SAUDI ARABIA. JLL, the world’s leading real estate investment and advisory firm, today released its third quarter (Q3 2015) Riyadh and Jeddah Real Estate Market Overview reports that asses the latest trends in the office, residential, retail and hotel sectors.
Mr Jamil Ghaznawi, National Director and Country Head of JLL KSA, commented: “The Riyadh real estate market has maintained a steady performance this quarter. The office sector shows signs of stability, attributable to continued demand for existing office space and further delays in the delivery of mega-projects King Abdullah Financial District (KAFD) and the IT and Communications Complex (ITCC). Demand remains strong within the residential sector, particularly as high end residential properties and community developments, such as the Rafal and Damac projects, continue to be active and on track for scheduled completion in 2016 and 2017.
“Additionally, sentiment in the retail market and demand for retail space among international retailers continues to strengthen, in light of the Saudi Arabian General Investment Authority’s (SAGIA) decision to allow 100% foreign ownership of retail and wholesale businesses, as part of national plans to diversify the Kingdom’s economy and attract investment.”
Commenting on the Jeddah market, Mr. Ghaznawi added: “The real estate market in Jeddah shows continued growth momentum. The residential sector saw an increase in both apartment and villa rentals, as buying property remains a difficult option for middle income households. The Ministry of Housing, however, has plans to combat this shortage with the construction of around 15,000 additional units of affordable housing by 2017.
“The office market continues to perform well, as multiple office buildings entered the market during the past quarter. With a steady supply of office space entering the market during the last quarter of 2015 and early 2016, we expect vacancy rates to remain stable and lease rates to increase moderately. “
Sector summary highlights – Riyadh:
⦁ Office: The office market saw no major completions during the third quarter, with the total supply of high quality office space remaining at 2.4 million sq m. An additional 36,000 sq m of high quality office space is expected during Q4, including projects such as Hamad Tower and Nakhla Tower.
Vacancy rates have decreased marginally from last quarter, but remain at 16%, while Central Business District (CBD) vacancies remained at 7%, largely due to continued strong demand and limited new supply. Occupancy levels are expected to improve in the short to medium term as landlords capitalize on the opportunities presented by the delays in delivery of KAFD and ITCC, Riyadh’s most major projects.
⦁ Residential: Approximately 4,000 units were completed during the third quarter, bringing the total supply to 984,000 units. Sale prices for villas and apartments declined in line with a 10% decrease in residential transactions during Q3, driven primarily by the more restrictive mortgage regulation issued in November 2014 and the seasonal nature of market activity during the Holy Month of Ramadan.
Rents continued to increase across the board, as demand remains strong for rental property. The high end residential market continues to see development activity, as the Rafal and Damac projects remain on track for scheduled completions in 2016 and 2017, respectively.
⦁ Retail: The retail sector saw no additional retail completions this quarter, and total supply remains at 1.4 million sq m of high quality office space. An additional 44,000 sq m of high quality space is expected in Q4, including Robeen Plaza and the Boulevard. As the market absorbs this new supply, vacancy rates, which remained stable in Q3 at 8%, are expected to increase marginally over the next 12 to 18 months.
Although retail rentals also remained stable across the board, rents are expected to increase over the next couple of years, as demand remains strong and is further supported by the Government’s decision to allow 100% foreign ownership of retail businesses.
⦁ Hotels: The hotel market experienced marginal growth levels, with occupancy rates increasing slightly by 1% to 60%. Average Daily Rates reached USD 236, a 2% increase compared to the same period in 2014, while RevPAR figures increased by 3% to USD 140 as compared to the same period last year.
The delivery of the Movenpick Hotel during Q3 added 436 rooms, increasing the total supply to 10,500 rooms. Greater than 3,000 rooms are scheduled to enter the market within the next 15 months, including The Crowne Plaza in the IT and Communications Complex (ITCC) and the Millennium Hotel on King Fahd Road, which are expected to be delivered by year end.
Sector summary highlights – Jeddah:
⦁ Office: Additional supply, including S19 and 733 Lotus, continues to enter the market, increasing high quality office space in Jeddah to 856,000 sq m. This marginal increase in office space has kept vacancy rates across the market stable at 7% in Q3, the lowest of any of the major office markets in MENA.
Despite further economic slowdown, driven primarily by declining oil prices, the majority of already announced infrastructure projects are progressing, including the Metro, the most significant project in Jeddah, which is scheduled to be operational in 2020. Such projects are generating continued demand for office space from both public and private sector tenants in the engineering and construction sectors.
⦁ Residential: Residential supply increased steadily this quarter to a total supply of 785,000 units, due to the introduction of 4,000 units. Average sale prices decreased across the board, in line with the 8% decrease in residential unit transactions registered by the Ministry of Justice this quarter as compared to the same quarter in 2014.
Although regulations around the white land tax are not expected to be formally announced before 2016, speculation surrounds the size of the lands that will be taxed and the tax amount, increasing uncertainty in the market and limiting new project launches. The rental market experienced a slight increase over the past quarter, with a Y-o-Y increase of 19.7% and 4.5% for apartments and villas, respectively, and is expected to expand modestly during the remainder of the year.
⦁ Retail: Retail rents in Jeddah increased by 2.7% during the past quarter, while vacancy rates increased to 12%, due to the introduction of newer and higher quality retail centers and the renovation of older centers. The opening of Yasmin Mall in the East of Jeddah, to be delivered in 2016, is expected to divert customers from shopping centers in the Western parts of the city. Although the value of retail sales increased at a slower rate of growth (0.5%) compared to earlier in the year, demand may be stimulated by the Saudi Arabian General Investment Authority’s (SAGIA) announcement to allow 100% foreign ownership of retail and wholesale businesses in the Kingdom.
⦁ Hotels: Hotel openings were limited this quarter as only 112 new rooms were delivered with the opening of the Radisson Blu Plaza and the Ascott Tahlia in the serviced apartment sector. Two more serviced apartment properties and several hotel projects, including the Ritz Carlton, are scheduled to be delivered by year end, although some of these projects’ completion dates might be postponed until 2016. Despite these delays, year to August ADRs are healthy at USD 257, the highest in the region, and occupancy rates remain stable at 76%.
Photo Caption: Mr Jamil Ghaznawi, National Director and Country Head of JLL KSA
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