The Saudi Vision 2030, launched in 2016, has set the stage for a transformative era in the Kingdom’s hospitality sector. This ambitious plan aims to diversify the economy away from oil dependency, with tourism and hospitality playing pivotal roles. The hospitality industry has emerged as a cornerstone of Saudi Arabia’s economic diversification efforts, promising substantial growth and myriad opportunities for both domestic and international players.
The significance of the hospitality sector in Saudi Arabia’s economic landscape cannot be overstated. As the Kingdom seeks to reduce its reliance on oil revenues, the hospitality industry is poised to become a major contributor to GDP, job creation, and foreign investment. The government’s commitment to developing this sector is evident in its massive investments in infrastructure, regulatory reforms, and initiatives to boost both religious and leisure tourism.
Current State of Saudi Arabia’s Hospitality Sector
The Saudi hospitality market has experienced remarkable growth in recent years and is expected to reach USD 13.23 billion in 2024 and grow at a CAGR of 5.03% to reach USD 16.91 billion by 2029.
In addition, as of 2024, the Kingdom boasts 149,400 existing hotel keys, with an additional 102,100 keys under construction or in the final planning stage. Looking ahead, projections indicate that Saudi Arabia will add 320,000 new hotel rooms by 2030, representing an estimated development cost of US$ 104 billion.
The distribution of hotel supply in Saudi Arabia reveals a strong emphasis on luxury and upscale accommodations. Currently, 66% of the existing supply comprises luxury, upper-upscale, and upscale hotels. This trend is set to continue, with 82% of upcoming supply anticipated to fall within these high-end categories.
Major cities in Saudi Arabia are at the forefront of this hospitality boom. Makkah leads with the largest existing and upcoming supply, followed by Riyadh, Madinah, and Jeddah. The eastern cities of Al Khobar and Dammam, while smaller markets, are also experiencing significant growth.
International hotel operators are playing a crucial role in Saudi Arabia’s hospitality expansion. Marriott International is poised to become the largest operator in the Kingdom by 2030, with a projected 26,200 keys. Accor follows closely with 25,400 keys, while other major players include IHG Hotels & Resorts, Hilton Worldwide, and Radisson Hotel Group.
The growth of Saudi Arabia’s hospitality sector is driven by several key factors. Religious tourism remains a cornerstone, with Hajj and Umrah pilgrimages attracting millions of visitors annually. In 2023, Saudi Arabia welcomed 1.8 million Hajj visitors and 26.8 million Umrah visitors, the latter representing a 8.7% increase from the previous year. 13.3 million are Saudi Umrah performers, showing the importance of the domestic market for the local hospitality industry. The government’s ambitious target to increase Umrah visitors from 8 million in 2019 to 30 million by 2030 promises sustained growth in this segment.
Leisure tourism has received a significant boost since the introduction of tourist visas in 2019, opening the Kingdom to international leisure travellers. This initiative has yielded impressive results, with a 656% increase in international tourists for entertainment and holiday purposes in the first seven months of 2024. Business travel is also on the rise as Saudi Arabia positions itself as a regional business hub, benefiting from the country’s economic diversification efforts.
Domestic tourism has emerged as a powerful driver of growth, particularly in the wake of the COVID-19 pandemic. The government’s focus on developing local attractions has paid dividends, with 81.9 million domestic tourists recorded in 2023. This trend not only boosts the hospitality sector but also contributes to the broader goal of economic diversification.
The performance statistics of Saudi Arabia’s tourism sector are equally impressive. In 2023, the Kingdom welcomed a total of 109.3 million tourists, comprising 81.9 million domestic and 27.4 million international visitors. Tourist spending reached USD 68 billion, with international visitors contributing USD 37.5 billion and domestic tourists spending USD 30.5 billion. The momentum continued into 2024, with 60 million tourists spending USD 40 billion in the first half of the year alone. Notably, the tourism sector’s contribution to non-oil GDP reached 35% in 2023, highlighting its growing importance in the Saudi economy.
Mega projects are playing a pivotal role in driving the growth of Saudi Arabia’s hospitality sector. NEOM, the futuristic city project, plans to add between 40,000 to 80,000 hotel keys. Other significant developments include Rua Al Madinah, Knowledge Economic City, Masar Makkah, and Dar Al Hijrah, each planning to add over 40,000 hotel keys. The Red Sea Project, while smaller in scale, is set to add 5,000 to 10,000 luxury keys, further diversifying the Kingdom’s hospitality offerings.
Government Initiatives Boosting the Hospitality Sector
The Saudi government has implemented several initiatives to catalyze growth in the hospitality sector:
Introduction of Tourist Visas: In September 2019, Saudi Arabia launched its first-ever tourist visa program, making it easier for international visitors to explore the Kingdom. This move has significantly boosted international arrivals, with the Ministry of Tourism projecting 17.5 million international visitors for 2024.
Expansion of Entertainment Offerings: The General Entertainment Authority has been actively developing the Kingdom’s entertainment landscape. In 2023 alone, it licensed 24 additional theme parks, complementing existing attractions like the Jeddah F1 Grand Prix.
Promotion of Sports and Cultural Events: Saudi Arabia has been aggressively bidding for and hosting major international events. The Kingdom has secured the rights to host the Asian Cup 2027, Asian Winter Games 2029, Expo 2030, and FIFA World Cup 2034.
Investments in Infrastructure and Transportation: Massive infrastructure projects are underway to support the growing tourism sector. These include the expansion of airports, development of high-speed rail networks, and the creation of new cities and tourism destinations.
