Arabian Hotel Investment Report 2019 by MBR

APRIL 2019

ARABIAN HOTEL INVESTMENT REPORT 2019 Growth trends and opportunities in the Middle East tourism and hospitality sector

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Welcome

The next big thing

here is much to discuss at the Arabian Hotel Investment Conference (AHIC) 2019. Hot topics include rising competition in the food and beverage (F&B) space; making the most of new digital technologies; mitigating oversupply in the GCC’s luxury hotel segment; developing local talent; and the rise of Chinese visitors to the region. But the biggest issue of all from a regional point of view, is the opening up of Saudi Arabia’s tourism sector to luxury lifestyle travel and to the entertainment industry. Riyadh’s Vision 2030-inspired programme to develop Saudi tourism in order to create jobs and drive diversification is one of the most exciting developments ever to happen for the Gulf’s hotel investors, operators and suppliers. It is genuinely transformational at a regional level and could not come at a more important time for the region’s tourism industry. It has been a challenging few years for Gulf hoteliers. The slowdown in business travel coupled with the opening up of new hotels and restaurants has

hit occupancy rates and yields. And while cost efficiencies might top the agenda today, new revenue opportunities are essential for the long term. Saudi Arabia has long been the region’s biggest tourist destination in terms of international visitors. But a sizeable share of these visitors, more than 8 million out of a total of about 18 million, have been Hajj or Umrah pilgrims travelling on restrictive pilgrim visas. Saudi’s lifestyle and entertainment sectors are untapped. And in a country of 33 million

Arabian Hotel Investment Report 2019 The region’s hoteliers must act decisively to overcome the challenges caused by a maturing market and increased supply

Saudi Arabia offers the best opportunity for substantial new revenues people with thousands of miles of pristine coastline, incredible natural assets and major cultural landmarks, there is a vast opportunity across all segments of the industry. But nothing ever comes easy in the kingdom, and it will take time for reforms and investments to take root.

Richard Thompson is editorial director of MEED and has more than a decade and a half of experience covering business and economics in the Middle East and North Africa. E: richard.thompson@meed.com Twitter: @MEEDEditor

www.facebook.com/ahicevent twitter.com/ahicevent www.arabianconference.com

AHIC 2019 Report / 3

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AHIC 2019 Report

CONTENTS P. 6

14-16

SAUDI ARABIA A look at the kingdom’s huge programme of investments in hospitality and leisure

18-19

RED SEA PROJECT The projections for Saudi’s Red Sea megaproject

20-21 “Hoteliers are starting to shift focus from purely filling rooms to maximising revenues through a RevPAR focus”

AMAALA PROJECT Red Sea Riviera plans gather momentum

22-23

BAHRAIN Manama moves to the next phase of its tourism plan

6-8

Amaala is a new tourism destination on the pristine Red Sea coast of northwestern Saudi Arabia specialising in wellness, health and meditation

MARKET OUTLOOK How the region’s hoteliers are grappling with the maturing market

10-11

INFOGRAPHIC

12-13

TECHNOLOGY Guest expectations drive technology adoption

P. 20

AHIC 2019 Report / 5

Market outlook

Hotel brands must stay ahead of the curve and liaise with their owners or stand the risk of being deflagged

HO SPI TA LI T Y

GULF HOTEL OPERATORS REVISIT GROWTH PLANS The region’s hoteliers are grappling with the slowing tempo of a maturing market and must take action to boost revenues

he hospitality industry in the Middle East did not deliver the most positive performance in 2018, with all key metrics in decline. According to US-based hotel market data and benchmarking company STR, hotels in the Middle East saw occupancy dip 0.5 per cent to 64.6 per cent, while the average daily rate (ADR) declined 5.2 per cent to $155.45 and revenue per available room (RevPAR) decreased 5.7 per cent to $100.45. Director of boutique hospitality, leisure and real estate management consultancy TRI Consulting, Christopher Hewett, says he expects there to be a shift from “occupancy addiction to RevPAR” in the near future. “The region’s historical addiction to occupancy is a by-product of the past, when demand levels generally exceeded supply, resulting in strong market-wide occupancy levels,” he says.

