Quarterly Report Saudi Arabia Hotels Q Saudi Arabia Q Review 5 Key Cities

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1 Quarterly Report Saudi Arabia Hotels Saudi Arabia Review 5 Key Cities

2 Contents Riyadh... 3 Jeddah... 4 Makkah... 5 Madinah... 6 Khobar, Dammam & Dhahran Saudi Arabia Review May Hotels Colliers International

3 Riyadh 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%. The current market gap is for internationally branded 3-star hotels, which would see a good fit in Riyadh s corporatefocused market. 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 witnessed from Q3 until. In addition, occupancies have faltered due to lower business travels however this is expected to pick up should oil prices recover. 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. 6,081 7,473 +6% +0% -6% -9% Occ 52% -7% +1% -10% Midscale and Economy Hotels Price Sensitivity Overhaul of Development Plans 9,993 13,289 15,720 (f) FY 2017 (f) FY 2018 (f) -6% USD 220 Demand is expected to shift towards midscale and economy hotels amidst reduced spending on travel and accommodation. Reduced oil prices expected to continue suppressing corporate demand and apply pressure on achievable rates. Saudi Vision 2030 calls for an overhaul of planned economic cities. 3 Saudi Arabia Review May Hotels Colliers International

4 Jeddah Jeddah has historically experienced delays in hotel development, with some projects also being put on hold indefinitely. 4,145 4,924 5,926 7,815 10,700 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. Q2 is expected to witness the opening of the Centro Shaheen which features 248 keys. The influx of supply in is expected to put additional pressure on both rates and occupancies, as many projects are materialising. A dip in corporate demand was witnessed in 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. saw a dip in religious demand versus last year, and Jeddah has also been impacted by this decrease. 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. (f) FY 2017 (f) FY 2018 (f) -1% +0% -9% +6% +1% -5% Maturing Serviced Apartment Market Rate Compression Importance of families -7% Occ69% -5% USD 240 Recent opening of internationally branded serviced apartment combined with forthcoming supply expected to increase competition. Increasing price sensitivity along with large forthcoming supply of 5- star properties may apply downward pressure on 5- star rates. As operators increase targeting of leisure, provision of space and family orientated services will become an essential requirement. 4 Saudi Arabia Review May Hotels Colliers International

5 Makkah 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. As of, the pilgrimage visa quotas were still in place due to ongoing construction activity around the Haram. Since January, 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 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). 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). 10,377 12,269 +6% -5% -6% -3% -3% -4% New Projects in Secondary Market No Change in Visa Quotas International Branding 16,453 20,513-2% Occ 61% -8% USD 209 Increased competition within the secondary market (located 1km+ from Masjid) due to high land cost within proximity to the Masjid Ongoing visa quotas due to continued construction activity until at least Q4 25,890 (f) FY 2017 (f) FY 2018 (f) Lack of internationally branded midscale supply, existing branded supply continues to see improved performance. 5 Saudi Arabia Review May Hotels Colliers International

6 Madinah 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, 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. 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. is expected to dip marginally, only decreasing by 3% in full-year. This is mainly the result of the lower number of Iranian Umrah pilgrims. With the opening of the Pullman ZamZam in February and the Coral Madinah in Q3, the market s levels are expected to benefit, however occupancy is also to be impacted as more rooms are added to the market. 5,587 6,421 +4% +0% -8% -5% Occ 59% -4% +5% +2% 6,981 7,231 7,770 (f) FY 2017 (f) FY 2018 (f) +2% USD 161 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. As new supply enters the market replacing older supply which is dated and of low quality Madinah s is expected to increase in the mid to long term. KEC Demolition on Hold Knowledge Economic City Resilience to Oil Price Declines Indefinite halt of demolition in Northern Area as government funds are reprioritised. Majority of future Madinah supply to be featured within KEC, however Central Area will continue to have the strongest rates. Due to its status as a religious destination, the impact of lower oil prices is likely to be subdued. 6 Saudi Arabia Review May Hotels Colliers International

7 Khobar, Dammam & Dhahran Branded hotel supply within Khobar, Dammam and Dhahran is expected to grow at an annual rate of 16% between and 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 include the 218-key Al Othman Kempinski in July, and the 236-key Aloft Dhahran in August. 3,649 3,739 4,507 5,660 6,989 (f) FY 2017 (f) FY 2018 (f) Delays in project delivery are still expected to continue on a similar trend to due to unstable oil prices, as well as poor project planning and budgeting in some projects. +2% +8% -15% -14% Occ 57% Both corporate demand and leisure demand are prevalent in the coastal cities, however these segments both saw a dip in demand from Q3 through to. The 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. +2% -7% -6% +4% USD 176 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. Rising Leisure Segment Opportunity for Resort Products Price Sensitivity of Corporate Market Decreasing corporate demand and price sensitivity will see an increase in leisure demand for the market as rates are dropped. Opportunity to develop within Half Moon Bay Area catering to families from Al Khobar and Dammam, as well as neighbouring cities. Shift of demand to more affordable accommodation options. Important to attract demand from third party travel agents. 7 Saudi Arabia Review May Hotels Colliers International

8 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 8,880 billion keys Hotel keys investment value of valued under asset management projects advised 8 Saudi Arabia Review May Hotels Colliers International

9 554 offices in 66 countries on 6 continents United States: 153 Canada: 34 Latin America: 24 Asia Pacific: 231 EMEA: 112 $2.5 billion in annual revenue 2 billion square feet under management For further information, please contact: Filippo Sona Director Head of Hotels MENA Region Main Mobile filippo.sona@colliers.com Selim El Zein Associate Director Hotels MENA Region Main Mobile selim.elzein@colliers.com Imad Damrah Managing Director KSA Main Mobile imad.damrah@colliers.com Colliers International MENA Region Dubai United Arab Emirates ,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 The latest annual real estate survey by Euromoney named Colliers International Best Advisor in the MENA region, UAE, Qatar and Saudi Arabia. Colliers International, 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. colliers.com