29 July 2016
JEDDAH: Jones Lang LaSalle (JLL), a major global real estate investment and advisory firm, released its Q2 2016 Riyadh and Jeddah Real Estate Overview reports assessing the latest trends in the office, residential, retail and hotel sectors.

With 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.

Jamil Ghaznawi, national director and country head of JLL KSA, commented: "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." Ghaznawi said: "The continuing slump in residential transactions (with sale volumes down a further 5 percent 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 one 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." He stated: "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." Ghaznawi added: "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, Ghaznawi commented: "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 Vision 2030 in place, foreign investment into the Kingdom is likely to increase, boosting the retail sector in Jeddah in particular, over the long term." Sector summary highlights Riyadh

Office: 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.

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 sqm land in the eastern part of Riyadh. East Gate, the project name, will consist of villas and has a total land size of 316 sqm with a built-up area of 250 sqm.

Retail: Demand for neighborhood centers is still strong. Vacancy rates within plazas remain low due to its attractiveness for F&B, convenience and anchor tenants, especially supermarkets. Demand, from the aforementioned categories, remains strong.

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 has been relatively low in the past.

Sector summary highlights Jeddah

Office: Vision 2030 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 percent to 85 percent has yet to spur demand for residential sales.

Retail: The Council of Ministers approved the relaxation of foreign ownership controls from 75 percent to 100 percent of retail businesses in June. This announcement is in line with Vision 2030 to increase foreign investment in the Kingdom. The first license was issued under the new regulations in June to Dow Chemicals.

Hotels: A significant amount of new supply has opened over the past 18 months, attracted by the strong performance of the Jeddah market.

© Arab News 2016