6 \ AHIC 2019 Report

However, despite improved revenue management practices, a preoccupation with occupancy continues. In addition, supply has increased in the past year, with the Middle East reporting a 21 per cent year-on-year increase in the number of rooms under construction (127,115 rooms) through January, according to STR pipeline data. Hewett explains: “With the growth in supply and competition, hoteliers are starting to shift focus from purely filling rooms to maximising revenues through a RevPAR focus. This entails sacrificing high occupancy levels for stronger ADR performance. While this can be challenging in a market where ADRs are falling, hoteliers need to start focusing on yielding their own inventory rather than just watching their competitors.” In fact, the number of competing companies in the market is being reduced as

a result of ongoing industry consolidation. In the past 12 months, InterContinental Hotels Group has acquired Six Senses, Two Roads Hospitality has been taken over by Hyatt, and Accor has acquired Movenpick. This acquisition trend is likely to continue. Industry insiders expect some regional brands to be snatched up by larger international chains hoping to further cement their position in the Middle East. Owner-operator relations While many operators, when announcing mergers, explain that owners are happy with the consolidation and the benefits it offers them, experts are not so sure. The market in this region is slowly maturing and, with the launch of newer boutique operators, owners have more investment options. Brands must stay ahead of the curve and liaise with their owners or stand the risk of being deflagged. Hewett says: “The increased discussion of reflagging, deflagging or franchising is being driven by a number of key factors, such as softer market conditions, market life cycle, mergers of hotel companies and more knowledgeable owners and asset managers.” He explains that most markets in the region are maturing, leading to an evolution of the hotel sector. “In general, the softer market conditions are a key driving force behind these discussions as owners are experiencing reduced returns. Furthermore, owners are starting to question the value operators bring to their assets and are exploring other operating models,” he adds. “The region in general is more relationship-based than other parts of the world, and with the higher proportion of private investors to institutional investors, the relationship between owner and operator is critical. With large hotel management companies consolidating and growing with new brands, the personalisation and attention to owners is reducing, impacting the relationship

foundation of the agreements,” he continues. “This is causing owners to reassess their partnerships and look at alternatives, particularly as an increasing number of properties reach the end of their initial term.” Franchise agreements The other way in which owners are looking to renegotiate their relationships is through the slow movement towards franchising and third-party operators. Franchises are popular elsewhere in the world, but until a few years ago, the Middle East had lagged behind as a result of market immaturity and a lack of operational knowledge. “However, in recent years, we have witnessed a greater appetite on behalf of operators to offer franchise agreements,” Hewett notes. “This is due not only to greater confidence in owners’ abilities to manage their properties effectively, but also provides operators with increased speed of brand expansion.” Marriott International, for example, sees the potential of franchises. Chief development officer for the Middle East and Africa at Marriott International, Jerome Briet, says while the majority of the operator’s properties are managed, it currently has more than 50 franchised properties operating in the region. He adds: “We see potential in that number growing. There are a lot of benefits for an owner under the franchise model. For us, as operators, it is important to understand the owner’s vision and experience in managing hotels themselves before signing any franchise deals.” The benefits of franchise agreements are indeed plentiful, Hewett says. Owners have shorter terms and greater control over the operation and asset, while also paying lower fees. Owners also benefit from enhanced gross operation profit, typically of between 5-10 percentage points. Meanwhile, the potential benefits for operators include a rapid increase in the brand footprint, as well as reduced operational requirements.

64.6%

Average occupancy in Middle East hotels in 2018

127,115

Hotel rooms under construction in the Middle East

70%

Expected global expansion of Marriott’s branded residential portfolio over the next four years

Residential projects by Marriott expected to open in the region by 2022

AHIC 2019 Report / 7

Market outlook

Regional hotel operators continue to see the advantages of the branded residential model

An offshoot of the traditional hotel investment and operational business is branded residential projects. However, industry experts are divided about whether this is still a feasible way to guarantee return on investment. “The inclusion of branded residential within hotel projects has been a popular model in Dubai over the past 10 years, as developers benefit from early-stage equity injection into their projects, reducing their need for financing,” says TRI’s Hewett. “While Dubai has been the main market for this model, other emirates and GCC countries are witnessing an increasing number of projects following this model. However, as the region faces weakening real estate conditions, the appeal of this model as a way of increasing equity infusion for projects is reducing.” Continued interest Real estate prices were at their peak five years ago, and some hoteliers have suggested that it is now a struggle to offload branded residential stock. Operators, on the other hand, see merit in the business, despite the associated operational and legal issues, because it allows them to charge a branding fee or commission on the units. Marriott’s global branded residential portfolio is expected to grow by more than 70 per cent over the next four years. It currently operates three branded residential properties in the region and is on

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track to more than double its residential portfolio, with eight projects scheduled to open by 2022. Briet says there is growing demand for branded residences in the region. “We are seeing that consumers are increasingly seeking residences in communities that offer a convenient lifestyle and an array of amenities and services, while developers seek to differentiate and elevate their products with trusted brands,” he explains. “In addition, branded residences, when built with a hotel, allow the developer to reduce the project’s debt by capitalising on the margins realised on the residential sales. It is therefore typically a win-win situation.” Another operator keen to enter the branded residential space in the region is hotel management company SBE, in which Accor acquired a 50 per cent stake a year ago. The operator recently revealed it is launching a branded residential element to its SLS Hotel project in Dubai. SBE is already firmly embedded in the residential space on a global level, with 1,300 branded residential units sold to date, valued at $2bn, and another $1.8bn-worth in the pipeline. While there are various opportunities for the market to take advantage of, hoteliers need to band together to overcome the challenges caused by overall market conditions and increased supply. Hewett says there is now a trend towards collaboration rather than competition. The latter, he says, caused a focus on occupancy and drove the practice of last-minute rate dropping in certain sub-markets. This rate war is harming hotels, Hewett adds. “Rather than continuing this competitive approach, hoteliers in certain sub-markets need to collaborate and compete together against other submarkets in other cities. When demand levels are high, hotels should work together to collectively increase rates rather than reducing them, thus improving their yields on demand.” Devina Divecha

