Hotels Reshape the Real Estate Investment Landscape in Makkah

A night view of the Gran Mosque in the holy city of Makkah, Saudi Arabia. (SPA)
A night view of the Gran Mosque in the holy city of Makkah, Saudi Arabia. (SPA)
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Hotels Reshape the Real Estate Investment Landscape in Makkah

A night view of the Gran Mosque in the holy city of Makkah, Saudi Arabia. (SPA)
A night view of the Gran Mosque in the holy city of Makkah, Saudi Arabia. (SPA)

The real estate market in Makkah is witnessing an accelerating shift toward investment in hospitality assets, fueled by the growing numbers of Hajj and Umrah pilgrims and the expansion of the city's capacity. This trajectory is cementing hotels as a primary source of operational revenue for a number of real estate developers.

This comes at a time when the recovery in hospitality returns has reflected more clearly on the financial results of real estate companies, driven by improving occupancy rates and average room prices, particularly during the Hajj and Umrah seasons.

Sustained demand underpins hospitality boom

Financial and economic advisor Dr. Hussein Al-Attas told Asharq Al-Awsat that Makkah's hospitality sector is experiencing "one of its strongest historical phases."

The growth witnessed by the sector is underpinned by structural factors, foremost among which is the continuous increase in the number of Umrah pilgrims and visitors, alongside the gradual expansion of Hajj capacity and projects tied to Saudi Vision 2030, he added.

He stressed that the expansion of the Grand Mosque, alongside the development of transportation networks, roads, trains, and the enhancement of the visitor experience, has contributed to raising the efficiency of the hospitality ecosystem.

This, in turn, has reflected on occupancy rates and average room prices, with Al-Attas explaining that demand for hotels in Makkah has become more sustainable year-round with the growth of Umrah programs, no longer being limited to peak seasons.

This shift reflects the growing significance of hospitality operations within the business models of real estate firms operating in Makkah. This comes as developers pivot part of their focus away from the sale of lands and units toward the development of income-generating assets that can be retained and operated over the long term.

Hotels drive profitability

The performance of the Jabal Omar Development Company exemplifies the growing importance of hospitality operations in the financial results of Makkah real estate developers. The company returned to profitability in the second quarter of 2026 with a net profit of 158.1 million riyals, compared to a loss of 42.1 million riyals in the same period last year, while revenues increased by 42.5 percent to 715.2 million riyals.

The company attributed the revenue growth primarily to the sustained improvement in hotel performance, particularly during the Hajj season, alongside the opening of the "Rotana" hotel earlier this year, according to a disclosure published on the Saudi Exchange (Tadawul) website.

Al-Attas said hospitality operations have become the primary engine of profitability for a number of real estate companies in Makkah, after previously relying more heavily on land sales or the development of traditional real estate projects.

He explained that rising occupancy rates and improving average room prices support the operational revenues of hotels, while the recurring nature of these revenues provides companies with more stable cash flows compared to returns generated from asset sales.

Khaled Al-Mobid, CEO of Menassat Real Estate Company, stated in an exclusive comment to Asharq Al-Awsat that Makkah possesses an exceptional advantage represented by the sustained demand for hospitality.

He explained that the continuous influx of Hajj and Umrah pilgrims, alongside the objectives of Vision 2030, lends hospitality investment greater attractiveness compared to a number of other real estate assets, particularly in locations close to the Grand Mosque and projects linked to transportation and services.

Al-Mobid pointed to a shift in developer strategies away from focusing on the sale of real estate units toward developing income-generating assets, such as hotels and serviced apartments, alongside leveraging international hospitality brands.

A developer's focus is no longer confined to construction, but has extended to operational quality and asset management, as a project's value has become linked to its operational performance rather than its development cost alone, he remarked.

Rising supply tests the market's capacity to absorb growth

The expansion of hospitality investment in Makkah coincides with an increase in room supply, which may intensify competition among operators, particularly within categories witnessing the entry of new projects.

Al-Attas said that in the short term, this increase could exert limited pressure on pricing within certain segments if the new additions are concentrated within the same hotel tier. However, over the medium and long term, demand will be capable of absorbing a significant portion of this expansion, given government targets to boost the numbers of Umrah pilgrims and visitors, and Makkah's transformation into a destination welcoming growing influxes year-round.

According to Al-Attas, the volume of supply will not be the sole decisive factor, as the quality of the hospitality product, location, service standards, and the efficiency of revenue management will play a primary role in a hotel's ability to maintain high occupancy rates and returns.

Al-Mobid said that increasing room counts will not suffice to guarantee project profitability as competition intensifies, noting that a hotel's ability to maximize revenue per room and achieve operational efficiency will become more vital with new projects entering the market.

