Turning a Tourism Target into Hotel Room Demand: A City-Level Worked Example

An illustrative calculation that converts visits into room nights and rooms for one city, then compares the result with supply to show whether new hotels are needed.

National tourism targets, such as 150 million visits by 2030, are expressed in visits. Hotels are built in rooms. Converting one to the other for a single city takes five or six assumptions, each of which changes the answer considerably. The illustrative example below walks through the conversion and then compares the result with existing and planned supply.

The situation

An investor considering a new hotel in a Saudi city wants to estimate how many hotel rooms the city's expected visitors will need, and whether announced supply will already cover it.

Assumptions (illustrative)

• Assumed annual visits to the city: 8,000,000.
• Assumed share of visits involving an overnight stay: 60%.
• Assumed share of overnight visits staying in hotels rather than with family or in private rentals: 50%.
• Assumed average stay: 3 nights, with 1.6 guests per occupied room.
• Assumed target occupancy for a healthy market: 70%.
• Assumed existing supply: 15,000 rooms, plus 4,000 rooms in the announced pipeline.

Step 1: Overnight visits

8,000,000 multiplied by 0.6 equals 4,800,000 overnight visits.

Day trips generate spending but no hotel demand.

Step 2: Hotel visits

4,800,000 multiplied by 0.5 equals 2,400,000 visits staying in hotels.

Many visitors, especially domestic ones, stay with family or in private rentals.

Step 3: Occupied room nights

2,400,000 multiplied by 3 nights equals 7,200,000 guest nights; divided by 1.6 guests per room equals 4,500,000 room nights.

This is the annual demand hotels in the city must absorb.

Step 4: Rooms needed at healthy occupancy

365 multiplied by 0.7 equals 255.5 occupied nights per room per year; 4,500,000 divided by 255.5 equals about 17,613 rooms.

The market could support about 17,600 rooms at 70% occupancy on these assumptions.

Step 5: Comparison with supply

15,000 plus 4,000 equals 19,000 rooms; 19,000 multiplied by 365 equals 6,935,000 available room nights; 4,500,000 divided by 6,935,000 equals about 64.9% occupancy.

Once the pipeline opens, supply exceeds the healthy level by about 1,400 rooms, and average occupancy falls below the 70% target.

What changes the answer

• If the hotel share of overnight visits is 60% instead of 50%, room nights rise to 5,400,000 and the rooms needed to about 21,135, turning the surplus into a shortfall.
• If the average stay is 2.5 nights instead of 3, room nights fall to 3,750,000 and the rooms needed to about 14,677.
• A new event calendar or attraction can change the overnight share quickly.
• Demand is uneven by district and segment, so a citywide surplus can hide a shortage in one segment.

What the numbers tell you

• Room demand is highly sensitive to the share of visitors who stay in hotels and how long they stay.
• The announced pipeline must be part of any feasibility study.
• National targets are a starting point, not an input to a hotel business plan.
• The segment and location of your hotel matter more than the citywide average.

Limits of this example

Every figure above is an illustrative assumption used to show the method, not a quote, valuation or market rate. Costs, rates, fees and regulations change and must be confirmed with the relevant authority, lender or supplier before you commit.

If a Vision 2030 programme or market trend is shaping your investment case, Domira can test it against real land, construction costs and local demand in the city you are considering before you commit capital.