Riyadh real estate market booming

The real estate market in Riyadh is getting stronger driven by the continued interest from public and private sectors as well as consumer demand, a report said.

This confident outlook is further enhanced by proactive government initiatives to increase spending on housing, benefits, education and infrastructure, stated Jones Lang LaSalle (JLL) in its quarterly review of the Saudi city.

The review covered the office, residential, retail and hospitality sectors of Riyadh in the third quarter.

With favourable demographics and a strong economy, Riyadh’s residential sector continues to be the strongest performer in the market, according to the JLL report.

‘Sale prices and average rentals are expected to rise further in 2012 due to inflation linked to the government’s economic stimulus package which includes the ongoing development of its public housing development programme being implemented for Saudi nationals and an anticipated hike in housing allowances for government employees.’

John Harris, co-head of JLL Saudi Arabia said, ‘The consistent performance of the Saudi real estate market stems from the Kingdom’s political stability, the growth of its young population and large economic base.’

‘With the Government’s multi-billion riyal stimulus package, there is a renewed drive to increase employment among Saudi nationals and invest in skills development,’ he pointed out.

‘These economic drivers, he said, are encouraging the development of large scale real estate projects across all sectors which are set to transform the city’s business and social environments,’ he noted.

According to him, the current housing stock stands at 876,000 units with another 132,000 additional units expected to be added from now through to the end of 2015.

However, most of the supply completed over the last quarter has already been sold leaving very little left on the market for sale, he added.

Average rentals in Riyadh’s office market continue to fall in spite of the strong Saudi economy, largely due to new space coming into the market.

Vacancy levels remained generally stable in Q3, with city-wide and CBD vacancies at 12 per cent and 16 per cent respectively.

With an expected 830,000 sq m of future supply, the city’s office market may be facing an upcoming supply shock but confidence remains high that most of these developments will eventually transform into new business districts, heralding a completely new form of modern urban environment.

With an increase in high quality space, landlords of existing buildings will need to be much more competitive in order to retain or attract tenants.

In such a scenario, tenants will be able to trade up from their existing stock, but they may need to consider paying rental rates similar to those in Abu Dhabi or Dubai to take advantage of these new projects.

In Riyadh’s retail sector vacancy levels are bottoming out reflecting a continued trend from the last two quarters.

Total mall based retail supply is expected to reach around 1.3 million sq m by the end of 2014, with the completion of a number of small centres and additions to existing malls.

With limited future supply of major malls during 2011-14, an upward trend of rentals is expected for in-line stores in major malls.

Due to the growth in the national economy, the youth market and correspondingly strong retail sales, there is an increasing demand for good quality and family-oriented malls offering unique shopping and leisure experiences.

Interestingly, most rental upswings have been in the larger regional centers, while average rentals remained unchanged in community centers in recent quarters.

According to JLL, factors such as higher GDP growth, greater oil production and increased bank lending have also contributed to the strong outlook across most real estate sectors.

On the hotel sector performance, JLL said the Riyadh hotel market continued to be the second best performing sector during the last three quarters characterised by increasing average daily rates (ADR) and occupancy levels.

Approximately 1,100 rooms were added to the Riyadh hospitality market in 2011 after stagnant supply growth in the city since 2009. The supply pipeline for Riyadh reflects a robust line up of branded hotels set to enter the city.

Notable openings in 2012 include the Marriott Courtyard Makarim, Aloft Riyadh, Hilton Garden Inn Al Muroj and Hilton King Saud University amongst others.

However, delays and cancellations may impact the final delivery of some of the projects in the current pipeline, it added.-TradeArabia News Service