Saudi Arabia Leads Tourism Transformation with Major Hospitality Expansion, Price Adjustments, and Rising Demand for Luxury Destinations in Makkah and AlUla

The Saudi Arabian hospitality sector has experienced a noticeable adjustment in its average daily room rates (ADR), which saw a decline of 11.7% in comparison to the previous year. This shift comes amidst an enormous increase in the sector’s capacity, with the number of licensed tourism establishments growing by 34.2%, reaching a total of 5,937 facilities by the end of 2025. Despite the price decrease, occupancy rates have remained resilient, showcasing the ongoing demand for hospitality services across the Kingdom.

Price Adjustments in Response to Capacity Surge

As the Kingdom continues its ambitious efforts to transform into a leading global tourist destination, the hospitality sector has experienced a dynamic phase of expansion. The average daily room rate (ADR) for hotels in Saudi Arabia now stands at SAR 389 (approximately $104), reflecting an 11.7% decrease from the previous year. The serviced apartments sector has seen a smaller decline of 5.7%, with their ADR falling to SAR 207.

This reduction in room rates has been attributed to a significant increase in the supply of hospitality facilities, with the number of licensed tourism establishments climbing by over a third year-on-year. By the end of 2025, Saudi Arabia boasted nearly 6,000 hospitality units, including 2,847 hotels and 3,090 serviced apartments. This large increase in supply has led to competitive pricing, as the market adjusts to accommodate the growing number of tourists and business travelers.

Resilient Occupancy Rates Amid Price Adjustments

While room rates have seen a decrease, occupancy rates across the Kingdom have remained steady, indicating a strong demand for hotel rooms and serviced apartments despite the price adjustment. National occupancy rates have averaged around 57.3%, with peak seasons, such as Ramadan 2026, witnessing near 100% occupancy in major luxury properties in Makkah. This indicates that while pricing has softened, the demand for hospitality services in Saudi Arabia remains robust, particularly in key religious tourism destinations.

In Makkah and Madinah, two cities that are central to Islamic pilgrimages, tourism remains a cornerstone of the local economy. These cities have experienced resilience due to religious tourism, with Madinah seeing the highest growth in domestic tourism, recording a 20% increase in early 2026. This performance highlights the significant role that religious tourism continues to play in supporting Saudi Arabia’s hospitality market.

Project Pipeline and Market Outlook

Despite the positive occupancy rates, the Saudi hospitality sector faces challenges due to the sheer volume of new hotel rooms entering the market. Currently, an estimated 83,000 to 94,500 new rooms are in development, particularly in key cities such as Riyadh and Jeddah. These new additions are expected to put continued downward pressure on room rates in the short term, as the market works to absorb the influx of new supply.

The Saudi market is undergoing a temporary correction, particularly in Riyadh, where business spending faced a 7.8% decline in late 2025 and early 2026. This shift was partly due to a maturing market, as Riyadh transitions from a primarily business-focused destination to a more balanced mix of business and leisure tourism. The city, known for its modern infrastructure and economic importance, has faced challenges in maintaining its previous growth trajectory, but experts predict it will recover as the city adapts to the broader tourism expansion.

Emerging Luxury Hubs: The Red Sea and AlUla

While Riyadh and Jeddah face adjustments in their respective markets, emerging destinations such as the Red Sea and AlUla are gaining significant traction, particularly in the luxury tourism segment. These regions are expected to experience a compound annual growth rate (CAGR) of 18.2%, driven by the rise of eco-luxury resorts and the Kingdom’s initiative to introduce Schengen-style visas for visitors from GCC countries. This move is expected to position these emerging hubs as premium tourism destinations, offering a blend of natural beauty and luxury experiences.

Saudi Arabia’s Vision for Tourism: Long-Term Growth

Saudi Arabia’s investment in its tourism infrastructure reflects a broader vision of positioning the Kingdom as a leading global tourism destination. The expansion in hospitality facilities and the introduction of innovative visa policies aim to create a dynamic and diverse tourism market that caters to both business and leisure travelers. This strategy is closely aligned with the Kingdom’s Vision 2030 objectives, which seek to reduce reliance on oil revenue by expanding other sectors, including tourism.

The country’s focus on luxury tourism and eco-tourism, particularly in AlUla and along the Red Sea, underscores the desire to offer unique and sustainable travel experiences. As new luxury resorts and cultural destinations are developed, Saudi Arabia is positioning itself as a global leader in sustainable tourism.