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HOTEL HEADWINDS PERSIST Middle East hoteliers can expect challenging market conditions to continue as oversupply and slower demand growth stall the recovery of revenues and occupancy rates in 2018

MIDDLE EAST HOTEL PERFORMANCE, 2006-18

% 30

Change in RevPAR

Change in occupancy Change in average daily rates

20 15 10 5% 0% -5 -10 -15 -20 -25

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

HOSPITALITY MARKET RESULTS BY CITY, 2018

CASABLANCA

63.9 112.5 71.9 Source: STR Global 10 \ AHIC 2019 Report

-2.2 2.7 0.5

CAIRO

72.5 96.2 69.7

SHARM EL-SHEIKH 11.0 10.6 22.8

53.3 61.5 32.8

23.1 23.3 51.9

BEIRUT

58.4 152.0 88.8

AMMAN 1.7 1.2 2.9

RIYADH

55.6 170.2 94.6

51.4 137.8 70.8

ABU DHABI

71.8 113.7 81.6

2.0 -2.5 -0.5

MANAMA 2.7 -10.8 -8.4

52.3 157.5 82.3

-0.2 -4.4 -4.6

DUBAI

75.4 172.5 130.1

1.4 -5.5 -4.2

-2.5 -6.0 -8.3

KEY

Occupancy (%) Average daily rates ($)

JEDDAH

58.1 284.2 165.0

MUSCAT -1.4 9.7 8.1

56.7 165.0 93.6

RevPAR ($)

-5.0

% change in metric

-1.7 -6.6

AHIC 2019 Report / 11

Trend focus

To better meet guests’ expectations, hoteliers must quickly and effectively deploy the latest technological solutions

TEC HNOLOGY

GUEST EXPECTATIONS DRIVE TECH ADOPTION From facial recognition to artificial intelligence, the adoption of emerging technologies requires agile management

he pace of technology development has been so rapid over the past couple of decades that hotel rooms no longer offer better technology than guests have in their own homes. Managing director of technology consultancy practice E Horner Associates, Ted Horner, says: “Companies that are not agile and fall behind the pace of technological change risk being left behind. As a result, hotels must continuously seek out new opportunities and stay on top of the trends emerging in the market.” Check in, check out US entrepreneur, hotelier and real estate developer, Ian Schrager, who is a leading name in the boutique hotel segment, promotes the use of cutting-edge technology in hotels. In several interviews, Schrager has bemoaned the check-in and check-out process, saying it needs to be reworked.

12 \ AHIC 2019 Report

His concerns were cited at the Hospitality Technology Next Generation (HTNG) conference held in the UAE in March, where IT experts discussed the need for a ‘frictionless’ check-in process. Director of guest experiences and mobility operations for Marriott International in the Middle East and Africa, Simone Papa, says that while steps have been taken to improve various touch points in the guest journey, it is not enough, adding: “We still have the old way of checking guests in.” One way hotels are trying to simplify this process is with the use of biometrics. Marriott is working with Alibaba Group in China to launch facial recognition technology that allows guests to check in three times faster. “Now, all guests have to do is simply walk to the kiosks, scan their ID, fill in their contact information and have their photo taken – then the machine starts processing,” says Horner.

“The room key card is dispensed after successful verification of the ID and booking details. All of this is done without the help of staff,” he adds. However, not all guests will want to move to such a system, valuing human interaction above speed. Voice technology Rotana Hotels’ acting CEO, Guy Hutchinson, discussed voice technology during HTNG. “Culturally, you have to really think about technology,” he notes. “In the domestic US market, there is a place for voice technology, but there are different cultural structures [around the world].” However, Hutchinson says voice technology will be integral to the guest experience one day, although the form that this will take remains to be seen. Horner says voice assistants have the potential to redefine the guest experience in hotels. “There are now close to 100 million of these devices in households in the US and the number is expected to grow dramatically now that both Amazon and Google are marketing these products not just to consumers – they are now turning their attention to the hospitality industry.” In hotels where Amazon’s Alexa solution is deployed, for example, guests can enter a room and ask the device to turn on the television or order room service. This circles back to the idea that the home is now at the forefront of the type of technology that guests want to see in hotels. HTNG chief operating officer, David Sjolander, explains that once new technology becomes common in day-to-day lives, guests also want it when they travel. “This is why instant messaging between guests and hotel staff has taken off, and it is why voice-activated technology such as Alexa will become more common once some of the glitches are worked out,” he says. Artificial intelligence Voice assistants will soon also use artificial intelligence (AI) to improve the guest experience, says Horner. The potential of AI was seen earlier in 2019 at the Consumer

