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Can Saudi build the infra needed to accommodate its tourism drive?

Saudi Arabia wants to be king of leisure, but will it be able to create a market worthy of this crown?

Maya Whiteley, partner, MENA real estate, hospitality, and construction sector at EY.
Maya Whiteley, partner, MENA real estate, hospitality, and construction sector at EY.

Saudi Arabia is aspiring to be a top leisure destination in the region, and more so, in the world. But though the drive to achieve this goal has led to rapid infrastructure development of late, notable challenges remain.

In its history, the kingdom has not exactly been known as a prime leisure destination, and currently lacks much of the infrastructure needed to maintain this largely untapped market.

However, Saudi is building, and has in the last two years made major investments, launching extensive masterplans for resort cities on the Red Sea coast, as well as entertainment districts which will introduce large-scale amusement parks and attractions for the first time in the kingdom.

READ: Boom in Saudi's entertainment sector bodes well for Jeddah developers

Maya Whiteley, partner, MENA real estate, hospitality, and construction sector at EY, gives details of the key issues facing Saudi’s development strategy, and how it plans to build an immersive hospitality experience – essentially from the ground-up.

“In-terms of the mega-infrastructure projects in Saudi, they really fall predominantly in two brackets,” Whiteley told Construction Week in an interview earlier this year

“There is the transportation related infrastructure and then obviously the new real estate and hospitality developments, or destination developments,” she says.  

With new metro lines, the high-speed rail, and airport expansions, Whiteley supports that much of these projects are also connected to the objectives for enhancing tourism in the kingdom.

“And a lot of the new developments and projects, be it the Red Sea project, Neom, or Qiddya, are coming up in places that have limited to no current infrastructure in place.”

The drive for infrastructure has always been at the top of the government’s agenda, but not more so than in the last couple of years. The announcement of the Saudi Vision 2030 in 2016 has created a rapid push, and fueled ambitious targets and development.

“I think they are very ambitious and have very aggressive timelines, and there is a very clear focus on it. Decisions are being made at a pace that indicates that yes, I think these things will happen,” she said.

What Whiteley finds most interesting about Saudi’s shift in mind-set when it comes to tourism is just how the country is planning to go about it.

“If you think of some of the mega projects in particular, it all correlates back to Vision 2030 where there are a couple key objectives around vibrant society and sustainable economy, among others.

“Right now there is no leisure tourism in Saudi,” she explains. “It is religious tourism predominantly, which is continuing to grow. And business travel, which is also growing.

READ: Saudi finance ministry inks 17 project loan deals worth $201m

“But it’s all linked. This idea of the leisure tourism will have two objectives – one is about attracting the outside world and bringing them into Saudi, and offering them something new and different that has not been there historically and obviously contributing to GDP and job creation in the process.”

Whiteley continues: “The flip-side to that is mitigating some of the leakage of outbound tourism, so essentially, in creating this more vibrant society, how do we offer something here that is going to attract the domestic market, so they do not need to leave?”

“When it comes to airports, for example, I think they are trying to do something bigger. I think in scale, it’s bigger. And [In my opinion] anywhere where you have a blank slate you have an opportunity to plan it right from the onset, so they don’t necessarily have the same restrictions of some other places.”

As for delays, Whiteley says that that challenge is going to remain. “Inevitably, there are going to be capacity constraints, so if you look at just the scale of investment, the scale of projects in Saudi alone, it is enormous,” she says.

In fact, Saudi Arabia’s Ministry of Finance announced in July that it has signed 17 agreements to provide project loans worth $201.5m (SAR755.8m).

While additional details of the projects are yet to be publicised, it has been revealed that these loans will fund developments with an investment value of $413.3m (SAR1.55bn) across the health, education, and hospitality sectors.

Of what is known so far, six hotel and tourism projects will be developed as part of the deal across 5.6ha of land in Al-Kharj, Sharourah, Najran, Tabuk, Jazan, and Al-Khobar, according to Tariq bin Abdullah Al-Shohaib, Undersecretary for Revenues Affairs at the Ministry of Finance, and supervisor of the loan programme, whom signed the agreements.

There is also no doubt that other sectors will reap the benefits of these growth strategies, especially in the country’s major cities, of which Jeddah is one.  

According to JLL’s Q2 2018 Jeddah Real Estate Market report, the expansion of Jeddah’s entertainment sector and cultural offerings will bode well for several sectors, bringing long-term growth to the city’s residential and retail industries particularly.

Craig Plumb, head of research, MENA at JLL, said at the time of the report’s release in July: “The Kingdom is now in its implementation phase of the Saudi Vision 2030, which aims to diversify the economy from oil dependency, by increasingly investing into the tourism and other sectors.

“Developments in the entertainment, art and cultural sector will improve the sentiment across all categories of the real estate market,” he adds.  

It is clear that Saudi is serious about making due of its promises to build, essentially from scratch, a successful leisure sector – and one to even rival that of neighboring markets.

But the task at hand will not be without its setbacks and challenges, as is the case with rapid development in any country.  

 “If you combine that with what is happening more broadly in the region, considering major events such as Expo 2020 Dubai, and the pressure that that is going to put on the construction cycle, you are going to see potential hyperinflation of raw materials,” Whiteley says, explaining the risks involved in such markets.

“There is also going to be difficulty in labour, there will difficulty in resourcing. And there aren’t that many contractors in the region to be able to source out all of this activity,” she adds.  

But Whiteley is optimistic, seeing firsthand the changes from her frequent business trips to Saudi Arabia and how the country’s transformation has already become apparent.

She concludes: “I think for the kingdom, they need to have a very holistic strategy around how they are going to align the phasing and implementation of all of these megaprojects to be able to sort of mitigate the anticipated capacity constraint issues that are going to be inevitable.”

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