Operational efficiency key to maintaining margins

Conversely, Makkah's hospitality sector faces a series of challenges that could test investors' profit margins in the coming period, led by rising costs for land, construction, and operations, alongside wages, energy, maintenance, and financing costs, in addition to the need for qualified personnel to manage hospitality establishments efficiently.

Al-Attas said that rising operational costs and persistently high interest rates could exert pressure on companies, at a time when increased competition will force operators to focus more heavily on operational efficiency and boosting the guest experience to maintain profit margins.

Sustaining high occupancy rates outside of peak seasons presents another challenge for the sector, requiring the diversification of target markets and the attraction of new visitor segments in alignment with the expansion of Umrah programs and the objectives of Vision 2030.

Al-Mobid said future profitability hinges on product quality, operational efficiency, and maximizing revenue per room.

He stressed the importance of diversifying hotel tiers, leveraging modern technologies in revenue management, reducing operational costs, and delivering a premium hospitality experience.

With demand and supply expanding simultaneously, the future of hospitality investment in Makkah is pivoting toward a heavier reliance on asset operational efficiency, product quality, and location, rather than an increase in hotel capacity alone. This shifts developers' ability to manage assets and convert growing visitor numbers into sustainable cash flows into a decisive factor in the future.



Saudi Economy Relies on Non-Oil Growth Engines to Absorb External Shocks

Oil fields operated by Saudi Aramco (Aramco)
Oil fields operated by Saudi Aramco (Aramco)
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Saudi Economy Relies on Non-Oil Growth Engines to Absorb External Shocks

Oil fields operated by Saudi Aramco (Aramco)
Oil fields operated by Saudi Aramco (Aramco)

Saudi Arabia's economic indicators show a growing ability to withstand external shocks, supported by an expanding non-oil sector that has continued to grow despite geopolitical tensions and disruptions to regional trade and energy routes.

Although gross domestic product (GDP) contracted by 3.8% year on year in the third quarter of 2026, the pace of decline slowed from a 4.7% contraction in the second quarter. Non-oil activities grew by 1.9%, accelerating from 0.9% in the previous quarter, while oil activities declined by 20.4%.

The significance of this performance is particularly evident given the exceptional circumstances of the third quarter, including disruptions to shipping through the Strait of Hormuz and the temporary shutdown of the East-West Pipeline in September.

Seasonally adjusted real GDP also grew by 1.3% compared with the second quarter, indicating an improvement in economic activity on a quarterly basis and reflecting the ability of certain sectors to continue expanding despite the sharp contraction in oil activities.

Annual and Quarterly Performance

According to data from the General Authority for Statistics, oil activities were the main driver of the GDP contraction, contributing a negative 4.7 percentage points, while government activities subtracted 0.4 percentage points.

By contrast, non-oil activities made a positive contribution of 1.1 percentage points, while net taxes on products added approximately 0.1 percentage points.

The data also showed an improvement in economic performance on a quarterly basis, with seasonally adjusted real GDP increasing by 1.3% in the third quarter compared with the second quarter of this year.

The growth was driven by a 5.7% increase in oil activities and a 0.6% rise in non-oil activities, while government activities declined by 1.2%.

Last month, the International Monetary Fund (IMF) noted that Saudi Arabia's available fiscal buffers and alternative oil export facilities were helping limit the economic damage caused by the war. The Fund considered the Kingdom better positioned than its Gulf peers to contain the fallout from the disruptions.

The IMF projected a strong recovery in the Saudi economy in 2027, forecasting growth of 7.9% amid expectations of a rebound in oil activities and improvements in trade and shipping.

These projections are particularly significant in light of Saudi government estimates that the economy will contract by 3.6% in 2026, with the projected budget deficit rising to 4.9% of GDP.

The contrasting performance of oil and non-oil activities underscores the importance of the structural transformation underway in the Saudi economy.

Non-oil activities are no longer merely an additional contributor to GDP. They are playing an increasingly important role in absorbing shocks and limiting the transmission of volatility in the energy sector to the broader economy.

Promising Sectors

Since the launch of Vision 2030, the Saudi government has pursued a clear strategy to diversify income sources and broaden the economic base by accelerating non-oil growth and developing promising sectors.

These include information technology and artificial intelligence, transportation and logistics, tourism, entertainment and quality of life, renewable energy and sustainability, as well as mining, manufacturing and other targeted industries.

These efforts have helped diversify sources of economic activity and strengthen the contribution of non-oil sectors, giving the Saudi economy greater flexibility to withstand external fluctuations by diversifying sources of value added and expanding the role of domestic businesses and the private sector.