Electronics Show, where Google released an ‘interpreter mode’ for Google Assistant, utilising AI to carry out the real-time translation of conversations into 27 languages. This is now being trialled at concierge desks in hotels in the US. Other uses of AI are related to analytics. Horner explains: “AI-powered analytics technologies are going to allow hotel companies to analyse data and extract actionable information to make quick business decisions. Air France is using these tools to gather insights from customer data. It is analysing data from bookings, social media, flight operations and call centres, allowing the airline to tailor offerings to the needs of individual travellers.” The importance of data in the hospitality industry cannot be understated. Rotana’s Hutchinson notes: “What technology has really enabled is data, and the ability to make decisions that hone what is driving the business.” Internet of Things Also making their way from home use into the hospitality experience are Internet of Things (IoT)-enabled devices. Horner says these can automate and streamline processes in hotels. “Marriott is working with Samsung and Legrand to develop an IoT guest room lab, with the intention of personalising the guest experience,” he says. “It is expected the installed base of IoT devices by 2020 will exceed 31 billion.” However, there are issues to be addressed as IoT devices make their way into hotels. “Adapting consumer technology to hotels is not always easy. Guests will not tolerate a learning curve to use technology, and there are fewer issues securing a home than a hotel room,” Sjolander says. Horner adds: “In 2019, there will be enormous opportunity for hotels that leverage new technologies and data to improve operations, personalise services and meet the individual needs of guests.” The question is, will hoteliers be nimble enough to do so? Devina Divecha

31 billion

Expected installed base of IoT devices by 2020

Languages supported by Google Assistant’s interpreter mode

AHIC 2019 Report / 13

Country focus

Saudi’s Sharek e-visa portal is expected to be opened up to general leisure visitors this year, further increasing accessibility to the kingdom

SAUDI ARABIA

RIYADH SHARPENS ITS TOURISM VISION

I 14 \ AHIC 2019 Report

The kingdom is making up for lost time with a huge programme of investments in hospitality and leisure n the past year, Saudi Arabia has emerged as a major hospitality market in the Middle East and North Africa region. By all accounts, its tourism sector is set for bullish growth, with the World Travel and Tourism Council (WTTC) expecting a flow of 22.1 million international visitors by 2025. Travel and tourism currently accounts for 9.4 per cent of the country’s total GDP, with traveller expenditure growing by 10.5 per cent annually. Tourism’s contribution to GDP is projected to stabilise at an average of 7 per cent for the next five years, reaching SR138bn ($36.8bn) by 2023, according to Simon Townsend, CBRE’s head of valuation, advisory and consulting for the Middle East, North Africa and Turkey. He comments: “The kingdom’s strong focus on advancing the entertainment and tourism sectors will continue to have an overwhelmingly positive effect on

the nation’s real estate industry and a trickling-down effect on a number of sectors, including infrastructure, logistics, hospitality and retail.” Unprecedented scale All this activity is a direct result of Saudi Arabia’s mandate to diversify its economy away from oil. Megaprojects are one of the most prominent ways in which Riyadh hopes to achieve this diversification. To that end, the Public Investment Fund has launched developments of unprecedented scale, including Neom, the Red Sea development project, Amaala, Qiddiya District, the Wadi al-Disah development project and Al-Ula. A hospitality offering is an integral part of these developments. The first phase of the Red Sea project, for example, includes 14 hotels with 3,000 rooms across five islands and two inland

9.4%

Travel and tourism’s contribution to the kingdom’s GDP

5.3%

Travel sector’s contribution to Saudi Arabia’s total employment, according to WTTC

22.1 million resorts. When fully completed in 2030, 10,000 hotels rooms will be on offer. However, it will take just over a decade for these projects to be realised. Until then, there are plenty of opportunities that the kingdom’s tourism sector can take advantage of. Real estate services provider Savills’ latest report notes that tourism growth in Saudi Arabia has been driven by three key demand pools: leisure, pilgrimage and corporate visitors. Hajj and umrah visitors are expected to reach 30 million by 2030, according to Savills, and the launch of the e-visa scheme in 2018 has made access easier for potential visitors. Furthermore, the Sharek e-visa portal – which was initially restricted to visitors attending specific events – is expected to be opened to general leisure visitors in 2019, further increasing accessibility to the kingdom. Hotel performance Hotel occupancy levels have also been boosted, with the average length of stay of foreign travellers climbing from 9.7 days to 11.3 days in 2018. Savills attributed this to the 30-day visa extension available for umrah visitors. The increase is not just due to religious tourism, however. WTTC’s 2018 report revealed that 52.8 per cent of tourist spending in Riyadh is by corporate visitors.

