Colliers Ksa-hotels-review-q1-2016-en.pdf

Quarterly Report Saudi Arabia | Hotels Q1 2016

Saudi Arabia Q1 2016 Review 5 Key Cities

Contents

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

Riyadh ......................................................

3

Jeddah .....................................................

4

Makkah ....................................................

5

Madinah ...................................................

6

Khobar, Dammam & Dhahran ..................

7

Riyadh

PROJECTED HOTEL SUPPLY │NO. OF KEYS

SUPPLY 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%.

15,720 13,289 9,993 6,081 Q1 2015

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.

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

Q1 2016

FY 2016(f)

FY 2017 (f) FY 2018 (f)

Source: Colliers International Note: The above graph covers only branded hotel supply, and takes into account potential cancellations and delays.

KPIs | YOY % CHANGE

The current market gap is for internationally branded 3-star hotels, which would see a good fit in Riyadh s corporatefocused market.

MARKET PERFORMANCE

7,473

+6%

+0%

-6%

-7%

+1%

-10%

Q1 2014

Q1 2015

Q1 2016

OCC

ADR

-9% Occ 52%

-6% USD 220

Forecast FY 2016

RevPAR Source: STR Global, Colliers International

WHAT TO EXPECT? Midscale and Demand is expected to shift towards midscale and economy Economy hotels amidst reduced spending Hotels on travel and accommodation.

Price Sensitivity

Reduced oil prices expected to continue suppressing corporate demand and apply pressure on achievable rates.

Overhaul of Saudi Vision 2030 calls for an Development overhaul of planned economic Plans cities.

Jeddah

PROJECTED HOTEL SUPPLY │NO. OF KEYS 10,700

SUPPLY 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.

7,815 4,145

Q1 2015

4,924

Q1 2016

5,926

FY 2016(f)

FY 2017 (f)

FY 2018 (f)

Source: Colliers International Note: The above graph covers only branded hotel supply, and takes into account potential cancellations and delays.

KPIs | YOY % CHANGE

Q2 2016 is expected to witness the opening of the Centro Shaheen which features 248 keys.

-1%

+0%

-9%

+6%

+1%

-5%

Q1 2014

Q1 2015

Q1 2016

-7% Occ 69%

OCC

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.

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

ADR

-5% USD 240

Forecast FY 2016

RevPAR Source: STR Global, Colliers International

WHAT TO EXPECT? Maturing Serviced Apartment Market

Recent opening of internationally branded serviced apartment combined with forthcoming supply expected to increase competition. Increasing price sensitivity along

Rate with large forthcoming supply of 5Compression

star properties may apply downward pressure on 5- star rates.

Importance of As operators increase targeting of leisure, provision of space and family families orientated services will become an essential requirement.

Makkah

PROJECTED HOTEL SUPPLY │NO. OF KEYS 25,890

SUPPLY 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.

20,513 16,453 10,377

Q1 2015

12,269

Q1 2016

FY 2016(f)

FY 2017 (f)

KPIs | YOY % CHANGE

+6%

-5%

-6%

-3%

-3%

-4%

Q1 2014

Q1 2015

Q1 2016

OCC

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).

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

FY 2018 (f)

Source: Colliers International Note: The above graph covers only branded hotel supply, and takes into account potential cancellations and delays.

ADR

-2% Occ 61%

-8% USD 209

Forecast FY 2016

RevPAR Source: STR Global, Colliers International

WHAT TO EXPECT? Increased competition within the

New Projects in Secondary secondary market (located 1km+ from Masjid) due to high land cost Market within proximity to the Masjid

No Change in Ongoing visa quotas due to Visa Quotas continued construction activity until at least Q4 2016

International Branding

Lack of internationally branded midscale supply, existing branded supply continues to see improved performance.

Madinah

PROJECTED HOTEL SUPPLY │NO. OF KEYS

SUPPLY 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

5,587

Q1 2015

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.

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.

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

7,231

FY 2016(f)

FY 2017 (f)

FY 2018 (f)

KPIs | YOY % CHANGE

ADR

-5%

+4%

+0%

-8%

-4%

+5%

+2%

USD 161

Q1 2014

Q1 2015

Q1 2016

Forecast FY 2016

OCC

Occ 59%

+2%

RevPAR Source: STR Global, Colliers International

WHAT TO EXPECT?

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.

Q1 2016

7,770

6,981

Source: Colliers International Note: The above graph covers only branded hotel supply, and takes into account potential cancellations and delays.

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.

6,421

KEC

Demolition on Hold

Indefinite halt of demolition in Northern Area as government funds are reprioritised.

Knowledge Economic City

Majority of future Madinah supply to be featured within KEC, however Central Area will continue to have the strongest rates.

Resilience to Oil Price Declines

Due to its status as a religious destination, the impact of lower oil prices is likely to be subdued.

Khobar, Dammam & Dhahran

PROJECTED HOTEL SUPPLY │NO. OF KEYS 6,989

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.

5,660 4,507 3,649

3,739

Q1 2015

Q1 2016

FY 2016(f)

FY 2017 (f)

FY 2018 (f)

Source: Colliers International Note: The above graph covers only branded hotel supply, and takes into account potential cancellations and delays.

KPIs | YOY % CHANGE

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.

-14%

+2%

+8%

-15%

+2%

-7%

-6%

USD 176

Q1 2014

Q1 2015

Q1 2016

Forecast FY 2016

OCC

Occ 57%

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 oilrelated 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.

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Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

ADR

+4%

RevPAR Source: STR Global, Colliers International

WHAT TO EXPECT? Rising Leisure Segment

Decreasing corporate demand and price sensitivity will see an increase in leisure demand for the market as rates are dropped.

Opportunity for Resort Products

Opportunity to develop within Half Moon Bay Area catering to families from Al Khobar and Dammam, as well as neighbouring cities.

Price Sensitivity of Corporate Market

Shift of demand to more affordable accommodation options. Important to attract demand from third party travel agents.

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

billion investment value of projects advised

8

keys valued

Saudi Arabia Q1 2016 Review | May 2016 | Hotels | Colliers International

8,880 Hotel keys under asset management

554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112

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 Associate Director | Hotels | MENA Region Main +971 4 453 7400 Mobile +971 55 899 6103 [email protected] Imad Damrah Managing Director | KSA Main +966 11 273 7775 Mobile +966 50 417 2178 [email protected]

$2.5 billion in annual revenue

2 billion square feet under management

Colliers International | MENA Region Dubai | United Arab Emirates +971 4 453 7400

16,000 professionals and staff

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 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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