June 2010
Holy Cities: Saudi’s Unique
Real Estate Markets
The Muslim Holy Cities of Makkah and Madinah are unique real
estate markets, benefitting from effectively unlimited visitor demand
from the world’s 1.8 billion Muslims.
Increasing Hajj and Umrah visitation to the Holy Cities (from the
current total of around 7.8 million per annum) is dependent upon
relieving the existing infrastructure and other capacity constraints.
Given the significant movement between sites associated with the
Hajj, the prime constraint relates to the ground transport system within
and between the Holy Cities and not broader airport capacities or the
ability to provide sufficient accommodation.
Our analysis of potential capacity constraints suggests that the total
number of Hajj and Umrah pilgrims visiting Makkah and Madinah
could almost double to 13.75 million by Hijri year 1440 (2019).
Image credit: www.islamic-architecture.info
Increasing pilgrim numbers will provide significant opportunities for
an expansion of the existing hotel room supply, with a total of around
82,000 hotel rooms being required in Makkah by Hijri year 1440 (2019).
wait
North
ern
Bord
Ku
Al Jawf
er
Tabuk
Ha’il
Bahrain
Damman/Al-Khobar
Qatar
Ea
Al Qasim
st
er
vinc
UAE
e
Al Madinah
ro
Riyadh
nP
Madinah
Ar Riyad
Jeddah
Makkah
Oman
Makkah
Al Bahah
Asir
Najran
Jizan
Yemen
0
km
500
On Point • Holy Cities City Profile • June 2010 3
Introduction
Objectives
There has been a marked surge in overseas interest in the
Saudi Arabian real estate market over the past few years. Most of
this interest has been focused on the two largest cities (Riyadh and
Jeddah), with Makkah and Madinah being less in the spotlight, at
least on the international stage. This report attempts to address this
imbalance and highlight the opportunities in the hospitality sector
presented by the unique status of Makkah and Madinah as Islam’s
two most Holy Cities.
The hospitality markets of the Holy Cities are unique in benefiting
from an effectively unlimited pool of demand. The major constraint on
the growth of these markets is, therefore, the ability to accommodate
this demand and balance the sometimes conflicting needs of religious
pilgrims and local residents.
This report:
●● Examines the growth of religious tourism and makes projections
of the potential increase in Umrah and Hajj arrivals.
●● Identifies the major capacity constraints that need to be addressed
if these forecast visitor arrivals are to be met.
●● Reviews the urban planning initiatives that are being adopted
to balance the competing needs of local residents and religious
pilgrims in Makkah and Madinah.
●● Discusses the future prospects of the hospitality market in terms
of demand / supply and performance of hotel assets.
Strongest Performing MENA Real Estate Markets
Saudi Arabia 30%
UAE – Abu Dhabi 25%
Egypt 13%
Qatar 12%
UAE – Dubai 9%
Bahrain 4%
Levant 3%
Morocco 3%
Oman 1%
Source: Jones Lang LaSalle Fourth Real Estate Investor Sentiment Survey, April 2010
Saudi Arabia in Context
While other real estate markets across MENA have seen a slowdown
in both development activity and investment over the past 18 months,
interest in Saudi Arabia has remained strong from both local and
overseas investors.
Based upon its unique combination of energy driven capital and a large
domestic population, Saudi Arabia emerged as the MENA destination of
choice among real estate investors responding to Jones Lang LaSalle’s
most recent Real Estate Investor Sentiment Survey.
The country of 27 million inhabitants has been experiencing a baby
boom in recent years, resulting in a very young and rapidly growing
population. The native population is being complemented by a
rapid increase in expatriates (which now comprise 28% of the total
population), with the large majority of these expatriates coming from
other Muslim countries.
Saudi Arabia is a society organised around Islamic principles, based
on its role as custodian of the Holy Mosques (located in Makkah and
Madinah). The distinguishing feature of the Holy Cities is their unique
importance as destinations for Muslims from across the world seeking
to undertake Hajj and Umrah. The major challenge is how this demand
can be balanced with the accommodation and other needs of the
growing local population across the Kingdom including the Holy Cities.
Although the value of oil exports declined dramatically in 2009, the
government has been able to draw on major foreign currency and gold
reserves (conservatively estimated at over USD 400 billion) to limit the
contraction in GDP and proceed with a hugely ambitious expansion
of spending on physical infrastructure and social investments in areas
such as education and healthcare.
The government is increasing spending on infrastructure as part of its
economic expansion initiatives with an allocation of USD 12.2 billion in
the 2010 budget (compared to USD 9.3 billion in 2009). In addition, the
government has allocated some USD 5.8 billion to fund municipality
services. A significant amount of the total infrastructure spending
has been aimed at increasing the capacity of the Holy Cities to
accommodate additional religious tourists through a major expansion
of lodging capacity and the air, road, rail and sea networks. Other
areas of increased spending have included utilities (electricity and
desalination) improving water and sewage networks, wells and dams.