Carlos Khneisser, vice-president of development in the Middle East and North Africa for Hilton, says: “The country has huge potential for both domestic and international travel. Religious travel has been a significant driver of tourist arrivals into the country, but with the loosening of some visa laws to allow visitors in for a variety of events and activities, we expect visitor numbers to grow over the medium to long-term.” In addition to the growth in visitor numbers, the kingdom also witnessed a 13 per cent increase in the number of hotel rooms during 2017, with an extra 48,000 under construction, according to market tracker STR. These under-construction rooms represent a 51.4 per cent portfolio increase for Saudi Arabia. As of October 2018, STR reported that these accounted for a 37.9 per cent share of all rooms being constructed across the Middle East. CBRE predicts positive growth for the hotel sector. As Townsend notes: “Hotel developers are hoping to benefit from the planned expansion of tourism in the capital by delivering an additional 39,700 additional room keys across the kingdom, with Riyadh experiencing a 4 per cent growth in occupancy.” Over the past few years, international hotel companies have continued to make

Number of international tourists expected to visit Saudi Arabia by 2025

2,500

Luxury hotel keys expected to be released on the Amaala megaproject

48,000

Rooms under construction in Saudi Arabia

AHIC 2019 Report / 15

Country focus

300,000

Jobs expected to be created in Saudi Arabia’s tourism sector by 2020

12,000

Hotel keys in development by Accor

10,000

Hotel keys in development in the kingdom by Hilton

16 \ AHIC 2019 Report

inroads into Saudi Arabia, with a number of operators keen to sign partnerships across the country. Hilton and Accor count Saudi Arabia as their largest pipeline in the region, with more than 10,000 and 12,000 keys in development over the next few years, respectively. Khneisser says: “Saudi Arabia has long been the region’s most important market and largest economy, and anyone doing business in this part of the world knows that they need to be doing business in Saudi Arabia.” Future vision Opening properties is not an activity reserved solely for established companies – newer operators are also keen to lock in deals in the kingdom. Mixed-use operator Kerten Hospitality, for example, will be debuting its first Saudi Arabia project in the third quarter of 2019: the House Hotel, Jeddah. Kerten Hospitality’s CEO, Marloes Knippenberg, says that when the company first started its expansion more than two years ago, Saudi Arabia was not a major focus, but reforms in the country – including Vision 2030 and its focus on mega-developments – changed that. “We got connected with some visionary owners, who were not simply looking for a five-star, big brand, but were looking to enter a particular niche and differ-

ent brands. Our visions instantly clicked and we launched our Saudi journey together, and started creatively collaborating for a positive impact together.” Another positive impact of the tourism and hospitality growth is its expected effect on the job market. The Red Sea Development Company’s CEO, John Pagano, says the project will cultivate entrepreneurial activity and drive economic development in line with Vision 2030. “By completion, the destination will directly employ about 35,000 people and support an equivalent number of jobs in the wider community by creating opportunities for local businesses, entrepreneurs and supporting industries.” CBRE’s Townsend adds that the increasing number of investments from the public and private sectors overall will translate into 300,000 jobs by 2020. Hilton’s Khneisser says that, with a population of some 35 million people, the existing workforce is a strong reason to do business in the kingdom. “This allows us to support the wider National Transformation Programme and Vision 2030 goals as we will look to recruit thousands of people to work in our hotels across the country, including the Avenues-Riyadh, and some 50 per cent of these people will be Saudi Arabian nationals.” According to a recent report from management consultant TRI Consulting, there are several potential challenges that will need to be addressed if a smooth and sustainable growth in the tourism and entertainment sectors is to be ensured. These include competition from neighbouring countries, safety and security, visa regulations, ease of access and private sector investment. Saudi Arabia has been confronting these obstacles with a range of initiatives and campaigns, and while the kingdom may be later to the tourism game than neighbouring countries, it is more than making up for this with its serious approach to the investment needed to diversify the economy. Devina Divecha

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Project focus

The Red Sea Project includes a vast archipelago of more than 50 untouched islands, with direct access to unspoiled and thriving coral reefs

RED SEA PROJEC T

INVESTORS LINE UP FOR LUXURY OPPORTUNITY The first phase of the Red Sea megaproject in Saudi Arabiaâ&#x20AC;&#x2122;s Western Region is on track for completion in 2022

What is the Red Sea Development Company? How is it structured and what are its objectives? The Red Sea Development Company (TRSDC) is a closed-stock joint-venture company wholly owned by the Public Investment Fund (PIF) of Saudi Arabia, one of the worldâ&#x20AC;&#x2122;s largest sovereign wealth funds. The company was incorporated to spearhead the development of the Red Sea Project, one of three giga-projects under the umbrella of PIF. The Red Sea Project is the most ambitious tourism development in the world. We are aiming to create an unparalleled variety of immersive experiences, delivered to the highest standards of personalised, luxury service. We are taking a pioneering approach, offering travellers a seamless experience, made simple through technology, while setting new standards in sustainable development.

