RIYADH, Saudi Arabia — With Saudi Arabia's Vision2030 tourism goals top of mind throughout the country, hotel development has eased significantly, and developers are receiving unparalleled support from the Saudi government.
A new ease in registration and the immediate ability to start receiving request-for-proposal documentation is the first step in having state and commercial help in every layer of involvement from advisory, feasibility and financing, as well as in construction and legal requirements.
The Saudi government can provide hotel developers equity, debt and guarantees, according to speakers on a panel at the recent Future Hospitality Summit held in Riyadh.
Saudi Arabia desires the presence of international, luxury and upper-upscale hotels for its giga-project rollout, and the world’s most esteemed brands have been quick to heed the call.
Accor is involved in one such partnership. In July 2022, Accor's lifestyle hotel division Ennismore signed a partnership valued at 1.5 billion Saudi riyals ($400 million) with two Saudi entities: the Tourism Development Fund and investment fund Al Rajhi Capital.
Louis Abi Abboud, chief development office and deputy regional head for the Middle East, Africa and Turkey at Ennismore, said his firm’s deal in the kingdom works for all sides.
“We negotiated all our terms. All operators need to secure their fees, or they will not be looking at [a project],” he said.
He added Ennismore hotels work in such projects as their success is modeled on welcoming overnight guests but also diners, day visitors and co-working businesspeople.
“Our hotels are predominantly built and designed for the community they are in, so [they are built and managed] at a lower risk, as you have two types of demand,” he said.
Private Saudi investment vehicles such as investment bank Al Rajhi Capital have their choice of what to invest in, said Assem Raqaban, head of real estate at Al Rajhi Capital and a former senior vice president in Saudi Arabia’s sovereign wealth Public Investment Fund.
“We’re witnessing a major transformation with Ennismore’s expansion program for 35 hotels across Saudi Arabia and also exposure to secondary cities in a single investment,” he said. “Looking at the demand, looking at how this sector has grown of late, we felt it was the right type of project to be involved.”
Wahdan Al Kadi, chief business officer of the state-controlled Tourism Development Fund, said its focus is to compliment commercial banks and financiers. The Tourism Development Fund was founded in 2020 and with approximately $4 billion in capital.
Since March, Al Kadi also has been chair of the board of this Ennismore fund.
“We concentrate more on secondary cities and on job creation. We take hand in hand investors on a journey from inception, provide information and gap analysis and feasibility on all destinations. All of this allows us to focus on the best places for our funds,” he said.
Al Kadi said his fund has 17 distinct products aimed at short-, mid- and long-term requirements and in 2022 had trained 1,500 entrepreneurs.
“That will continue to aid profitability for our investors and support developers in their land and value-proposition models. Our fund equity is not to compete with the private sector but to compliment it,” he added.
Finding Development Success
Al Rajhi’s Raqaban said even with international investors being increasingly sophisticated and Saudi Arabia being a first-world country, success in such a huge tourism undertaking still requires “full and comprehensive due diligence.”
The lifestyle fund has Ennismore as its focus, but other funding projects will have different types of proposition and cater to other segments. The search continues for other partners both domestically and internationally, he said.
Abboud said an important aspect of the fund is that it allows partners to be more active and, in Ennismore’s case, truer to its brands.
“We select the land, and [development] will be in line with our other hotels, done in the right way, collaborating with locals, to represent established brands in the Saudi market.
“[Ennismore does] not offer the best distribution and loyalty in the market, but we have hands-on, day-to-day management and authenticity in lifestyle,” he said.
He said if a customer knows a 25hours Hotel, for example in Berlin, and they then see the brand is opening a hotel in a secondary city in Saudi Arabia, they “think immediately, wow, there must be something cool in that place. 25hours has gone there.”
Al Kadi said the strategy with Ennismore matches the National Tourism Strategy around Vision2030, with, in Ennismore’s case, more than 2,000 hotel rooms in the initial phase.
“It is about creating destinations, not just hotels,” Raqaban said.
“Remember, in every destination, there will be an alternative. We need varied propositions,” Al Kadi added.
Abboud said when he looks at what the partnership is doing each day, it becomes increasingly interesting to behold.
“We can take risks and explore opportunities that a conservative investor probably would not be able to do,” he said. “For example, mid-market lifestyle all inclusive, or glamping with quirky elements.”
He added another advantage Ennismore has is that the founders of all its brands are still involved, people such as Christoph Hoffmann of 25hours.