4 On Point • Holy Cities City Profile • June 2010 Understanding the Holy Cities
Makkah and Madinah are the capital cities of two of the 13 provinces
of the Kingdom of Saudi Arabia. These cities, which are located
approximately 425 km apart, are relatively small by global standards
(with resident populations of around 1.8 million and 1.1 million
respectively). Their importance far outweighs their size on account of
their position as the two Holiest Cities of Islam.
At least five times every day, hundreds of millions of Muslims from
all parts of the earth turn in the direction of the Holy Ka'aba, (which
is located in the Haram or Holy Mosque) in the centre of Makkah
(birthplace of the Prophet Mohammad (PBUH)) to pray. Other Muslims
perform their prayers in the Prophet's mosque located in Madinah (his
home and burial place).
The opportunity to visit Makkah and Madinah for either Hajj or Umrah
is a highlight for the world's 1.8 billion Muslims. Umrah attracts the
most visitors (around 5.3 million in 2008). Although there is a peak
season for Umrah (associated with Islam’s holy month of Ramadan),
the Saudi authorities have recently increased the period for which
entry visas for Umrah are granted to 8 months every year.
Unlike Umrah, Hajj is one of the five pillars of Islam. Able Muslims are
required to perform Hajj (during the 12th month of the moon sighting
based Hijri calendar) at least once in their lifetime.
Around the 9th day of Hajj month, more than 2.5 million Muslims gather
in Makkah to perform Hajj. Quotas are in place in all countries for the
Hajj visa and even Saudi nationals are required to have a special
permit to enter Makkah and perform Hajj.
Some of the Hajj rituals take place around and near the Ka'aba in
the Holy Mosque. However most of the Hajj phases take place in the
Mashaer, three open sites about 5 km south east of Makkah. These
key phases involve overnight stays under tented camps.
Planning for a gathering of 2.5 million people is a unique challenge.
The complexity of this task is compounded by the fact that Hajj
involves significant movement between different locations. The ability
to accommodate Hajj visitors is therefore not only a matter of stock
capacity (rooms) but also a matter of flow capacity. In many ways it is
this flow capacity (ground transport within Makkah itself) that imposes
the real constraints on the growth of Hajj pilgrims.
The Holy Cities are also unique from a real estate perspective. While
restrictions on foreign ownership of real estate across Saudi Arabia
have been relaxed recently, foreign parties are still prohibited
from owning land in Makkah and Madinah. In practice this has not
constrained the involvement of GCC and other foreign parties, a
number of who have become major players in these markets through
joint ventures with local Saudi developers.
On Point • Holy Cities City Profile • June 2010 5
Religious Tourism
There are currently approximately 1.8 billion Muslims globally, with
Indonesians, Indians and Chinese accounting for around 32% of this
total. Muslims are accounting for an increased percentage of the
global population as countries with a significant Muslim population
have been experiencing higher population growth rates than other
countries over recent years. During the last five years, countries
with a significant Muslim population have experienced demographic
growth of nearly 2% per year, compared to 1.5% per year for the rest
of the world.
The global growth in the Muslim population and the declining relative
cost of international travel have been the main drivers for the
increased number of religious tourists (pilgrims) performing Hajj and
Umrah in recent years. Total (Hajj plus Umrah) visitors have increased
from 5.3 million to 7.7 million over the past 5 years.
The Saudi Ministry of Hajj and Umrah has established a quota
system for both Saudi and overseas visitors. The annual Hajj quotas
for overseas visitors currently constitute 0.1% (or 1/1000) of the
total population of the source nation. With these quotas remaining
unchanged in recent years, the increase in pilgrim arrivals is largely
due to the growth of the Muslim population.
Umrah Visitors
3.0
6.0
2.5
5.0
0.75
2.0
1.5
1.0
0.59
1.42
0.63
1.53
0.70
0.57
1.56
1.71
1.71
0.71
1.73
0.5
0.0
Umrah Arrivals (millions)
Hajj Arrivals (millions)
Hajj Visitors
4.0
3.0
(2003)
1425
1426
1427
Hijri Year
Non-Saudis
1428
1429
(2008)
Saudis
Source: Jones Lang LaSalle and the Ministry of Hajj and Umrah
1.9
1.7
2.1
2.0
1.0
1424
1.3
1.6
2.0
0.0
2.0
2.3
2.5
2.7
2.9
1424
1425
1426
1427
1428
(2003)
Hijri Year
Non-Saudis
3.2
1429
(2008)
Saudis
Source: Jones Lang LaSalle and the Ministry of Hajj and Umrah
6 On Point • Holy Cities City Profile • June 2010 Hajj Visitors – Main Foreign Source Markets
Growth in Religious Tourism
The growth in Hajj and Umrah visitors is currently constrained by a
number of infrastructure issues, including lodging capacity in Makkah
and Madinah, transportation bottle necks and government regulations
regarding visas. With total visitors (7.74 million in 1429 (2008)
representing less than 0.5% of the global Muslim population, there
are few constraints in respect of total potential demand.