18 \ AHIC 2019 Report

As part of the project, we are creating a diverse range of luxury hospitality options, from single island luxury properties to design-driven beachfront resorts, holistic wellness retreats and innovative, unique inland experiences in the mountains and desert dunes. Supporting the offer will be a comprehensive array of hospitality experiences including food and beverage, luxury retail, entertainment, cultural and recreational activities. The project is ideally positioned to respond to international global tourism trends and is poised to contribute SR22bn ($5.9bn) to the economy as well as capturing a share of the SR62bn in outbound tourism spend from Saudi Arabia. Q: What have been the key milestones achieved so far? TRSDC is creating new opportunities for partnership and investment in line with

its core objectives of sustainability and socio-economic development. The initial preparatory phases have included environmental and sustainability studies in partnership with renowned institutions. The master plan was approved by the Board of Directors at the end of 2018. It was developed in partnership with WATG and Buro Happold and includes design concepts from some of the world’s most prominent architecture firms. The plan was informed by a series of wide-ranging environmental studies to ensure that the ecologically sensitive area is fully protected during and after development. Work has started at the project Base Camp, which will oversee the construction of the essential enabling works to support the destination’s development. At the same time, we are moving into the detailed design phase for our various built assets and are in conversations with the investors and partners who will work with us on bringing the destination to life. The first phase of the project, scheduled for completion in 2022, will include 3,102 hotel rooms, as well as residential properties and recreational facilities. We are also developing an airport to serve the destination, transportation and utilities infrastructure, and a marina.

the first permanent assets on the site and will continue to issue tenders throughout the development of the destination.

Q: What key milestones can we expect in the coming year? Our priority is to complete the essential enabling infrastructure to support the wider development of the destination. Procurement has already commenced on this work and will continue throughout the second quarter of 2019. We are engaged in active negotiations with prospective partners for the operation of the assets that we will build. TRSDC will be the master developer and sole owner of all the hospitality and commercial assets at the destination in order to ensure that our commitment to sustainable development is upheld at every stage. We expect to sign the first contracts within this year. We will also be releasing tenders for the construction of

Q: How have investors responded and which investment model is being used? We have had an overwhelming response from the investment community, a reflection of the opportunity our project offers and the positive changes taking place in the kingdom as part of Vision 2030. We are exploring investment opportunities through joint-venture partnerships to develop the commercial components of the project, and are looking at public-private partnerships to support utility infrastructure, power generation, transportation and other hard infrastructure. We are focused on partnerships with organisations that share our commitment to enhancing the natural ecosystems that make the destination so unique.

Q: What infrastructure will you install in the initial phases? Construction is under way at the destination. We have opened a Project Base Camp that houses 60 project and construction managers, health, safety and environmental professionals, government affairs specialists and other key staff. The Base Camp is overseeing construction of essential supporting infrastructure, including a Construction Village that will house up to 10,000 people and a Management Village with offices and accommodation, to support a range of project management and corporate functions. We are also building temporary roads and jetties and a bridge connecting the hub island to the shore in order to transport materials and equipment onto the site. Construction of permanent project components is due to start in the second half of the year. Across every aspect of the project, we are working hard to ensure that our operations have minimal impact on the surrounding ecosystems while providing a safe and comfortable environment for our people to work in.

“We are taking a pioneering approach, offering travellers a seamless, personalised experience, made simple through technology”

Q&A by John Pagano, CEO of Red Sea Development Company

AHIC 2019 Report / 19

Project focus

Triple Bay will be the region’s first integrated sports and wellness community and promises to provide a holistic wellness retreat

AMAA LA

RED SEA RIVIERA PLANS GATHER MOMENTUM

Centred on wellness, arts and healthy living, the Amaala project brings a new concept to Saudi Arabian tourism What is the Amaala? Amaala is a new tourism destination on the pristine Red Sea coast of northwestern Saudi Arabia specialising in wellness, health and meditation. It is anchored around three pillars: wellness and sports; art and culture; and sun, sea and lifestyle. It will also utilise the unique heritage and geological points of interest in the region. The project will provide a year-round destination with a unique heritage and landscape, pristine ecosystems and world-class yachting opportunities. With proximity to regional destinations including Marrakech, Petra, Cairo, Beirut, Dubai and Istanbul, Amaala will become the heart of a new Middle East riviera. Its unparalleled marine life makes it a world-leading diving spot. In addition, it will be a breath-taking yachting destination, extending the Mediterranean

