According to the Colliers International Saudi Arabia Q1 2017 report, branded supply in the market continues to be up with no existing three-star branded supply (at present five-star branded supply is the vast majority with 90 per cent of supply).
Millennium Hotels and Resorts is the key branded operator in Makkah and is projected to remain as such by 2019, with a total of 7,660 keys.
In Q1 2017, Makkah experienced a 22 per cent year-on-year drop in RevPAR as a result of devalued currencies in key pilgrim source markets including Indonesia and Egypt, as well as increase Umrah and Hajj visa fees. Inceased visitation from the price-sensitive Indian subcontinent also impacted market performance.
The RevPAR decline is expected to continue until the end of 2017 as the performance will be hampered by the given factors as well as supply increases.
Another city expected to do well is Jeddah, which has been projected to remain the strongest performer among the kingdom's hotel markets. The long-term outlook is also positve as the city will benefit from increases meetings, incentives, conferences and event (Mice) demand following an expected SAR6 billion investment across the kingdom by 2020.
Despite this, combined effects of economic conditions affecting corporate demand and domestic leisure, as well as reduced transient pilgrim demand, all led Jeddah to have a significant 31 per cent drop in RevPAR in Q1 2017 from Q1 2016.
Moreover, significant delays or possible cancellations in supply are expected to continue allowing for improved short-term market penetration for existing hotels.
Occupancy dropped year-on-year due to decreased overall demand in Q1 2017 and is expected to reflect in the full-year 2017.