1428 (2007)
Other 38%
Other Arab 24%
Subcontinent 24%
Africa 10%
GCC 4%
Umrah
A figure of 12 Millions Umrah visitors, during the 8 month Umrah
season, is often mentioned. Given the cautious and prudent
approach the Saudi government has adopted to the issuance of
Umrah visas and the other potential capacity constraints, we do
not foresee an average growth rate of more than 7% per annum.
This would result in the number of Umrah visitors increasing from
5.3 million last year to around 10 million by the start or beginning of
the Hijri year 1440 (2019).
1429 (2008)
Other 39%
Other Arab 22%
Hijri Year
A number of major initiatives are underway to alleviate the current
infrastructure constraints (these are discussed in more detail in the
following section of this report) and allow the Holy Cities to efficiently
accommodate a larger number of pilgrims. Based on data from the
Hajj & Umrah Research Institute and discussions with other leading
stakeholders, it is estimated that the planned developments and
other infrastructure initiatives will increase the potential number of
pilgrims visiting the Holy Cities to around 13.75 million by Hijri Year
1440 (2019).
Subcontinent 25%
Africa 10%
GCC 4%
1429
1428
Share %
Growth %
GCC (excluding Saudis)
69,533
64,221
4%
8.3%
Other Arab
386,423
406,457
22%
-5.0%
Africa
166,580
164,276
10%
1.4%
Subcontinent
426,763
406,131
25%
5.0%
Other
683,483
670,776
39%
Total
1,732,782
1,711,861
100%
Source: Jones Lang LaSalle, Ministry of Hajj and Umrah, 2009
Hajj
The more concentrated timeframe involved with Hajj means there are
more significant capacity constraints, bottle necks and challenges
involved. We therefore expect the number of Muslims performing
Hajj to increase less rapidly than those performing Umrah. Our
assessment of the likely constraints suggests the maximum rate of
growth achievable is unlikely to exceed 4.5% per annum, which would
result in around 3.75 million Hajj visitors by the start or beginning of
the Hijri year 1440 (2019).
Future Growth of Hajj & Umrah Visitors
1429 (2008)
1440 (2019)
Umrah
5,300,000
10,000,000
1.8%
Hajj
2,440,000
3,750,000
1.2%
Total
7,740,000
13,750,000
Source: Jones Lang LaSalle
On Point • Holy Cities City Profile • June 2010 7
Infrastructure Capacity
Many new infrastructure developments are planned and some have
already obtained the royal decree to start construction work, which will
help alleviate lodging during peak seasons. The combination of these
large scale development projects, the planned major transportation
initiatives and government initiatives to streamline visa regulations,
will significantly increase the capacity of Makkah and Madinah to
efficiently accommodate a larger number of pilgrims.
The following section of this report outlines a number of the major
transportation, real estate and regulatory initiatives.
Transportation Initiatives
King Abdulaziz International Airport, Jeddah
As part of a plan to revitalise and modernise the Kingdom’s airports,
Jeddah’s King Abdulaziz International Airport is undergoing
substantial expansion and upgrading which will allow it to handle
up to 80 million passengers per annum.
The first phase of this work entails the construction of a new
passenger terminal (replacing the existing outmoded Saudia
and International terminals), boosting capacity from the present
15 million passengers to 30 million. The crescent shaped new
terminal (designed by Aeroport de Paris International), will rival
any facility in the region in efficiency and style when completed
in 2014.
At the same time, improvements are also being made to the
existing Hajj terminal, to improve passenger processing and
increase efficiency. The Hajj terminal currently accounts for
nearly one-third of the airport's total traffic. The General Authority
of Civil Aviation forecasts that traffic through the Hajj Terminal
will increase from 4.5 million passengers in 2004 to 9.2 million
by 2025.
The terminal expansions will be matched by plans to greatly improve
ground transportation, with new road networks and interchanges, a
light rail system linking the airport with central Jeddah and a proposed
station on the high speed Al Haramain Rail Link, connecting the
airport directly with Makkah and Madinah.
In addition to air side expansion, the airport has invited developers
to create an Airport City on approximately 100 hectares of land
adjacent to the airport. Detailed plans for the Airport City have yet to
be announced but it is envisaged that it will include a wide range of
facilities including hotels and serviced apartments, retail, a business
park and exhibition / conference facilities.