Opportunities for European Companies
The rapid growth of Saudi Arabia’s hospitality sector presents numerous opportunities for European companies across various segments related to hotel and restaurant equipment and services:
Linen and Textiles: European companies can provide high-quality bed, bath, and table linens. There’s a growing demand for luxurious, durable textiles that meet the standards of high-end establishments.
Cutlery and Tableware: With the expansion of fine dining and casual restaurants, there’s a market for both premium and mid-range cutlery. European brands known for their quality and design can find opportunities in this segment.
Glassware: European glassware manufacturers can offer a range of products, from everyday glasses for budget hotels to crystal stemware for luxury establishments.
Ceramics and Chinaware: As the food and beverage sector grows, there’s increased demand for diverse dinnerware options. European ceramic producers can provide both standard and custom-designed products for various dining concepts.
Interior Design and Decoration: European design firms can contribute their expertise to the many new hotel projects, offering unique and culturally sensitive designs that blend international standards with local aesthetics.
Perfumes and Toiletries: Luxury European brands can supply high-end toiletries to upscale hotels, while others can provide quality amenities for mid-range establishments.
Furniture: With 320,000 new hotel rooms projected by 2030, there’s significant demand for hotel furniture. European manufacturers can offer both standard and bespoke furniture solutions.
Fitout and Construction: European companies with expertise in hotel construction and fitout can participate in the numerous ongoing and planned hotel projects across the Kingdom.
Technology Solutions: There’s growing demand for innovative hospitality technologies, including property management systems, guest experience platforms, and smart hotel solutions.
Sustainability Solutions: As Saudi Arabia focuses on sustainability, European companies can offer eco-friendly products, services, and technologies for the hospitality sector.
F&B Concepts and Equipment: European restaurant chains and F&B equipment suppliers can tap into the growing demand for diverse culinary experiences and professional kitchen equipment.
Training and Education: European hospitality schools and training providers can help develop the skilled workforce needed for the expanding sector.
Major Projects and Developments
Saudi Arabia is undertaking several mega-projects that will significantly impact the hospitality sector:
NEOM: This $500 billion futuristic city project includes plans for luxury resorts, including the recently announced Leyja development featuring three Habitas hotels.
The Red Sea Project: Set to feature 50 hotels with 8,000 rooms by 2030, including luxury brands like Ritz-Carlton Reserve.
Qiddiya: An entertainment megaproject near Riyadh, which will include numerous hotels and resorts.
Diriyah Gate: A cultural and lifestyle destination that will host several luxury hotels, including the first Armani Hotel in Saudi Arabia.
AlUla: A heritage and culture destination that will feature unique hospitality offerings, including a Janu hotel by Aman Resorts.
Challenges and Considerations
While the opportunities in Saudi Arabia’s hospitality sector are abundant, European companies should be aware of certain challenges:
Cultural Considerations: Understanding and respecting local customs and Islamic traditions is crucial for success in the Saudi market.
Regulatory Environment: Navigating Saudi Arabia’s regulatory landscape can be complex, requiring local expertise or partnerships.
Saudization Policies: The government’s push for employing Saudi nationals (Saudization) may impact hiring practices and operational costs.
Competition: Both local and international players are vying for market share, necessitating a strong value proposition for new entrants.
Market Segmentation: Understanding the diverse needs of religious tourists, leisure travelers, and business guests is essential for success.
Main hospitality brands
Several European companies have successfully established a presence in Saudi Arabia’s hospitality sector:
Accor: The French hospitality group has become one of the largest hotel operators in Saudi Arabia, with a diverse portfolio of brands across different segments.
Hilton: The British-American company has rapidly expanded its presence in the Kingdom, with several new properties in development.
Kempinski: The German luxury hotel group has successfully operated in Saudi Arabia for years, with properties in Jeddah and Al Khobar.
In addition to these European brands, other international hospitality brands are investing massively in the Saudi hotel market:
Marriott International: The company expects to attract $2 billion of investment in Saudi Arabia over the next few years, nearly doubling its number of hotel rooms to about 12,500. Marriott operates brands such as Marriott, Ritz-Carlton, Le Meridien, and Sheraton.
InterContinental Hotels Group (IHG): IHG signed a master development agreement to open at least 10 Holiday Inn Express hotels over the next 15 years in Saudi Arabia.
Radisson Hotel Group: The company is accelerating its expansion strategy in Saudi Arabia, focusing on major and secondary cities, including the holy cities.
Rotana: The UAE-based company plans to operate 20 hotels in Saudi Arabia by 2030, with several properties already in operation and more in development.
Millennium Hotels and Resorts: The company is actively negotiating to expand its presence in Saudi Arabia, with plans to enter Riyadh and explore opportunities in other key cities.
Hyatt Hotels: The company is bringing its Miraval brand to the Red Sea Project, along with other properties like the Grand Hyatt.
Ennismore (majority-owned by Accor): The lifestyle hospitality company has 13 hotels and resorts (3,500+ rooms) in the pipeline for Saudi Arabia.
Finally, other luxury chains like Sixsense, Armani, Fauchon, Peninsula, and many others have already planned to enter the market by 2030.
In conclusion, the growth potential of Saudi Arabia’s hospitality sector presents a compelling opportunity for European companies. With government backing, massive investments in infrastructure, and a clear vision for tourism development, the Kingdom is poised to become a major global tourism destination.
European companies bring valuable expertise, innovative concepts, and international best practices that can contribute significantly to the sector’s development. By understanding the market dynamics, forming strategic partnerships, and aligning with Saudi Arabia’s vision, European businesses can play a pivotal role in shaping the future of hospitality in the Kingdom.
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