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Riyadh and Jeddah's Real Estate Market performance is set to improve as a result of Saudi Vision 2030
Riyadh and Jeddah's Real Estate Market performance is set to improve as a result of Saudi Vision 2030

According to JLL’s Q2-2016 Riyadh and Jeddah Real Estate Overviews

Kingdom of Saudi Arabia, 27, July 2016 – JLL, the world's leading real estate investment and advisory firm, today has released its Q2 2016 Riyadh and Jeddah Real Estate Overview reports assessing the latest trends in the office, residential, retail and hotel sectors. With Saudi Vision 2030 pivotal to the diversification and restructuring of the economy in lieu of decreasing oil prices, this report highlights that both Riyadh and Jeddah continue to maintain an overall slowdown in performance. 

Mr. Jamil Ghaznawi, National Director and Country Head of JLL KSA, commented saying: “We have witnessed a general softening of the residential market this quarter, with a marginal  decline  in both rentals in Riyadh and sale prices in Jeddah. Further delays have been experienced in the completion of projects in Jeddah, despite increased efforts being made to address the shortage of affordable housing. The continuing slump in residential transactions (with sale volumes down a further 5% this quarter) shows the pace of demand growth is certainly now slowing. . Riyadh is braced for an increase of housing supply, bringing the total stock of residential units to over 1 million units, whereas in Jeddah, supply remains stagnant in comparison to last quarter’s findings. However, with the White Land Tax being introduced earlier in June, the future development pipeline is likely to increase, which could  push both  land and housing costs down in 2017 and 2018.”

“In Riyadh, the office market observed  a marginal decrease in rental values in Q2 2016 and will continue to see downward pressure  as new stock enters the market, especially in the King Abdullah Financial District (KAFD) and the Information Technology and Communications Compound (ITCC). Meanwhile in Jeddah, project completions managed to stabilize the office performance rates in Q2. 

“The fluctuation in oil prices throughout the quarter has led to reduced corporate demand and government spending which has negatively impacted the  performance of the hotel sector in both Riyadh and Jeddah.  Hotel occupancies have declined in both markets, with two new hotels opening in Jeddah that have increased competition”. , 

In regards to the retail sector, lease rates in both markets have stabilized over the second quarter and Mr. Jamil commented saying: “The delivery of multiple projects in the coming quarters and slow demand evident by the decline of point of sales transactions in both cities, is likely to keep lease rates stable for the time being. However with Saudi Vision 2030 in place, foreign investment into the Kingdom is likely increase, boosting the  retail sector in Jeddah in particular, over the long term.” 

Even though there is mounting strain on both markets currently, the markets are likely to recover in the foreseeable future as Saudi government ambitiously takes new initiatives to stimulate the country.” 

SECTOR SUMMARY HIGHLIGHTS  – RIYADH:

  • Office: Saudi Vision 2030 is encouraging economic diversification by allowing foreign companies to enter and invest in the Kingdom. Such encouragement will help increase the demand for office space as foreign investors show interest in the Saudi market. However, this change is expected to require time as companies setup their strategy to enter the Saudi market. Also, the demand for office space from these companies is not expected to be significantly large until the economy stabilizes and new rules and regulations are set in place. 
  • Residential: The Ministry of Housing has started implementing the first project to construct 7,000 villas in collaboration with the private sector on a 6.5 million square meters land in the eastern part of Riyadh. East Gate, the project name, will consist  of villas and has a total land size of 316 square meters with a built-up area of 250 square meters. The villas will however be differentiated  by internal and external designs depending on the buyer’s financial capability. Each villa will cost around SAR 640,000 and can be borrowed from the Real Estate Development Fund.
  • Retail: Demand for neighborhood centers is still strong. Vacancy rates within plazas remain low due to its attractiveness for food & beverage, convenience and anchor tenants, especially  supermarkets. Demand, from the aforementioned categories, remains strong as most tenants are still looking to expand to new locations within the capital. The newly introduced regulations associated to foreign ownership have made the Kingdom appealing to retailers, especially with the strong pipeline for quality super regional malls. Riyadh is expected to be a hub for world class super regional malls developed by the top regional shopping centers developers attracting international retailers. 
  • Hotels: More than 8,000 keys could potentially  be handed to the market by the end of 2018. However, substantial delays in delivery are expected as the materialization rate of hotel developments have been relatively low in the past. These delays will soften the impact of new entrants, and decrease the pressure on occupancy and daily rates exerted by new hotels. 

SECTOR SUMMARY HIGHLIGHTS  – JEDDAH:

  • Office: Saudi Vision 2030 was announced in April focusing on economic diversification and attracting foreign investment. This should increase demand for office space in Jeddah over the long run, which has traditionally relied on the construction and government sectors for demand.   
  • Residential:  Increasing the Loan-to-Value Ratio (LVR) from 70% to 85% has yet to spur demand for residential sales as sale prices have continued to fall and demand remains soft. Data from the Ministry of Justice shows a decrease of almost 9% in the number of residential transactions year to May. 
  • Retail: The Council of Ministers approved the relaxation of foreign ownership controls from 75% to 100% of retail businesses in June. This announcement is in line with the Saudi 2030 Vision to increase foreign investment in the Kingdom. The first license, was issued under the new regulations in June to Dow Chemicals. Easier entry should encourage more international retailers to enter the market, which will assist in absorbing the upcoming supply. 
  • Hotels: A significant amount of new supply has opened over the past 18 months, attracted by the strong performance of the Jeddah market.  Most of these new entrants are concentrated in the 5 star category; increasing competition in the upscale segment where product differentiation will become an increasingly crucial success factor.


Posted by : Saudi Arabia,Riyadh, Jeddah, Dammam, Meccca and Medina PR Network Editorial Team
Viewed 9336 times
PR Category : Government, Legal & Humanity
Posted on : Monday, October 3, 2016  10:18:00 PM UAE local time (GMT+4)
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