Image credit: www.farm2.static.flickr.com/1108/714387384_454ab54927_o.jpg
8 On Point • Holy Cities City Profile • June 2010 Madinah Airport
The General Authority of Civil Aviation (GACA) also has plans
to upgrade the existing terminals and develop new facilities
at Madinah airport. This expansion is designed to stimulate
domestic tourism and increase the ability to deliver pilgrims to
the Holy Cities.
It is estimated that up to 50% of the pilgrims visiting the Holy
Cities will use the proposed new train, with a significant number
of these travelling directly from the expanded King Abdulaziz
International Airport in Jeddah. The route will be exclusively
for passenger traffic and will not carry any freight. The station
locations have been agreed at:
The proposed expansion of the Prince Mohammed bin Abdulaziz
International Airport in Madinah will be financed through a public
private partnership (PPP) structure. It has been reported that
49 bidders have expressed interest during the pre-qualification
stage. The project is designed to increase annual passenger
traffic from 4 million passengers in 2009 to 14 million by
2030. The airport sits within easy transfer distance to the new
Knowledge Economic City and the terminus of the proposed high
speed railway.
●●
KAEC Seaport
There are also plans to develop a new seaport within the King
Abdullah Economic City (KAEC) north of Jeddah. This terminal
is being designed to handle up to 500,000 pilgrims during the
Hajj season.
Saudi bin Laden Group is the investment partner for the new
port. The world’s largest dredging vessel is on its way from the
Netherlands to start work, and phase one of the port should
be operational by 2012. Dubai World was the original port
operator but is no longer involved with the project, which will
now be operated by a new unit within Emaar Economic City. It is
proposed that pilgrims will be able to transfer onto the Makkah
Madinah Railway at the KAEC station and reach either of the
Holy Cities in less than 90 minutes.
Haramain High Speed Railway
The Saudi Railway Organisation has started work on the
Haramain High Speed Railway between Makkah and Madinah.
Civil works are now being undertaken by a consortium led by
Al Rajhi. The stations have been designed by Foster + Partners
and tenders have recently been issued for their construction.
The 450 km line will be fully electric, with train speeds of up to
320 km per hour being achieved.
●●
●●
●●
●●
Makkah Central
Jeddah Central
Jeddah Airport
King Abdullah Economic City, Rabigh
Knowledge Economic City, Madinah
Madinah Station
The Madinah Railway Station will be a terminus station for the
Haramain High Speed Railway. Current projections suggest that
the station will handle 6.2 million passengers per annum by
2015. Saudi Railways Organisation will build the station while
Knowledge Economic City Developers Co. are developing the
surrounding land parcels. Foster + Partners has been appointed
for the architectural design of the developments. The station is
planned to create a modern, multi-modal transportation centre,
surrounded by a high-density, mixed use development.
Makkah MRT
A new monorail is currently being constructed within Makkah,
providing a mass rapid transit (MRT) system linking the centre
of the city with the holy sites at Mina, Arafat and Muzdalifah.
Around 12,000 workers are currently working on this project,
which is being developed by the China Railway Corporation.
Saudi authorities have indicated that 35% of the USD 1.8 billion
Makkah monorail project will be completed during the course of
this year, with the entire project scheduled for completion in 2011.
On Point • Holy Cities City Profile • June 2010 9
Real Estate Initiatives
Makkah – Expansion of the Holy Mosque
One of the key capacity constraints relates to the Holy Mosque
itself. The Mosque has been expanded several times through
history across its three components, which are related to the
main Hajj and Umrah rituals, namely the praying areas, the
Tawaf areas and the Say’area.
The extensions were initiated in 1985, have effectively doubled
its capacity to allow up to 1.5 million worshippers to pray at
the Holy Mosque at any one time. The recent expansion has
included an increase in the size of the Mosque itself and the
establishment of prayer sites on the roof of the facility. To protect
worshippers from the heat, the largest air conditioning plant in
the world has been established at the mosque and special tiles
that dissipate heat have been used to cover the prayer grounds
in the open areas.
The Haram has recently been significantly expanded with the
completion of the Masa’a (Sa’y area) project, which involved the
Masa’a area being expanded from 29,400 sq m to 87,000 sq m.
As well as the Masa’a area, other projects have recently been
completed which provide space to accommodate 500,000
pilgrims at any point of time.
Current Stock of Hotel Rooms (Makkah)
A further major expansion is currently taking place to expand
the Northern plazas of the Mosque towards the Shamiya area to
provide additional praying space.
Because of its configuration, it is difficult to expand the Mosque
further in a conventional manner. As an alternative approach,
multi storied praying halls are therefore being included in many
of the major development projects being built close to the Haram,
as a form of remote extension to the Haram.