Consumer Spending

In this context, Dr. Abdullah Al-Mir, Assistant Professor of Economics at King Fahd University of Petroleum and Minerals, told Asharq Al-Awsat that the contraction in the Saudi economy during the third quarter was not broad-based. Instead, it was concentrated largely in oil activities, which declined by approximately 20%.

Non-oil activities, meanwhile, continued to grow by 1.9%, playing an important role in cushioning the impact of the sharp decline in the oil sector.

According to Al-Mir, government spending and private sector activity are two key pillars of this resilience. Continued consumer spending by households and the private sector helps sustain domestic demand in trade, retail, hospitality, services and transportation, all labor-intensive activities directly linked to the non-oil economy.

He noted that the Riyad Bank Purchasing Managers' Index (PMI) reached 55.3 in September 2026, remaining in expansion territory for the sixth consecutive month, reflecting continued improvement in non-oil private sector activity.

Al-Mir explained that the importance of non-oil activities becomes even clearer when the energy sector slows. Sustained activity in services, entertainment and domestic tourism helps small and medium-sized enterprises remain operational, preserves local supply chains and supports employment opportunities.

He emphasized the importance of strengthening the resilience of the non-oil private sector against external volatility.

Al-Mir added that one of the most significant signs of Saudi Arabia's economic transformation was the increase in the share of non-oil activities to 57.3% of the economy, describing it as a historic level that reflects a structural shift in the country's economic composition.

He linked this transformation to the decline in the unemployment rate among Saudi nationals to 6.5%, highlighting the potential impact of expanding non-oil activity on the labor market.

Al-Mir noted that sectors such as tourism, entertainment, technology and manufacturing continued to expand despite geopolitical disruptions that affected oil production and shipping, further demonstrating the structural transformation of the Saudi economy.

"Non-oil activities have a greater capacity to withstand shocks, while sustained investment momentum associated with Vision 2030 provides an alternative source of growth," he said.


Saudi Arabia Records 6,484 Franchise Registrations, Up 53%

A consumer goods store in Saudi Arabia (SPA)
A consumer goods store in Saudi Arabia (SPA)
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Saudi Arabia Records 6,484 Franchise Registrations, Up 53%

A consumer goods store in Saudi Arabia (SPA)
A consumer goods store in Saudi Arabia (SPA)

Commercial franchise registrations in Saudi Arabia grew by 53% during the first nine months of 2026, reaching 6,484, compared with 4,227 at the end of 2025, according to the Ministry of Commerce.

The ministry said the food and beverage, fuel and petroleum, and fashion and apparel sectors accounted for the highest number of franchise registrations in the Kingdom.

It explained that the Commercial Franchise Law aims to regulate and develop the sector, enhance transparency, protect the rights of all parties involved, and create an attractive investment environment.

It also seeks to improve the quality of goods and services and support the sustainability, growth and expansion of commercial activities.


Saudi Stock Market Falls 0.8% for Second Consecutive Session

A man walks past the Tadawul logo at the Saudi stock exchange (AFP)
A man walks past the Tadawul logo at the Saudi stock exchange (AFP)
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Saudi Stock Market Falls 0.8% for Second Consecutive Session

A man walks past the Tadawul logo at the Saudi stock exchange (AFP)
A man walks past the Tadawul logo at the Saudi stock exchange (AFP)

Saudi Arabia's benchmark Tadawul All Share Index (TASI) closed Sunday's session down 0.8% at 9,838 points, shedding 83 points amid total trading turnover of approximately SAR 3.1 billion.

The decline marked the index's second consecutive losing session after it fell 1% on Thursday to 9,922 points, ending a three-day winning streak that began with a 3.4% surge on Monday, followed by gains of 2.3% on Tuesday and 0.4% on Wednesday.

Despite Thursday's losses, the index ended last week up approximately 2.4%.

During Sunday's session, the benchmark fluctuated between a low of 9,789 points and a high of 9,923 points, moving further away from the 10,000-point threshold it had surpassed during trading last week.

Market Declines

Among heavyweight stocks, Al Rajhi Bank edged down approximately 0.1%, while ACWA Power fell around 3%.

Shares of Alujain and SPIMACO dropped approximately 10% each, while Saudi Reinsurance (Saudi Re) declined 8% and Jabal Omar Development fell around 7%.

Dr. Sulaiman Al Habib Medical Services Group and ZOUJAJ closed at SAR 214 and SAR 35.02, respectively, down 3% and 2% following the passing of their dividend eligibility dates.

Elm Leads Gains

In contrast, Elm shares surged approximately 9% following the release of the company's financial results.

SAHL rose around 4%, Sports Clubs Company gained more than 4%, and Watani Iron Steel advanced more than 2%.

BinDawood Holding and Sumou Real Estate each jumped 5%.