The Saudi hospitality market is currently experiencing a demographic shift, which has had an influence on general consumer preferences in the market. The influx of international arrivals since the introduction of the Saudi tourist e-visas are also projected to have a long-term impact on general consumer preferences within the market.
According to Colliers International’s report “Transformation – Redefining Real Estate in KSA – Part 2”, international arrivals across Saudi Arabia have seen an increase a Compound Annual Growth Rate (CAGR) of approximately 9% between 2013 and 2015.
The report highlighted that the visa reforms have had a positive impact on the proportion of international hospitality demand to local hospitality demand, however, local tourism demand is still expected to remain a key driver of demand for hotels in the future.
The increasing international demand does, however, have an influence on overall consumer preferences in Saudi Arabia, which can have an impact in hospitality offerings and supply.
The report noted that the largest international source market for Saudi Arabia in 2019 was Middle East and Africa with 7.5 million tourists followed by Asia Pacific with 6.5 million.
Asia Pacific is expected to experience the highest growth between 2019 and 2024.
Pakistan, India, Indonesia, Bangladesh, and Malaysian tourists account for the largest proportion of inbound arrivals from Asia-specific countries at present. These markets visit Saudi Arabia for religious purposes.
“The Saudi hospitality market is progressing through three distinct phases, first is the establishment phase, followed by the diversification phase, and the third phase is the locally established phase. Theses phases can help describe the state of the hospitality market and its supply within the Kingdom,” the report read. “Saudi Arabia’s hospitality supply is currently on the diversification phase; however, the market is showing clear indications of its transitioning to the locally established phase.”
The InterContinental Hotels Group (IHG), led by international brands that opened in 2008, established themselves in the market, followed by the lower positioned Holiday Inn, which operated 11 properties by 2011.
Other operators followed a similar strategy, opening higher positioned properties to establish their brand credentials in the market, followed by other brands in their portfolio.
Between 2000 and 2020, luxury and upscale branded hotels accounted for 55% of the branded supply in Saudi Arabia. Therefore, operators start to experience increasing levels of competition causing a change in market dynamics and a diversification of brands.
Moreover, operators introduce a greater variety of brands in the hopes of achieving a unique selling point, giving them an advantage over the competition.
The Saudi market is currently on the diversification phase. During this phase, Saudi Arabia experienced a wider array of brands entering the hospitality market with almost double the number of brands available in 2019 compared to 2010. Hence, the scope of attracting consumers narrows. Differentiation through brand offerings alone is no longer an effective competitive strategy. To have a competitive edge in a growing hotel market should offer a greater variety in term of hotel product offerings.
Colliers believes that operators in the kingdom have identified they should better cater to both local and international guests. Along with this, there has been a noticeable growth in demand for lifestyle hotels in the Saudi Arabia.
Nevertheless, the locally established phase is that local brands also evolve and grow, becoming more competitive in the market versus international operators, diversifying in hospitality offerings and attracting a larger market share to their hotels.
This phase is considered to be the most developed phase in a hospitality market’s development. During this phase, local investors and operators would have already built their experience and portfolios. This allows these local operators to become more of a competitive presence in the market, especially in direct competition to international operators.
Local operators begin to diversify their product offering by evolving old brands and introducing new ones.
Experience led hotels are driven by the growing experience economy which has been fueled by millennials seeking real life experiences. While, the term “experience economy” has been around for some time, it re-emerged again recently, with the heightened use and cultural impact of social media.
In light of these new market developments, Colliers International identified three key elements of experience led hotels which developers in Saudi Arabia should consider when designing future hotels.
As the increasing competitive pressures associated with Saudi Arabia enter the diversification phase, the demand for unique experiences increases. The progressively younger Saudi demographic are looking for experience led hotel offerings, where personalised service is a key contributor to their overall experience.
The Saudi demographic is getting increasingly younger, there is a big opportunity for Saudi Arabia to take the lead on adapting their current hospitality standards to the changing consumer preferences in the market. Operators can do this by implementing new technologies to help offer greater personalised services to their guests.
Colliers estimates that there will be an increase in investment level amongst existing and forthcoming hospitality properties to implement artificial intelligence and internet of things technology to ensure better provision of personalised services.
“Findings by Gartner has also highlighted that in 2018, 50% of companies had redirected their investments towards customer experience innovation,” the report said.
Saudi hospitality properties can also use voice-controlled customer services, which is enabled by internet of things technology. Providing voice enabled devices can allow guests to tailor their experience in the property. This technology is already being adopted by operators such as Marriott International and Hilton.
Accordingly, most hotels have a social aspect to them at their very core, which plays a key role in the strength of their relationships with guests and the local community. We are in a time when hotels are seen as a social platform which not only connects itself to the surrounding environment, but also with the community.
Moreover, Colliers identified three key enablers of hotels as community hubs, namely coworking spaces or shared spaces, community engagement, and free-based membership.
The report disclosed that the rise of digital nomads and increasing business travel led hotels to incorporate coworking spaces as part of their service offering.
Colliers considers that the industry saw an increase in business travel among millennials, many of whom view business travel as a perk rather than an inconvenience.
The report mentioned that there were more than 3 million co-workers globally in 2019, expecting that this number will be doubled by 2022. Hotel brands are taking note of this trend and are incorporating shared working spaces to capitalise on this growing market.
In line with Vision 2030, Colliers expects to see an increase in coworking spaces as Saudi Arabia pushes for more freelancers and entrepreneurs in the kingdom. The younger demographic will play a big factor in the development of coworking spaces in hotel public places such as the lobby and meeting rooms.
While hotels in Saudi Arabia can look forward to an increase in international arrivals over the next few years, hoteliers should also look towards local residents as a source of supplementary revenue. This supplemental revenue can be achieved through leveraging hotel assets and services through free-based membership. Free-based memberships are a great way for hotel properties to reduce dependency on occupancy and average daily rate (ADR) for revenue generation.
Colliers believes that for Saudi Arabia to truly cement itself as an international hospitality destination, its hospitality market should exhibit traits unique to the country.
Over and above, the hospitality industry in Saudi Arabia is now reaching out to a new regional and international audience. During the first month of introducing tourist e-visas to 49 different nationalities, Saudi Arabia had processed approximatively 77,000 e-visas. With a goal of attracting 1.5 million tourists by 2020, hotels should take into consideration that international tourist demand for hospitality products are expected to increase.