Lodging Capacity
The city of Makkah currently provides approximately 50,000
hotel rooms (representing nearly 40% of the total hotel room
stock in the Kingdom). Around 9,000 rooms in Makkah and 4,800
rooms in Madinah are classified as ‘excellent’ quality by SCTA.
The supply of truly international standard / up scale hotels is
however, more limited and estimated to be in the order of 5,300
rooms in Makkah.
Current Stock of Hotel Rooms (Madinah)
Total of 50,000 Rooms
Excellent Hotels 18%
First Class Hotels 34%
Second Class Hotels 30%
Third Class Hotels 18%
Source: Saudi Committee for Tourism & Antiquities (SCTA), Jones Lang LaSalle Hotels
Total of 20,000 Rooms
First Class Hotels 35%
Excellent Hotels 24%
Second Class Hotels 23%
Un-classified 12%
Third Class Hotels 6%
Source: Saudi Committee for Tourism & Antiquities (SCTA), Jones Lang LaSalle Hotels
10 On Point • Holy Cities City Profile • June 2010 The stock of hotel rooms in Makkah could double over the next
10 years, with as many as 50,000 additional rooms proposed within
the major new redevelopment areas (e.g. Al Shamiyah, Jabal
Omar, Jabal Al Khandamah, Waqf 2). These projects include the
proposed Fairmont, Raffles and Movenpick hotels within the Abraj
Al Beit project.
Regulatory Initiatives
The importance of regulatory constraints is highlighted by the
additional restrictions that the Saudi government imposed in 2009
in response to the H1N1 pandemic. Visas were not issued to many
pilgrims for health safety reasons, hereby reducing the number of
religious tourists visiting the Holy Cities last year.
It should be noted that few of these projects are yet under construction
and not all of this potential supply is likely to be delivered. Phase one
of Jabal Al K’aba (located in the Haram vicinity) will deliver some 2,000
new hotel rooms by the end of 2010 (with an additional 5,000 rooms
proposed to follow in the coming three years). The only other projects
that have obtained the royal decree are Jabal Omar, which is in its
execution stage and the proposed King Abdulaziz Road development.
The Saudi Government has plans to increase both the number of
religious tourists undertaking Hajj and Umrah and also encourage
pilgrims to stay for longer breaks. The Saudi Committee for Tourism
and Antiquities (SCTA) is expecting an increase of revenues from
Umrah visitors through its strategy of "Umrah-plus", which aims to
encourage middle- and upper-income Umrah pilgrims to extend
their stay and visit other regions of the Kingdom. Key target markets
include Malaysia, Egypt, Oman, Morocco and the UAE.
Madinah
Madinah has a smaller stock of hotel rooms than Makkah, units around
20,000 existing rooms (19% of the national total). SCTA classifies
4,800 of these to be of 'excellent' quality but Jones Lang LaSalle
Hotels estimate the current stock of truely international quality rooms
to be around 3,200.
There have been far fewer new hotels announced in Madinah, with
less than 3,000 additional rooms in projects close to the Holy Mosque
expected to be delivered over the next 3 years. Most of the new supply
is in the area to the south of the Holy Mosque as this area is currently
less developed than the area to the north of the Mosque, which is built
out and therefore only offers redevelopment opportunities.
Outside of the central area, the greatest addition to hotel stock in
Madinah will be within Knowledge Economic City. This major new
development, located on the western outskirts of Madinah, has the
potential to deliver between 2,500 and 3,000 rooms over the next
10 years.
Foreign tour operators have expressed concern that the process of
obtaining Umrah visas can sometimes be slow. The current system
is constrained by the requirement that visas for any visits during Hajj
can only be issued if the trip is arranged by a registered travel agent
in liaison with another organiser located in Saudi Arabia.
During Umrah and non-Hajj periods, travel agents from source
markets may acquire visas, but there are tight restrictions on the
number of pilgrims they can bring.
Third party distributors have a significant impact on the hospitality
market within the Holy Cities. Agents and tour operators serve to
direct travellers towards specific hotels and participate heavily in the
issuance of visas and other on-site logistics.
Increasing the number of visas issued and speeding up the visa
issuance process represents a key step towards increasing the
number of pilgrims visiting the Holy Cities.
On Point • Holy Cities City Profile • June 2010 11
Master Plan Considerations
Following the unplanned expansion of the real estate markets in the
1980’s, the Saudi Authorities have recognised the need for a more
coordinated approach to the development of the Holy Cities. They
have therefore embarked on a general overhaul of the planning of
the Holy Cities and in particular the area around the Holy Mosque
in Makkah.
