10 October 2015
Jeddah: All sectors of the Jeddah rental market remain in the upswing stage of their cycle, although the pace of growth is declining in some and the residential sector has seen a fall in prices during the third quarter, according to industry consultants JLL said.
The office sector continues to show healthy growth as new supply enters the market at a sustainable pace.
While residential prices have fallen as buying remains unviable for most middle-income households, the residential rental market is holding up, with continued growth in rents recorded during the third quarter.
Retail rents have increased marginally, despite downward pressure on rents in older centers, JLL said in its latest report.
The hotel sector remains one of the best performing in the region, with limited new supply entering the market, according to JLL.
Office Market: The report said that several small scale office buildings have entered the market over the last quarter including S19 and 733 Lotus. This has increased total office GLA in Jeddah to 856,000 square meters.
The limited increase in office space has kept vacancy rates across the market relatively stable at 7 percent in Q3 2015, the lowest of any of the major office markets in MENA.
Q-o-Q lease rates have remained virtually unchanged while Y-o-Y have increased by 5.8 percent.
Much of the supply scheduled to enter the market over the last quarter of 2015 is expected to be delayed into 2016, which will likely keep vacancy rates stable over the next quarter.
Projects on Course: Despite the economic slowdown in Saudi Arabia, fueled by declining oil prices, most of the already committed infrastructure projects in Jeddah are going ahead.
Work is continuing on the Metro (the most significant project in Jeddah), which is still scheduled to be operational in 2020. This is generating continued demand for office space from both Government and private sector tenants in the engineering and construction sectors.
Assuming market conditions remain stable and supply continues to enter the market at a sustainable pace, lease rates are expected to continue to grow moderately during 2016, stated the JLL report.
Middle Income Households: The rental sector for both villas and apartments has outperformed the sales sector as buying remains an unviable option for middle income households.
The increase in rents over the last quarter have been modest but have increased Y-o-Y by 19.7 percent and 4.5 percent for apartments and villas respectively. Rentals are expected to continue to increase modestly over the rest of 2015.
Sales prices have decreased across the board with Q-o-Q prices decreasing by 4.8 percent and 1.1 percent while Y-o-Y prices have decreased by 3.7 percent and 4.7 percent for apartments villas respectively.
This is in line with the 8 percent decrease in residential unit transactions registered by the Ministry of Justice over the last quarter compared to the same quarter in 2014.
The supply of units has increased by around 4,000 units, bringing the total to 785,000.
White Land Tax: Falling sale prices and speculation surrounding the new white land tax has increased uncertainty and resulted in few new project launches in recent months.
The regulations around the white land tax are not expected to be announced before 2016, but some speculation has begun to circulate on the size of the lands that will be taxed and the tax amount.
The Saudi Arabian Real Estate Development Fund has reduced the minimum area for apartments eligible for purchase through their financing programs to 175 sq m inclusive of common areas. This could stimulate further demand for smaller projects.
JLL's latest report "Progress & Priorities: Middles-Income Housing in the Middle East and North Africa", discussed shortage of affordable housing in Saudi Arabia.
The Ministry of Housing is responding to this need, with plans to construct around 15,000 additional units by 2017, with a further 15,500 under planning.
Retail Market: Overall retail rents in Jeddah increased by 2.7 percent in the third quarter. Over the past year, rents for regional malls have increased by 5.7 percent, while super regional rents declined marginally (-1.5 percent).
Vacancy rates have increased to 12 percent in Q3 2015 compared to 8 percent in Q3 2014, due to tenants upgrading to newer and higher quality retail centers, resulting in higher vacancy rates in older stock. Some older centers are undergoing renovation, which is changing the composition of the supply entering the market which has traditionally been from new malls.
The value of retail sales increased marginally (0.5 percent) during Q3, a much slower rate of growth than earlier in 2015. Future demand may however be stimulated by Saudi Arabian General Investment Authority's (SAGIA) recent announcement to allow 100 percent foreign ownership of retail and wholesale businesses in Saudi Arabia.
New Malls: The opening of Yasmin Mall, expected in 2016, located in the East of Jeddah on the Haramain Highway is expected to divert footfall from shopping centers in the Western parts of the city that have traditionally served the previously under provided Eastern suburbs.
This trend will be further reinforced if the retail mall being planned as part of the Tahiya Gate development (by Sondos Real Estate) on the Haramain Highway proceeds.
This project will further divert demand from the surrounding areas away from existing shopping centers located in the West of Jeddah.
Hotel Market: Summer months are usually quiet in terms of hotel openings, which was the case in Jeddah this year. The only notable hotel opening was the Radisson Blu Plaza with its 112 rooms and the Ascott Tahlia in the serviced apartment sector.
Despite its minimal impact on the total quality supply, which now stands at 8,600 keys, the opening of the Radisson Blu Plaza is significant in that it is one of the first projects announced in the last few years to open, defying the construction delays that have plagued so many announced projects across the city.
Jeddah's performances remain healthy with YT August ADR at $257, the highest in the region, with occupancy rates at a healthy 76 percent in YT August 2015, said the JLL report.
Branded Properties: Despite the increased popularity of serviced apartments in Saudi, there has been very limited supply of internationally branded properties in Jeddah to date. The opening of the Ascott Tahlia, and two more properties expected to open in Q4 2015 under the Ascott and Citadines brands, marks the start of an upward trend in the supply of quality, branded serviced apartments in Jeddah.
Several hotel projects are also scheduled to open by the end of 2015, one of the most notable being the Ritz Carlton. Further delays are however expected to result in many of these projects postponing their openings until 2016.
