27 July 2016
According to JLL's Q2-2016 Riyadh and Jeddah Real Estate Overviews

Kingdom of Saudi Arabia - 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.

Riyadh prime rental clock

This diagram illustrates where JLL estimates each prime market is within its individual rental cycle at the end of the relevant quarter.



Link to the report: goo.gl/Rh9tEB

Jeddah prime rental clock

This diagram illustrates where JLL estimates each prime market is within its individual rental cycle at the end of the relevant quarter.

 

Link to the report: http://goo.gl/53qVWk

About JLL
JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6 billion, JLL has more than 280 corporate offices, operates in 80 countries and has a global workforce of approximately 60,000.  On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed$138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management.

JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.

About JLL MENA
Across the Middle East, North and Sub-Saharan Africa, JLL is a leading player in the real estate market and hospitality services market. The firm has worked in 30 Middle Eastern and African countries and has advised clients on real estate, hospitality and infrastructure projects worth over $1 trillion in gross development value. JLL employs over 300 internationally qualified professionals embracing 35different nationalities across its offices in Dubai, Abu Dhabi, Riyadh, Jeddah, Al Khobar and Cairo. Combined with the neighbouring offices in Casablanca, Istanbul, Johannesburg, Lagos and Nairobi, the firm employs more than  1,100 staff and provides comprehensive services in the wider Middle East and African (MEA) region. 
 
Media contacts:
Contact:
Jamil Ghaznawi / Kathryn Athreya
      
Halima Islam
Phone:+966 12 660 2555/+ 971 4 426 6999/ +971 55 985 3382
Email:jamil.ghaznawi@eu.jll.com/kathryn.athreya@eu.jll.com / Halima.islam@fourcommunications.com 

© Press Release 2016