Rarely has the need for a more coordinated approach to the planning
and development of these cities been as high a priority as it currently
is. The overall objective of the planning framework currently being
developed is to balance the increasing needs and requirements of
religious pilgrims with the permanent social and business needs of the
local resident populations of Makkah and Madinah in a sustainability
driven approach.
Among the major projects in Central Makkah for which master plans
have been approved are:
●●
Jabal Omar is one of the largest of the mega developments.
Construction has commenced on this project, which is located
on the western side of the Haram. The project company – Jabal
Omar Development Company, was formed as a joint stock
company of 5,000 owners of 1,200 real estate parcels covering
an area of 232,000 sq m. The project is expected to deliver over
10,000 hotel rooms as part of the total built-up area of around
1.8 million sq m.
●●
Jabal Khandamah. This project covers 600,000 sq m of land
to the east of Al Masjed Al Haram in Makkah. The development
aims to replace the old buildings, streets and narrow alleys
with high quality new buildings. The Khandamah project aims
to become a pedestrian friendly city, with the total separation
of pedestrians and vehicular traffic. The development
includes a total of 2.5 million sq m of built-up area of various
hotel classes, retail facilities and residential units for up to
90 thousand residents.
King Abdul Aziz Road is a 3.5 km development site that
starts at the west entrance of the holy city of Makkah on the
intersection of the Jeddah Makkah highway and the third
ring road and ends at the east entrance of the Jabal Omar
development. The plan is to re-develop one of the most
densely populated areas in Makkah, to provide a mix of high
quality hospitality, residential and commercial real estate to
serve the local population as well as Hajj and Umrah visitors.
Achieving the right balance between expanding the hospitality sector
capacity and traffic capacity is another major objective and priority for
the Saudi Authorities in terms of the future planning of the Holy Cities.
Makkah
After addressing the most urgent priorities of safety for religious
pilgrims undertaking the Hajj, the Saudi Authorities are now turning
their attention to improving the comfort standards for pilgrims and
creating a functioning city for residents of Makkah.
More than 20 master plans have been submitted for individual
large scale real estate developments in central Makkah in recent
years. Several of these have now been approved with the projects
progressing to the implementation phase. Providing additional
quality space for visitors has highlighted the needs of the permanent
residents of the Holy Cities and prompted the Authorities to
introduce a social sustainability dimension in the approval process.
Source: King Abdul Aziz Road
●●
12 On Point • Holy Cities City Profile • June 2010 Efforts are being made to coordinate between the 20+ individual
masterplanned projects with an international firm of master
planners engaged to ensure a degree of consistency and
adherence to a number of guiding principles, including:
Madinah (Including Knowledge Economic City)
With a population of approximately 1.1 million (growing at over 2%
per annum) and a major increase in the expected number of religious
visitors, Madinah’s growth also requires strategic real estate planning.
Introducing a more balanced and comprehensive planning
regime.
Providing more open space and improving the overall
experience of visitors and local residents.
Balancing land use and transport capacities to avoid
problems of overloading the transport network.
The Holy Mosque of Madinah, which is located in the Central Area, is
considered the focal point of the city. The urban framework of the city
spreads within four ring roads, although the construction of the third
and the fourth ring roads is not complete.
●●
●●
●●
New institutions are being created and existing ones strengthened
and supported, to provide guidelines to individual developers
during the critical design and planning phases of their projects.
The main focus of these guidelines is to ensure a more balanced
and harmonious form of development of central Makkah.
The authorities are seeking to create a better balance between
the much needed increase in the quantum and quality of the
accommodation and the resulting pressure that such developments
will impose on the public realm and the transport infrastructure.
Hajj and Umrah have historically relied on a “residential hospitality”
model, whereby visitors to Makkah were accommodated in residential
type buildings, minimally furnished and not serviced. This led to a
substantial stock of residential real estate stock being developed.
This stock has traditionally been used by pilgrims as temporary
accommodation during the Hajj season, while being utilised by local
residents for residential use for the rest of the year.
Over recent years, the Hajj and Umrah lodging model has been
changing towards more service based hospitality providing higher
comfort and safety standards and therefore requiring higher
financial resources. The suitability of this style of accommodation
to service the needs of the local population is more limited and this
has resulted in the needs of the surrounding communities becoming
more acute.
Most of the projects in the Central Area are complete. Madinah is
planning to develop the area between the second and third ring
roads and facilitate the development of areas beyond the third ring
road. Several commercial and residential projects are expected to be
developed in Madinah over the medium-to-long term.
The most prominent real estate project, Knowledge Economic
City (KEC), is located approximately five kilometers east of the
Holy Mosque. It is a 480 hectare development with a projected built
up area of 8 million sq m and a projected population of 150,000. The
project will require investment over USD 8 billion.
