MIDSCALE MOMENTUM: WHY INVESTORS ARE BETTING ON THE MIDDLE GROUND

Hospitality News ME| AUG – OCT 2025

As travel trends shift, the midscale segment will be driving investment in the coming years

In a region long synonymous with luxury hospitality, a quiet revolution is underway. Midscale hotels – the overlooked middle child of the hospitality industry – are now gaining significant traction across the Middle East and North Africa (MENA) region. As investor sentiment shifts, so does the hospitality landscape, with a growing realisation that mid-market offerings are not only commercially viable but also strategically essential.

The global middle class is projected to reach 1.8 billion travellers by 2030, with 80% likely to choose midscale hotels. Notably, around 300 million middle-class Indians are expected to travel internationally in the next few years, primarily opting for midscale accommodations.

A changing demand landscape

In the Middle East, post-pandemic recovery, changing traveller profiles, and broader economic diversification have led to an uptick in demand for affordable, midscale accommodation. In fact, the mid and upper midscale segments are now outperforming other categories in terms of growth, especially as they attract both leisure and business travellers looking for value without sacrificing quality. In the UAE, the mid and upper mid-scale segment is emerging as the fastest-growing category with a projected growth rate of approximately 6% during 2024-2029.

This shift is being fuelled in part by changing traveller expectations. Today’s guests are more experience-driven, prioritising location, functionality, and convenience over opulence. In this context, midscale hotels offer the perfect balance of affordability and comfort, particularly for millennial and Gen Z travellers, digital nomads and cost-conscious business travellers.

Investor-friendly economics

From an investment perspective, midscale hotels are a compelling proposition. Their lower development and operational costs result in more favourable margins and faster returns on investment (ROI) compared to luxury properties. These assets also tend to be more resilient in economic downturns, as they cater to a broader customer base.

The operating model of midscale hotels is generally leaner, relying on smaller staff-to-room ratios and more standardised services which translates into lower overheads. This efficiency is especially attractive to investors navigating an uncertain global economic environment, where ROI and risk mitigation are paramount.

Furthermore, investors, particularly those who own multiple properties, have the option to engage third-party hotel management companies and affiliate their hotels with various internationally franchised brands. This approach enhances operational efficiency and maximises profitability.

Growth beyond gateway cities

While luxury hotels continue to dominate in primary markets like Dubai, Abu Dhabi and key Saudi cities, the real growth story for midscale hotels is unfolding in secondary and tertiary cities across the region. Locations such as Ras Al Khaimah (RAK), AlUla, and Salalah are experiencing increased tourism interest, supported by government efforts to diversify their economies and spread tourism beyond major hubs.

Investors are increasingly looking at these emerging destinations where land is more affordable, competition is lower, and the regulatory environment is often more supportive of new developments. In Ras Al Khaimah, for instance, tourism authorities are actively courting mid-market hospitality brands as part of their broader strategy to become a year-round tourism destination.

Diversifying the tourism base

A key factor underpinning this trend is the diversification of source markets. While traditional feeder markets like Europe and the GCC remain strong, new markets across Asia and Africa are becoming increasingly relevant. Travellers from these regions tend to seek affordability and value, further reinforcing the demand for midscale offerings.

This broadening of the tourist base aligns perfectly with the mid-market model. The adaptability of mid-market hotels allows them to serve a more diverse clientele, from family vacationers to digital nomads and wellness-focused travellers.

Aligning with modern travel trends

Today’s travellers are not just looking for a place to stay. They’re looking for smart, convenient, and authentic experiences. Midscale hotel brands are becoming increasingly responsive to this demand, integrating digital technologies, sustainability practices, and local cultural elements into their service offerings.

Many midscale operators are embracing a “lifestyle light” model. This includes locally inspired design, community-centric amenities, and curated experiences that resonate with modern sensibilities. Such initiatives not only appeal to today’s travellers but also enhance brand differentiation in a competitive market.

The road ahead: strategic implications for investors

The rise of midscale hotels in the MENA region reflects broader shifts in travel behaviour, economic policy, and investment strategy. For investors, the implications are clear:

Secondary cities are untapped markets with promising ROI potential and lower barriers to entry

Franchising and third-party hotel management agreements in the midscale space are asset light and high impact, offering attractive returns without heavy capital expenditure

A broad customer base insulates midscale assets from demand shocks affecting niche or luxury markets

International operators are actively seeking partners to expand mid-market brands, creating strong alignment between local investors and global hospitality players

As MENA countries push toward more inclusive and diversified tourism strategies, midscale hotels are stepping into the spotlight. They are no longer just the economical option – they’re the strategic one.

For investors seeking resilience, scalability, and alignment with future travel trends, midscale hospitality assets offer a sweet spot that balances opportunity with sustainability. In a region famous for its extravagance, it may just be the midscale segment which will be driving hospitality investment in the coming years.