There are signs of growth in the luxury hotel market in Riyadh, and PwC has published its second Middle East hotel industry outlook, focusing on six key cities in the region: Riyadh, Abu Dhabi, Doha, Dubai, Jeddah and Muscat. The outlook is based on the use of economic variables to forecast average daily rate, occupancy and revenue per available room in each of the six cities and the region as a whole during 5102-6102.

Riyadh, Abu Dhabi, Doha, Dubai, Jeddah and Muscat.

Although the region faced a number of challenges in 2014, such as the decline in oil prices and the depreciation of the Euro against the Dollar, the Kingdom's growth fundamentals remain strong with Jeddah experiencing strong RevPAR growth (9.9%) overtaking Dubai as the city with the highest RevPAR, while Riyadh only increased by 1.1% and saw a decrease in average daily rate of 5.0% during 2014. On the other hand, Jeddah made the biggest gains in ADR thanks to religious tourism, as the city is the main stopover for Muslims on their way to Mecca and Medina.

Jeddah.

Western sees growth

Like many of the other cities included in the report, Jeddah's available room revenue in 2014 was close to PwC's forecast with little difference in the factors included in this indicator: occupancy rates were below expectations (74%) while the average daily rate was slightly higher at US$258. About 4,000 new rooms were expected to open in 2014, but only half of that number of rooms actually opened. Now, about 2,700 new rooms are expected to open in 2015.

Looking ahead, 2015 looks set to be a promising year for Jeddah along with Abu Dhabi, with revenue per available room expected to grow by 7.3% and 6.7% respectively.

Rising demand

Jack Fakhoury, General Manager of PwC's Saudi Arabia operations, said: "Jeddah continues to be an important business destination, with demand remaining strong and stable. Religious tourism is growing at an ever-increasing rate."

Riyadh and Jeddah lead

On the other hand, average daily room rates in the Kingdom will rise, with Jeddah and Riyadh topping the most expensive cities in the region at $275 and $242, respectively, ahead of Dubai, which is expected to see a decline in average daily rate.

Riyadh is expected to be at the top of the list.

While Riyadh is a major business destination, some of its hotels are in need of development, so this is likely to affect the ability of its hotels to raise their prices. Alison Grinnell, executive director of hospitality and leisure at PwC Middle East, said: "Supply in Riyadh is expected to continue to rise in the future, with 5,500 new rooms currently under construction, mostly at the luxury level."