KEC is planned to include a number of uses including a technology
office park, a center for Islamic studies and research, an educational /
entertainment park, a medical and polyclinic center, a multimodal
transportation centre, a world class business district, a major retail
hub, residential units, a 10,000 capacity mosque, a convention
centre and a hospitality complex. HOK completed the master plan
of the development.
KEC has been conceived as one of the Kingdom of Saudi Arabia’s key
economic cities. It is poised to uplift the quality of living to international
standards and will deliver a critical mass to the city. Currently, the
master developer is constructing Phase 1, a villa development in the
northwest sector of the project. The villas are anticipated to be handed
over in 2011. KEC also has the potential to accommodate a sizeable
share of religious pilgrims as it is strategically located equidistant from
the Haram and the Airport, and will be served by the train station.
On Point • Holy Cities City Profile • June 2010 13
Hotel Market Analysis
With approximately 7.7 million pilgrims in 2008 (including Saudis),
and the shift towards more high quality hotel style accommodation to
accommodate Hajj and Umrah visitors, the hotel markets of Makkah
and Madinah have been among the most active in KSA in recent
years, attracting significant interest from both local and overseas
investors and developers.
Most of the existing room stock (around 50,000 in Makkah and 20,000
in Madinah) is not of international quality and there is a clear need
to increase this supply to accommodate the growing and maturing
requirements of pilgrims undertaking Hajj and Umrah.
There are discussions underway between the development industry,
that is proposing a significant increase in the number of hotel rooms in
the Holy Cities, and the Saudi authorities, who are looking to prudently
regulate future increases in religious tourist arrivals. The manner in
which there discussing are resolved will have a major impact on the
future direction of the hotel markets in both Makkah and Madinah.
Leading international operators are competing to deploy their most
prestigious upscale brands within the future hospitality projects in the
Holy Cities. The extent to which these brands are in line with the current
and future demand profile remains an open question. On the other hand,
the conventional budget hospitality concept does not seem to provide a
straightforward or relevant alternative. The optimal hospitality model in
the Holy Cities is yet to be reached in a context where investors and the
Saudi authorities, are challenging the conventional vision.
Makkah Quality Hotel Market Performance (ADR and Occupancy)
800
663
700
ADR (SAR)
600
500
400
100
830
90
699
654
532
61
56
56
70
61
53
300
60
50
200
40
100
0
80
2005
2006
2007
ADR (SAR)
Source: STR Global, Jones Lang LaSalle Hotels
2008
Occ %
2009
30
Occ %
900
Makkah
Despite the potentially unlimited demand from Hajj and Umrah visitors,
the Makkah hotel market is still influenced by supply considerations
with recent additions to stock resulting in a 30% fall in the average
room rate in 2009 to SAR 654 per night. Market performance was
also negatively impacted by health concerns related to H1N1 which
resulted in the average occupancy level declining to just 53% (for the
year 2009), its lowest level for more than 5 years.
There is a significant degree of seasonality in the Makkah hotel
market. The Hajj, Ramadan and school holiday periods are peak
times. Occupancy levels fall steeply during the ‘clean up’ period of
1–2 months following Hajji, during which Umrah or Hajj visas are
not issued. During the peak periods, most quality hotels only take
bookings from tour operators and impose minimum lengths of stay.
Hotels run at 100% occupancy during the Hajj period, but occupancy
levels fall to 30%–40% in the off peak seasons immediately after
Ramadan and Hajj.
The average length of stay also varies significantly according to the
season. In the Hajj season, all of the major hotels benefit from stays
of up to 20 days per guest. This is due to the minimum stay packages
enforced by hotels. During Ramadan, many hotel operators will only sell
ten day packages to increase the average length of stay and room yield.
The other major factor influencing hotel performance in Makkah,
is the distance of individual projects from the Holy Mosque. It is
noticeable that regardless of the properties positioning, its location
and proximity to the Holy Mosque is the key driver of occupancies
and average room rates. Properties within walking distance of the
mosque registered the highest revenue per available room (RevPAR)
of SAR 530 in 2009, compared with SAR 198 for properties within the
same quality category located further away .
The expected increase in religious tourists could support between
65,000 to 80,000 hotel rooms in Makkah by the year 1440 (2019).
While currently announced projects could increase the stock of rooms
to around 100,000, not all of these proposed projects are likely to
materialise and there are opportunities for additional hotel projects to
service the likely increase in visitor demand.
14 On Point • Holy Cities City Profile • June 2010 Madinah
Madinah's hotel market is strongly correlated to Makkah’s as a large
proportion of pilgrims perform Umrah or Hajj in Makkah and then
go to Madinah to visit the Haram Mosque. Makkah also influences
the Madinah hotel market in a more direct manner, in that most
developments within Madinah are located to the north of the Holy
Mosque, so that pilgrims can pray in the direction of Makkah.