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yachting season by providing year-round berthing. Four marinas are planned as part of the development. Amaala covers more than 3,800 square kilometres and features three distinct zones: Triple Bay: The region’s first integrated sports and wellness community, offering a holistic wellness retreat. The Coastal Development: Hosting a programme of exciting events from the global arts and cultural calendar, this coastline will be a gathering place for a community of influencers and connoisseurs, featuring a contemporary arts museum and cultural district, to become an arts epicentre of the Middle East. The Island: A residential hub designed around four design elements: contemporary art; a riviera-lifestyle colony of artists; immersive artistic moments; and sculpture. The Island will offer

Arabic botanical gardens showcasing master works of art and sculpture. An artists’ village will host an active arts community supported by beachfront resorts and marinas. Q: Who are the visitors that will come to Amaala? We expect it to become a desirable holiday destination for discerning travellers from around the world interested in wellness, healthy living and meditation. The exclusivity of the destination will make Amaala a destination for the connoisseurs of fine living and the climate makes it suitable for vacations or yacht mooring any time of the year. The primary tourists we expect will be from India, China, Russia and the UAE. Q: Are you looking for investors or operators to come on board? The initial seed funding has been provided by the Public Investment Fund (PIF), which is spearheading the development of Amaala into a bespoke hospitality experience. We are in discussion with several private sector companies, worldclass operators and market investors specialised in hospitality and well oriented with Amaala’s bespoke experience. They will not only be invited to invest but also to operate the project’s facilities Q: Is Amaala connected with Saudi Arabia’s Vision 2030? Amaala is central to the delivery of Vision 2030 and forms part of a wider narrative in which Saudi Arabia is building new locations that meet the highest international standards. Amaala will be part of a new Red Sea ecosystem, which includes Neom and the Red Sea Project. All of the developments on the Red Sea are intended to co-exist in a complementary manner to cover different target audiences by providing a variety of offerings to match their needs. The development will preserve its natural surroundings through its commitment to sustainability and research into

new conservation practices. A marine life institute will undertake research programmes that seek to preserve the area’s pristine corals and marine wildlife. Amaala is focused on developing new economies and driving employment in new economic sectors such as wellness, healthy living and sports, art and culture; and sea, sun and lifestyle. Q: What is the status of the project? Since Amaala was announced at the Monaco Yacht Show 2018, we have made swift progress through many of the administrative stages necessary for a project of this scale. The masterplan for Amaala has been approved by the government and we are working with world-class suppliers and contractors to bring the vision to life. We have brought on board global architects and designers to develop world-class facilities in a sustainable manner while enhancing the natural landscape. Amaala will target more than 2,500 hotel keys and 700 residential villas, apartments and estate homes, plus over 200 high-end retail establishments boasting an eclectic mix of galleries, ateliers, artisan workshops and bespoke retail shops supported by a wide range of international and local signature dining venues. We are also partnering with global organisers to offer golfing and equestrian experiences. Q: What milestones can we expect in the coming year? Over the next 12 months, we look forward to the official ground-breaking, another appearance at the Monaco Yacht Show, and the beginning of construction. While many of our previous milestones have been ‘behind-the-scenes’, we will now see progress unfold. We are also planning to be at a series of events, such as the Global Wellness Conference, where we can share our point of view on key issues related to the development of the hospitality and tourism industry in the kingdom and Amaala’s role.

“Over the next 12 months, we look forward to the official groundbreaking, another appearance at the Monaco Yacht Show, and the beginning of construction”

Q&A by Amaala CEO Nicholas Naples

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Country focus

The Bahrain government is confident that supporting the private sector will enable the country to achieve its tourism growth targets

BAHRAIN

MANAMA’S TOURISM PLAN YIELDS RESULTS With Bahrain’s branding in place and further tourism growth expected, the country is shifting its focus to new markets

uch is expected from tourism in Bahrain, and the sector has been identified as a key driver for future economic growth. Momentum has already developed and, in 2018, there were 12.8 million visitors to Bahrain, which was a 6 per cent increase on 2017. Going forward, the target is to grow the number of visitors to 15 million over the next four years. Bahrain is confident that this growth target is achievable. “We have the fundamentals to be an international tourist destination, from the weather to the location, culture, history and modernity,” says Zayed R al-Zayani, minister of industry, commerce and tourism. “The people of Bahrain have always been welcoming throughout time. We have always had good feedback from people that visit or live in Bahrain, so we have the right ingredients.”

