Can Saudi Arabia become the Middle East's new entertainment hub?
The kingdom plans to invest $64 billion in its entertainment industry over the coming decade as part of an ambitious program of social and economic reform.
Saudi Arabia is aiming to ring in a new chapter in its history with a range of developments to position it as a leisure destination for residents and overseas visitors.
The kingdom is planning to invest $64 billion in its entertainment industry over the coming decade as part of an ambitious program of social and economic reform, known as Vision 2030, to reduce its dependency on oil.
Mohamd Alkhateeb, Analyst at JLL in Saudi Arabia, says: “The goal of the entertainment fund is to build Saudi Arabia’s much-needed tourism infrastructure. The government is providing financial backing, but there are many opportunities for the private sector to get involved in the development and operation of new leisure facilities – whether that’s opera houses, concert halls, cinemas or museums.”
Building an entertainment industry
Saudi Arabia has already taken steps to make its entertainment ambitions a reality. Last year, it revealed plans to build a 334 square kilometer “entertainment city” to the south of Riyadh, featuring sports, cultural and recreational facilities such as a safari and a Six Flags theme park. Riyadh will also become home to two major malls, including the Mall of Saudi with 300,000 square meters of retail and entertainment space.
Meanwhile, companies are lining up to open cinemas after Saudi Arabia decided to lift its 35-year ban. More than 350 cinemas could open by 2030, including 30 multiplexes from UK operator Vue International, and more from US-based AMC Entertainment, which has signed a provisional agreement with PIF – Saudi Arabia’s sovereign wealth fund. The first of these new cinemas are likely to be very different from those in the western world, with separate viewing areas for families and single men, as well as strict censorship.
Foreign companies are also keen to tap into the flourishing events scene in Saudi Arabia, which recently hosted its first ever jazz festival. Almost eight million visitors attended 2,200 events in 2017, and this is expected to rise to 15 million visitors across 5,500 events in 2018.
The vast majority of these visitors are local residents and it will take time for Saudi to build its reputation beyond its own borders. “International events enjoy high demand among Saudi Arabia’s young population,” says Alkhateeb. “Yet Saudi’s entertainment and leisure sectors still need time to develop before Saudi is recognised as an international leisure destination.”
Creating an audience closer to home
Much of the development aims to establish Saudi Arabia as a holiday destination among domestic tourists, who are currently drawn to the Middle Eastern hotspots of Dubai and Bahrain. About one million Saudis visited Dubai in 2017 and the Saudi government hopes the entertainment fund will encourage them to spend more of their holidays closer to home, particularly given the added pressure on household spending resulting from the higher cost of living.
Alkhateeb believes it could work: “The shorter term impact will be softer demand for leisure and entertainment in Bahrain and Dubai from Saudi households as entertainment options increase locally.”
Longer-term, Vision 2030 aims to double the share of domestic household spending that goes on Saudi entertainment to six percent by 2030.
Foreign tourists, meanwhile, are being enticed by the relaxation of tourist visa requirements for certain nationalities – and the prospect of more international visitors is fuelling the hotel room pipeline. According to STR, there are more than 64,000 additional guestrooms under development across the kingdom, marking a 76 percent increase in the current room inventory of the 84,500.
Apart from job creation, the focus on entertainment could deliver other economic benefits, Alkhateeb explains. “With more people likely to spend their vacation domestically, retail sales could remain more stable year-round as opposed to the historic trend of sharp declines during the holiday season. Hospitality may witness growth as leisure tourism could offset the decline in corporate demand, which followed the slump in energy prices,” he says.
For investors, the move by the Saudi government offers opportunities in the entertainment, sports and cultural sectors. Alkhateeb says theme parks, opera houses, museums and concert spaces all require a wide range of real estate and architecture expertise through from design to leasing and maintenance.
Yet conditions differ from many other markets. “A lack of local benchmarking and transparency could pose a challenge to investors looking to operate in the kingdom. However, the strong political will to grow Saudi’s entertainment industry means we should see regulations and guidelines become increasingly clearer to support this growth,” he concludes.