About 3 million pilgrims will arrive in Makkah for the annual Hajj pilgrimage in October, many of them coming from a wealthy background. To cater to their need for luxury accommodation, hotel investment companies, including InterContinental Hotels Group Plc, Hyatt Hotels Corp. and Starwood Hotels & Resorts Worldwide Inc., are lining up in Saudi Arabia and offering an exclusive life-time experience.
Such is the rush that Hilton Worldwide Inc., owned by Blackstone Group LP, announced plans to more than double the number of hotels it operates in the country to 14, including six in Makkah. UK-based InterContinental is also working to increase its room numbers by about 50% to 7,300 in the next three to five years. Hyatt, which opened its first hotel in the country in 2009, is eyeing to have eight more in coming five years.
Starwood, the US-based owner of the luxury St. Regis and W brands, has plans to manage five more hotels in Saudi Arabia, adding about 1,300 rooms. It currently has 10 hotels with about 3,000 rooms.
Despite the fact that international companies are not allowed to own property in the country, research company STR Global estimates that the boom in Saudi Arabia will increase the number of branded hotel beds available by 58% in the next few years.
“The tourism industry in Saudi is rapidly expanding and our development plans reflect the growing demand for high-quality hotels in that market,” said Christophe Landais, Middle East managing director for Paris-based Accor SA. “The kingdom constitutes a strategic base for us.”
He added that Accor, Europe’s largest hotel operator, will welcome pilgrims to its 1,315- room Pullman hotel in Makkah soon. The Paris-based company plans to increase its properties in Saudi Arabia to 17 by 2015 from current 12.
The Abraj Al-Bait Towers is a massive hotel complex which is a stone’s throw away from Makkah’s Masjid Al Haram (Grand Mosque). The 601-metre (1,972-foot) clock tower was inaugurated in 2010 and houses an 858-room Fairmont Hotel at its centre. Colony Capital LLC’s FRHI Holdings Ltd, owners of the Fairmont and Swissotel brands as well as Station Casino in Las Vegas, said it has plans to open a 1,562-room hotel in the complex this year.
Local companies are also doing what it takes to tap the growing luxury accommodation market. Saudi Hotels and Resorts Co. has 10 hotels across the kingdom and plans to add four in Makkah, Jeddah and Medina, the second holiest city of Islam.
Makarim Group, a Saudi chain which manages the hotels, denied foreign competition is denting its business. “There will always be demand for local-flavour five-star hotels,” marketing director Majdi Saqer said in an e-mail to Bloomberg.
It is not just rising wealth in parts of the 1.57 billion-strong Muslim world that is the driving force behind hotel growth in Saudi Arabia. According to real estate broker Jones Lang LaSalle Inc., a $500 billion Saudi government spending programme on homes and infrastructure is boosting demand for short-term accommodation from foreign consultants, engineers and other professionals who stay in cities such as Riyadh and Damam.
The unprecedented expansion in hotel chains is coming in a conservative kingdom that strictly enforces Islamic laws such as a segregation of men and women and a ban on alcohol.
As Deluxe as Dubai
According to STR Global, around 53,000 branded hotel rooms are currently available across the kingdom – about 19,000 in Makkah and another 13,000 in Medina – roughly the same as the city of Dubai. Those mostly provide five-star rooms with a few in the four-star bracket.
Chiheb Ben Mahmoud, head of hotel advisory for the Middle East and Africa at Jones Lang LaSalle, says most pilgrims stay in furnished apartments, mainly supplied by individuals and small businesses.
Last year, Saudi Arabia hosted 10.6 million pilgrims and religious visitors out of 15.4 million foreign arrivals overall, according to Business Monitor International. BMI estimates suggest arrivals increasing by an average of 6% annually until 2016.
The Saudi Ministry of Hajj says it expects a record number of pilgrims this year. In 2011, 2.5 million passed through Jeddah’s airport on 10,650 flights.
“There is some kind of a catch-up in terms of capacity building,” Jarmo Kotilaine, the Jeddah-based chief economist at National Commercial Bank, said by phone on June 14. “There has been a long period when there was very little addition.”
“Branded hotels, regional or global, currently form the backbone of inventory in Makkah,” Ben Mahmoud said. “The trend will continue as stricter guidelines for health and safety are implemented and because a higher standard of comfort is being demanded by pilgrims.”
The market for luxury accommodation is being fuelled by economic growth in Muslim-majority countries like Turkey, whose economy expanded 8.5% last year. Indonesia, the world’s most populous Muslim nation, grew by 6.5%, the most since the 1998 Asian financial crisis.
“While most of the high-quality hotel supply has been five-star and four-star, Accor is seeing the emergence of real demand for other products like the economy three-star segment,” Landais said. “For the moment, that’s only fulfilled by local and unbranded hotel supply that lacks high quality standards most of the time.”
“I wish I could have more hotels in Makkah,” Jan Smits, InterContinental’s chief executive officer for Asia, Middle East and Africa, told Bloomberg. “In four months, you make 70% of your income. It’s a really strong market and it’s one of the most unique in the world.” The company operates one closest hotels to the Grand Mosque has been operating in the country since the 1970s.
Makkah has been a destination of religious devotion for centuries even before the rise of Islam in the 6th century. The Hajj is one of the five pillars of Islam and every able bodied Muslim in the world is obliged to make the journey at least once in their lives, performing rituals like circling the cube-shaped Kaaba and sprinting between the hills of Al Safa and Al Marwa seven times. Pilgrims must spend a day on Mount Arafat and sleep a night at Muzdalafa along with millions of others.