Jeddah: All sectors of the Jeddah rental market remain in the upswing stage of their cycle, although the pace of growth is declining in some and the residential sector has seen a fall in prices during the third quarter, according to industry consultants JLL said.
The office sector continues to show healthy growth as new supply enters the market at a sustainable pace.
While residential prices have fallen as buying remains unviable for most middle-income households, the residential rental market is holding up, with continued growth in rents recorded during the third quarter.
Retail rents have increased marginally, despite downward pressure on rents in older centers, JLL said in its latest report.
The hotel sector remains one of the best performing in the region, with limited new supply entering the market, according to JLL.
Office Market: The report said that several small scale office buildings have entered the market over the last quarter including S19 and 733 Lotus. This has increased total office GLA in Jeddah to 856,000 square meters.
The limited increase in office space has kept vacancy rates across the market relatively stable at 7 percent in Q3 2015, the lowest of any of the major office markets in MENA.
Q-o-Q lease rates have remained virtually unchanged while Y-o-Y have increased by 5.8 percent.
Much of the supply scheduled to enter the market over the last quarter of 2015 is expected to be delayed into 2016, which will likely keep vacancy rates stable over the next quarter.
Projects on Course: Despite the economic slowdown in Saudi Arabia, fueled by declining oil prices, most of the already committed infrastructure projects in Jeddah are going ahead.
Work is continuing on the Metro (the most significant project in Jeddah), which is still scheduled to be operational in 2020. This is generating continued demand for office space from both Government and private sector tenants in the engineering and construction sectors.
Assuming market conditions remain stable and supply continues to enter the market at a sustainable pace, lease rates are expected to continue to grow moderately during 2016, stated the JLL report.
Middle Income Households: The rental sector for both villas and apartments has outperformed the sales sector as buying remains an unviable option for middle income households.
The increase in rents over the last quarter have been modest but have increased Y-o-Y by 19.7 percent and 4.5 percent for apartments and villas respectively. Rentals are expected to continue to increase modestly over the rest of 2015.
Sales prices have decreased across the board with Q-o-Q prices decreasing by 4.8 percent and 1.1 percent while Y-o-Y prices have decreased by 3.7 percent and 4.7 percent for apartments villas respectively.
This is in line with the 8 percent decrease in residential unit transactions registered by the Ministry of Justice over the last quarter compared to the same quarter in 2014.
The supply of units has increased by around 4,000 units, bringing the total to 785,000.
White Land Tax: Falling sale prices and speculation surrounding the new white land tax has increased uncertainty and resulted in few new project launches in recent months.
The regulations around the white land tax are not expected to be announced before 2016, but some speculation has begun to circulate on the size of the lands that will be taxed and the tax amount.
The Saudi Arabian Real Estate Development Fund has reduced the minimum area for apartments eligible for purchase through their financing programs to 175 sq m inclusive of common areas. This could stimulate further demand for smaller projects.
JLL's latest report "Progress & Priorities: Middles-Income Housing in the Middle East and North Africa", discussed shortage of affordable housing in Saudi Arabia.
The Ministry of Housing is responding to this need, with plans to construct around 15,000 additional units by 2017, with a further 15,500 under planning.
Retail Market: Overall retail rents in Jeddah increased by 2.7 percent in the third quarter. Over the past year, rents for regional malls have increased by 5.7 percent, while super regional rents declined marginally (-1.5 percent).
Vacancy rates have increased to 12 percent in Q3 2015 compared to 8 percent in Q3 2014, due to tenants upgrading to newer and higher quality retail centers, resulting in higher vacancy rates in older stock. Some older centers are undergoing renovation, which is changing the composition of the supply entering the market which has traditionally been from new malls.
The value of retail sales increased marginally (0.5 percent) during Q3, a much slower rate of growth than earlier in 2015. Future demand may however be stimulated by Saudi Arabian General Investment Authority's (SAGIA) recent announcement to allow 100 percent foreign ownership of retail and wholesale businesses in Saudi Arabia.
New Malls: The opening of Yasmin Mall, expected in 2016, located in the East of Jeddah on the Haramain Highway is expected to divert footfall from shopping centers in the Western parts of the city that have traditionally served the previously under provided Eastern suburbs.
This trend will be further reinforced if the retail mall being planned as part of the Tahiya Gate development (by Sondos Real Estate) on the Haramain Highway proceeds.
This project will further divert demand from the surrounding areas away from existing shopping centers located in the West of Jeddah.
Hotel Market: Summer months are usually quiet in terms of hotel openings, which was the case in Jeddah this year. The only notable hotel opening was the Radisson Blu Plaza with its 112 rooms and the Ascott Tahlia in the serviced apartment sector.
Despite its minimal impact on the total quality supply, which now stands at 8,600 keys, the opening of the Radisson Blu Plaza is significant in that it is one of the first projects announced in the last few years to open, defying the construction delays that have plagued so many announced projects across the city.
Jeddah's performances remain healthy with YT August ADR at $257, the highest in the region, with occupancy rates at a healthy 76 percent in YT August 2015, said the JLL report.
Branded Properties: Despite the increased popularity of serviced apartments in Saudi, there has been very limited supply of internationally branded properties in Jeddah to date. The opening of the Ascott Tahlia, and two more properties expected to open in Q4 2015 under the Ascott and Citadines brands, marks the start of an upward trend in the supply of quality, branded serviced apartments in Jeddah.
Several hotel projects are also scheduled to open by the end of 2015, one of the most notable being the Ritz Carlton. Further delays are however expected to result in many of these projects postponing their openings until 2016.
© Arab News 2015