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Al-Zayani’s job is to make that happen by supporting the private sector. “The philosophy of the ministry and tourism authority is to act as a regulator and a stimulator, not as an investor in the sector,” he says. “So you will never see us building hotels or restaurants. What you will see is us facilitating investors in the sector.” Project pipeline Investment levels have been strong in recent years. “There are 22 hotels in the pipeline that should be ready in the next four years, so in terms of accommodation you are looking at double-digit growth year-on-year for the number of room keys,” says Sheikh Khalid bin Humood a-Khalifa, CEO of the Bahrain Tourism & Exhibitions Authority. “Then we have megaprojects like the new Bahrain International airport expan-

sion, which is a $1bn-plus project and has the potential to triple the amount of travellers to Bahrain each year.” These investments reflect the step change in the focus the tourism sector has been given by the government over the past three years, following the launch of Bahrain’s first national strategic plan for tourism. The plan had clear key performance indicators to be delivered by the end of 2018. One of the first tasks was creating a brand for Bahrain. “We launched a lifestyle tourism brand in 2016 with ‘Ours. Yours. Bahrain’,” says Sheikh Khalid. “All the tour operators, travel agencies, Gulf Air, the Economic Development Board and Cultural Authority all now have a unified message.” Beyond the Gulf With the basics in place, the targets for the next strategic plan are shifting to developing new markets. “We are now starting on the next phase of that tourism strategy, which is to develop our product to go beyond the GCC and neighbouring countries,” says Al-Zayani. The minister is also chairman of national flag carrier Gulf Air, and the airline will play a pivotal role as the sector’s KPIs are now geared towards attracting tourists from new markets

outside the GCC, mainly west Europe, China, Russia and, ultimately, the US. “That has to work hand in hand with Gulf Air expanding its network as we need direct connectivity,” says Al-Zayani. Another initiative aimed at boosting international tourism is the development of a new exhibition centre next to the Bahrain International Circuit in Sakhir. The new facility will be capable of hosting global events such as the World Economic Forum once completed. “We are working on the new exhibition and conference centre because we feel that Bahrain can be a global MICE [meetings, incentives, conferences and exhibitions] destination,” says Al-Zayani. Bahrain is also establishing itself as a market for Indian weddings, and since September last year has secured 10 large-scale weddings that involve the full booking of major hotels such as the Four Seasons and Wyndham, and chartered Gulf Air flights from India. As new markets develop, Saudi Arabia will continue to offer great potential. “We see it as an opportunity if we play our cards right. Why is it an opportunity? If Saudi Arabia becomes more liberalised and open, Saudis will be more adventurous to go out,” says Al-Zayani. Saudi Arabia is already a strong market for Bahrain, and during the holidays in January this year, the island received 1.2 million visitors from Saudi Arabia in 10 days. “[The visitors] we have from Saudi Arabia today are predominately from the Eastern Province and Riyadh, but it is a country of 33 million,” says Al-Zayani. “We have to position ourselves in the Saudi market. Until two and a half years ago, we had never participated in any tourism event in Saudi Arabia and had never even advertised.” Reflecting its more proactive approach to developing its tourism sector, Bahrain now participates in the Riyadh travel show, actively advertises in the Saudi market, and recently opened a representative office. Colin Foreman

12.8 million

Number of visitors to Bahrain in 2018 – a 6 per cent increase on 2017

15 million

Targeted number of visitors within four years

Hotels in the pipeline that should be ready in the next four years

1.2 million

Number of visitors from Saudi Arabia in January over a period of 10 days

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Now in its 15th year, AHIC is the annual gathering for the Middle East’s hospitality investment community organised by global hotel investment event organiser Bench Events in partnership with Middle East business intelligence brand, MEED. AHIC creates a knowledge and networking platform for global and regional investors of all backgrounds, offering essential insights to investing in hotels, showcasing hospitality investment opportunities and facilitating direct connections with hospitality industry stakeholders. In partnership with Ras al-Khaimah Tourism Development Authority, AHIC 2019 is being held under the patronage of His Highness Sheikh Saud bin Saqr al-Qasimi, Supreme Council member and ruler of Ras al-Khaimah. AHIC 2019 is co-hosted by its founding patron, His Highness Sheikh Ahmed bin Saeed al-Maktoum, chairman of Dubai Airports, president of Dubai Civil Aviation Authority, and chairman and CEO of Emirates Airline and Group.

This AHIC report is based on content from MEED Business Review, MEED’s premium, printed monthly report on the Middle East and North Africa. An essential resource for decision makers looking to understand Middle East policy, MEED Business Review is a digest of the month’s exclusive news, market intelligence and expert analysis. With its clean and concise design, MEED Business Review embodies the substance that has driven the MEED brand from its origins as a projects and current affairs newsletter more than 60 years ago to the leading information platform it is today. MEED Business Review is an invaluable platform for industry brands to showcase their expertise or services in the region.