Hotel investment in the Middle East is seeing a major upswing from the region’s so-called giga-projects, but investment levels still lag well behind the glory days of a decade ago.

Edward James, head of content at MEED — formerly Middle East Economic Digest — said during a recent webinar on real estate investment that Saudi Arabia is leading the charge with six of those projects: Al-Ula, Amaala, Diriyah Gate, Asir, NEOM and Red Sea Development Project.

“The outlook is enormous,” he said.

James specifically cited NEOM, a development close to the Gulf of Aqaba and the neighboring countries of Israel and Jordan, as one to watch. In 2022, the giga-project saw contracts awarded that were worth more than $10 billion. None of them was directly intended for hotels, but rather for the infrastructure that eventually will allow for hotel and hospitality development.

“NEOM is likely to dominate the list over the next 10 years,” he said.

James said other projects are being developed, announced and funded. Among these is Select Group’s development of the Six Senses Residences The Palm, Dubai, which is scheduled to be completed in 2024.

Investors are intrigued by the hotel development opportunities elsewhere among the Gulf Cooperation Council countries, which include United Arab Emirates, Bahrain, Saudi Arabia, Oman, Qatar and Kuwait.

In Qatar, government officials will soon announce their tourism and commercial vision for the next five to seven years. This comes months after the country hosted the FIFA World Cup in November and December.

Qatar’s "big boom between 2003 and 2008 was funded by energy, and energy is what is being invested now in the country,” James said, but he added such investment today does not mirror that of 2010 through 2015.

James said there appears to be a wider gap between energy revenues and development investment, but this might be due to a one- or two-year lag between those revenues coming in and investment being earmarked. More investment also is funneled into renovations as hotels in the region age, he said.

In total, GCC countries awarded $94 billion in contracts in 2022 across all real estate sectors, the second-lowest figure in the last decade, according to MEED data. The highest spend was $181.6 billion in 2014 when the average oil price was $96.29 a barrel.

In 2022, the average price per barrel was $102.97, yet investment in GCC countries stalled.

Last year "was very disappointing,” James said, who added additional barriers to investment could be continued geopolitical events, the slowdown in China and Iran’s effect on the area.

The cooperation between the GCC states is at its best level for many years, underlined by some major cross-border agreements and investments in transportation links, James said.

Another factor is that China is wooing stakeholders in the region with the goal of being the “developer of choice,” he said.

He added many transportation and infrastructure projects are being awarded to the Chinese, including the Saudi Landbridge Project, which features a network of rail lines, mostly for freight, but the lines also join Saudi Arabia and Bahrain.

Another infrastructure project hotel executives should track is the Abu Dhabi-Dubai high-speed rail link, which in January started its second phase.

James said on the horizon might be a “major relaunch of Palm Ali Jebel,” in Dubai, which has been in a hold since the Great Recession.

Saudi Arabia received the lion's share of hotel and infrastructure investment among GCC countries in 2022, which likely will be the case in 2023 and 2024, as well.

“The Saudi government realized it has much to do to make it as good a place to live as is the [United Arab Emirates], and this covers equality and liberalization issues,” James said.

For international businesses to obtain a piece of the pie, they still might need to open a regional headquarters in the kingdom, he added.

Investment in hotels in Saudi Arabia often is tucked inside huge development projects and therefore not mentioned specifically, James said.

“In 2023, Saudi Arabia is showing $64.5 billion of projects across all real-estate sectors in tender or bid evaluation, while the UAE trails with $23.2 billion,” he said.

The region's project pipeline is about $2.17 trillion in investment, and Saudi Arabia projects comprise more than half of that total, James said.

“Yes, there will be some cancellations, delays and changes of budget, but also there will be new [projects] we do not know about yet,” he said.

However, Saudi Arabia might have some development hurdles to jump, he admitted.

“People and materials … could be stretched given the expected requirements from the giga-projects program. There is increased pressure to source locally and cut carbon footprint to win government contracts,” James said.

Investors are facing environmental, social and governance issues, which are a priority for developers in the United Arab Emirates, especially this year.

“There is a focus on sustainable construction and construction technology, especially because COP28 will be in the UAE" in November and December, he added.

There also is a major push to produce energy via hydrogen. The goal is for the Middle East region to supply Europe and Asia-Pacific with such carbon-friendly energy. The infrastructure around this ambition will include hotels, James said.

“There are now more than 40 greenfield hydrogen projects planned in [the Middle East and North Africa] worth in total more than $100 billion. It represents the largest future growth sector,” James said.

So far in 2023, $7.9 billion has been contracted across all real estate, but more investment is likely on the way since the first quarter usually is the slowest in terms of spend across the year.

Upcoming milestones include the opening of The Wynn Ras al Khaimah, scheduled for 2026, which is the first casino-hotel in the UAE. The United Arab Emirates have prepared an entire new code of gaming legislation that could open up even more development opportunities.

Part of the Al Marjan Island development, the Wynn Ras al Khaimah marks the largest direct investment in the emirate and will have more than 1,000 guest rooms. Its price tag is estimated to be approximately $2.5 billion.

“It will be the single-largest project in the hospitality space for many years, I suspect,” James said.

A second major development is the Wasl Tower on Dubai’s Sheikh Zayed Road, which will contain a 258-room Mandarin Oriental hotel, the brand's second property in Dubai.

The Dorchester Collection, Kempinski Hotels, MGM Resorts and Bellagio — which will be in the same complex as the MGM — are among other the other hotel projects in development in the UAE.

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