Riyadh, Jeddah property sectors show strength

Residential performs best among Saudi Arabia real estate sectors, while the Kingdom’s retail and hotel developments also show strength, according to a new report by Jones Lang LaSelle (JLL).
The real estate investment and advisory firm last week released its Q1, 2013 Market Overviews of the Riyadh and Jeddah real estate market report, which examines trends across property sectors in Saudi Arabia’s two largest cities.
The report finds that strong demand in the Riyadh office space market continues to absorb most of the space being delivered. Throughout 2014, JLL expects to see an increase in the availability of vacated second-hand space in the CBD as companies implement their planned moves to new projects in the periphery.
JLL expects that increased vacancy rates and greater choice available to tenants will maintain downward pressure on rental levels during 2013, especially for Grade B properties.
In Jeddah, the office space market continues to see strong demand from both government and private sector tenants, and this has resulted in a reduction in vacancy levels, from 16 percent at the end of 2012 to just 12 percent at the end of Q1. Rents have remained relatively stable across the market and are unlikely to increase during the remainder of 2013 given the significant levels of potential new supply.
“All across Saudi Arabia, demand for housing is being supported by increased levels of credit, employment, assistance and confidence,” said John Harris, co-head of JLL in the Kingdom. “Demand is also strong across the office, retail and hotel sectors in Riyadh and Jeddah, but with distinct demand drivers and unique risks for developers and investors in each city.”
Elsewhere in the capital, the King Abdullah Financial District (KAFD) is poised to complete the first phase of office, residential, and retail space in Q3. The marketing center is now open and formal launch events will be held after Eid Al-Fitr.
Riyadh’s residential sector has experienced increasing average rents and prices for both apartments and villas as supply continues to trail demand. Land prices in peripheral areas have continued to increase, although JLL perceives less speculative pressure than last year.
Meanwhile, in Jeddah villas remain the strongest performing sector of the residential market, with recorded increases in both rents and sale prices during Q1 2013. Conditions in the apartment market remain more stable, with no increase in average price or rents being recorded. There have been no major additions to the retail supply in Jeddah, with most new supply in the form of small projects of less than 100 units.
Jeddah remains one of the best performing hotel markets in the Middle East in 2012. Occupancy levels are now stabilizing with Q1 2013 recording the same occupancy level as Q1, 2012 (78 percent). Average daily room rates and RevPar in Jeddah hotels both recorded an increase of approximately 10 percent between Q1, 2012 and Q1, 2013.
However, there have been no major changes in the Jeddah retail market during Q1. Average rents remain stable, with a marginal increase in super-regional malls being offset by a similar marginal decline in rents for community malls. JLL does not expect any significant change in rental levels in Jeddah over the remainder of 2013.