Saudi Arabia’s Vision 2030 mandate will continue to improve the outlook for the Mecca and Medina real estate markets in 2023.
Traditionally centered on serving the religious tourism economy, new asset classes have started to emerge in the holy cities in recent years.
This is partly driven by Vision 2030’s goal to modernize Saudi Arabia’s real estate sector and raise the economic contribution of the national religious and leisure tourism segments.
As a result, a variety of projects and programs are being launched in the holy cities with a view to the future.
National efforts
Efforts are being made at a national level to elevate the performance of Mecca’s and Medina’s real estate sectors.
Saudi Entertainment Ventures, established by sovereign wealth vehicle Public Investment Fund (PIF), plans to develop entertainment complexes in both cities.
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The pipeline at Roshn, the PIF-backed company formed to serve as a national residential master developer, includes a residential community in Mecca too.
The holy cities’ hospitality industry has also received a regulatory boost in 2023.
Mecca’s Pilgrims Housing Committee said in January citizens would be permitted to rent out residential units to Hajj pilgrims. The announcement followed a national bylaw allowing citizens to rent out their homes to tourists.
Targeted investments
City-specific spending is picking up from both public and private sector real estate spenders. The government has implemented expansions to raise the Grand Mosque’s capacity in Mecca to 2.2 million worshippers. The previous capacity was about 600,000.
In Medina, the PIF-backed Rua Al Madinah Holding Company (RAMH) is working on an integrated mixed-use project close to the Prophet’s Mosque’s central area.
RAMH’s project will span 1.5 million sqm and comprise 47,000 hotel rooms.
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Ahmed Aljuhani, CEO of RAMH, said in January 2023 the project is expected to serve 50 percent of Medina’s market needs. Work on the development is 10 percent complete.
Private sector participation
Private sector organizations have also made moves to expand in the holy cities over the past year.
The local Al Ameen Real Estate is reportedly planning to tender the construction contract for its Rokon Al Medina mixed-use project, located between the Joumaa and Quba mosques, in the first quarter of 2023.
In September 2022, Taiba Investments awarded Saudi Arabian Construction the SR431 million ($114.8 million) contract to build a five-star Sheraton hotel in Medina. The project’s 19-floor twin towers will comprise 435 standard and two royal suite rooms.
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In Mecca, Sumou inked an SR377 million ($100.4 million) deal in November 2022 with the state-owned National Housing Company to build a residential community across an 88,570 sqm land plot within the Mecca Gate project.
Umm Al Qura for Development and Construction is also developing the Masar project, planned to have 24,000 hotel rooms and 13,000 residences. In December 2022, work was initiated for an SR7 billion ($1.9 billion), seven-tower project at Masar.
Mecca and Medina real estate outlook
Mecca’s and Medina’s growing project pipelines partly reflect their improved real estate performance in recent months.
Mecca’s hospitality sector posted a strong performance in the first five months last year, according to JLL.
Year-on-year occupancy rates increased threefold to 60 percent in the five months to 2021. Revenue per available room (RevPAR) grew to $103 for January-May 2022 – the highest level since 2019.
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CBRE said the post-COVID resumption of religious tourism increased RevPARs by 266.6 percent and 214.6 percent in Mecca and Medina, respectively, on a year-on-year basis in the nine months to September 2022.
Saudi Arabia’s ambitions to create tourism centers beyond hotspots like Riyadh and Jeddah could positively affect the holy cities’ markets. Prioritizing private-sector participation may help to achieve these goals more quickly.
