Saudi Arabia's lofty Vision 2030 strategy for major tourism, hospitality and entertainment investment has lost a bit of its sparkle, but hoteliers are confident the long-term prospects for the burgeoning hotel industry there are solid.
Consistently low oil prices before the current war in Iran slowed down some of the ambitious hotel and entertainment giga-projects promised in Vision 2030.
Now, the U.S.-Iran war is putting more pressure on energy prices, supply chains, airline service and other hospitality sector components and requirements.
But despite shifts and setbacks, hoteliers investing in Saudi Arabia are confident in the long-term strategy of the country's ruling officials to build economy-boosting tourist hotspots across the country, with the goal of lessening its dependence on oil in the long run.
Frank Veenstra, chief development officer at Kempinski Hotels, said he has 20 hotels in the region, and another nine in the pipeline, within a total portfolio of approximately 95 hotels.
“It is a major share, and we’re there for the long run," he said, speaking at the International Hotel Investment Forum EMEA in March. "There are meaningful impacts and risks in the short run, also to destinations affected by travel from the region. But there is confidence."
Other major brands spoke in March, sharing that confidence.
Carlos Khneisser, chief development officer, Middle East and Africa at Hilton, said the long-term future of the flourishing Saudi Arabian hotel industry is sound.
“Most of our hotel agreements are 20 to 25 years in length, the area is resilient, and Hilton is 105 years of age,” he said.
Hilton's Middle East portfolio includes 100 hotels in Saudi Arabia, with another 20 in the pipeline.
A new Saudi law on foreign ownership will open more doors, he said, adding the government is targeting $100 billion of foreign investment by 2030.
Current challenges
But the acute pain of the current war is causing Saudi Arabia to pump the brakes and even halt some projects.
Higher oil prices erode demand (exacerbated by the blockade in the Strait of Hormuz), which results in less revenue to fund giga-projects and the redirection of what capital there is into other government departments, not into the kingdom’s sovereign wealth fund.
Just last week, Saudi Arabia's Public Investment Fund scrapped its funding of the LIV Golf tournament, which it launched in 2022 with a roster of top players and a multibillion-dollar investment, citing a focus on "increasing the efficiency of investments."
In the PIF's latest revision to Project 2030, issued last month, the fund is still seeking to develop 100,000 rooms and 70 tourism experiences in the kingdom.
That is a scaling back of original plans, which has been happening for a while, CoStar News first reported in September.
Moving on
But scale-backs, particularly of such lofty and ambitious projects, are to be expected, say industry watchdogs, and hotel investors are not staying away.
Tariq Bsharat, chief strategy and business development officer at Marjan, said back in March that his firm is still transacting, and partners are still willing to spend. He said one project he is involved in is an integrated resort with a large gaming floor, which is on track to open in spring 2027.
Luc Boschmans, director of asset management at Red Sea Global, also said in March that the 24 hotels in the Red Sea Global giga-project are on track. While he has seen concerns from international guests and groups, lost demand has been replaced with local demand.
Khneisser said the Red Sea area of Saudi Arabia is attracting capital from Malaysia, Indonesia and Singapore, especially assets close to the Holy Cities.
As of March, the war in Iran was inciting caution from investors, but they weren't unduly alarmed.
Marjan's Bsharat said the start of the U.S.-Iran war saw a brief pause of two days in construction. Marjan is master developer of its project, and Bsharat is working with $2 billion in land value over six deals.
Dimitris Manikis, president, Europe, Middle East and Africa at Wyndham Hotels & Resorts, said the litmus test for any region is always confidence.
“That comes from all players in any deal, and from the guests who want to travel,” he said.
He added that everyone still wishes to be in the region.
“You are either late to the party or early to it, but the important thing is that you were invited. Operators, locals, brands need to stay loyal to the destinations," he said. “A lot of what you will see in hospitality in the next five years is already being tested and used in Saudi Arabia.
“If [anyone] moves out, they will regret it in five years’ time,” he added.
Khneisser pointed to Saudi Arabia's "world-class" safety and security, ease of doing business, and "second to none" facilities and service.
Veenstra reiterated that owners, seeing that occupancy would fall across the Middle East as a result of the war, accelerated CapEx plans.
He added segmentation in Saudi Arabia and the region also is seeing a little transformation.
“The midscale will come, although luxury is the push, traditional luxury that establishes place-making, if you will," he said. “There is more demand for experiences at a luxury level, and we see that as a major interest from investors."