The report provides a review of the sector including demand drivers, supply analysis and recent performance; and analyses how the market’s fundamentals are anticipated to change over the coming years in light of the wide-ranging initiatives, national reform programs and infrastructure projects set to be delivered in the short to medium term.

Headlines from the report include:

• The hospitality sector in Makkah has faced headwinds in recent years due to both demand and supply side factors. Performance in Makkah’s hotel market has been softening with RevPAR levels declining by 15% in 2017. RevPAR levels continued to decline in the first nine months of 2018, falling by 9.6% compared to the corresponding period of previous year. We expect market-wide performance to face continued pressure in the short-term, although hotels in primary locations will prove to be more resilient.

• The hospitality market in Makkah is dominated by locally-branded supply in secondary locations, with 50% of the total room supply classified as two star or below, which highlights the need for quality hospitality accommodation. The pipeline of quality hotel is dominated by 4-Star properties, which account for 55% of the forthcoming 21,806 quality keys estimated to enter the market by 2021.

• While most hospitality markets in the GCC are driven by traditional demand-supply mechanics, Makkah – for which religious visitation makes up the majority of demand – works differently, with government quotas and capacity constraints determining tourist flows. As mega-developments continue to be announced and executed, the government is expected to relax visa quotas and increase tourist flows sharply in the short to medium term.

• In order to facilitate religious tourist inflows, there have been longstanding plans to upgrade the existing infrastructure. The opening of the Haramain High Speed rail and significant progress with the enhancement works at King Abdulaziz International airport are strong signals that the infrastructure is catching up to governmental ambitions for the city.

Ali Manzoor, Partner Hospitality & Leisure at Knight Frank commented: “As large infrastructure projects reach completion, the traditional demand-side bottlenecks related to capacity constraints will be alleviated allowing for increased visitation and revenue inflows, which will ultimately uplift hotel values in the medium to long term.”