occ 59%

+2%USD161

-4% +5% +2%

OCC

ADR Q1 2014

Q1 2015

Q1 2016

Forecast FY 2016

RevPAR




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?


KEC

5,5876,421

6,981 7,2317,770

Q1 2015 Q1 2016 FY 2016(f) FY 2017 (f) FY 2018 (f)


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.


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


OCC

ADR




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)


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.

colliers.com

Colliers International, 2016

The information contained herein has been obtained from sources deemed reliable. While every reasonable effort has been made to

ensure its accuracy, we cannot guarantee it. No responsibility is assumed for any inaccuracies. Readers are encouraged to consult their

professional advisors prior to acting on any of the material contained in this report.

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+971 4 453 7400

For further information,

please contact:

Filippo Sona

Director | Head of Hotels | MENA Region

Main +971 4 453 7400

Mobile +971 55 899 6102

[email protected]

Selim El Zein

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Mobile +971 55 899 6103

[email protected]

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Documents

Saudi Arabia Q1 2016 Review - Colliers International · 3 Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International Riyadh SUPPLY Notable hotels currently in the pre-opening