Unlike Makkah, not all hotel rooms in Madinah are sold via packages
through third party distributors. A large proportion of Madinah’s hotels
utilise online distribution systems and the operator's own reservation
networks. During peak periods, Hajj and Ramadan packages to
Makkah include trips to Madinah.
Given the limited increase in quality room supply in Madinah over
recent years, the hotel market has remained more stable than in
Makkah. While average occupancies declined to their lowest level
since 2006, room rates remained largely unchanged from the previous
year. As with Makkah, the Madinah hotel market is very seasonal in
nature with hotel performance closely tied to the distance from the
Holy Mosque.
Makkah Quality Hotel Market Performance (ADR and Occupancy)
440
100
421
ADR (SAR)
340
320
70
375
380
354
62
90
80
400
400
360
419
62
60
64
58
51
Occ %
420
50
40
2005
2006
2007
ADR (SAR)
2008
Occ %
2009
30
Source: STR Global, Jones Lang LaSalle Hotels
Source: Fairmont Makkah
On Point • Holy Cities City Profile • June 2010 15
About Jones Lang LaSalle
Jones Lang LaSalle – Global
Jones Lang LaSalle (NYSE:JLL) is a financial and professional
services firm specialising in real estate. The firm offers integrated
services delivered by expert teams worldwide to clients seeking
increased value by owning, occupying or investing in real estate. With
2009 global revenues of USD 2.5 billion, Jones Lang LaSalle serves
clients in 60 countries from 750 locations worldwide, including 180
corporate offices.
The firm is an industry leader in property and corporate facility
management services, with a portfolio of approximately 1.3 billion sq ft
worldwide. LaSalle Investment Management, the company’s
investment management business, is one of the world’s largest and
most diverse in real estate with more than USD 40 billion of assets
under management.
Jones Lang LaSalle – Saudi Arabia
Jones Lang LaSalle is at the centre of most of the important real
estate issues facing Saudi Arabia today: redevelopment of the
Holy Cities, housing supply and affordability, the economic cities
programme, transportation infrastructure, advising new CMAregulated funds, supporting multinationals' growth and investment
in the country, and creating more transparency to support strategic
decisions. We first opened in the Kingdom in April 2008 and now
have offices in both Riyadh and Jeddah. By combining global best
practice with a full time local intelligence network, the operation
has built up a position as the industry leader in Saudi Arabia and
is widely referenced in the local business media. Our team offers
the full range of services including feasibility studies, valuations,
leasing and tenant representation, investment transactions, capital
raising and research studies. We also cover the full range of asset
classes including offices, residential, hotels, retail, industrial,
education and infrastructure.
Jones Lang LaSalle MENA offices:
Riyadh
Abraj Atta’wuneya Twin Towers
West Half, 18th Floor
King Fahd Road, Olaya
Riyadh 11683
Saudi Arabia
Tel: +966 1 218 0303
Fax: +966 1 472 9478
Jeddah
Jameel Square
Level 9 Suite 952
Tahliya and Andalus Streets
PO Box 40538
Jeddah 21511, Saudi Arabia
Tel: +966 2 283 4025
Fax: +966 2 283 4050
Abu Dhabi
Al Niyadi Building
10th Floor, Offices 1003/4
Airport Road
PO Box 36788
Abu Dhabi, UAE
Tel: +971 2 443 7772
Fax: +971 2 443 7762
Dubai
Emaar Square
Building 1, Office 403
Sheikh Zayed Road
PO Box 214029
Dubai, UAE
Tel: +971 4 426 6999
Fax: +971 4 365 3260
Cairo
Nile City Towers
22nd Floor, North Tower
Ramlet Boulak
Corniche el-Nil Street
Cairo, Egypt
Tel: +20 2 24 61 8527
Fax: +20 2 24 61 8501
To find how Jones Lang LaSalle can assist in making real estate decisions in Saudi Arabia, please contact:
John Harris
Head of KSA
[email protected]
Gaurav Shivpuri
Director – Capital Markets
[email protected]
Khalil Al-Arab
Market Intelligence Analyst
[email protected]
Jalil Mekouar
Executive VP & Head of Hotels
[email protected]
Said Bajaber
Head of Jeddah Office
[email protected]
Authors:
Chiheb Ben-Mahmoud
Senior Vice President – Hotels
[email protected]
Mohamad Abou Chalbak
Manager – Capital Markets
[email protected]
Craig Plumb
Head of Research – MENA
[email protected]
www.joneslanglasalle-mena.com
COPYRIGHT © Jones Lang LaSalle IP, INC. 2010
This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent
of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in
respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for
any loss or damage suffered by any party resulting from reliance on this publication.