Dubai, UAE: Saudi Arabia’s GDP is forecast to increase by 2.2% in 2020 according to IMF data. After a slowdown in GDP growth in 2019, where it is expected to register a marginal rate of 0.2%, down from 2.2% in 2018. Whilst the headline GDP growth is significantly below expectations it is important to note this slowdown in growth has largely been driven by output cuts in the oil sector which in the year to Q3 2019 contracted by 6.4%, whereas the non-oil sector over the same period grew by 4.3%.
Office Market
The office market is likely to remain favoured towards occupiers in the year ahead where rents can trend down. However, we are likely to witness a fragmentation in relative performance in key commercial hubs and asset grades. In Riyadh, where strong rates of employment growth are being witnessed we expect the vacancy rates in the Grade A segment to continue to decline at the expense of increased vacancy in the Grade B segment of the market. As additional Grade A stock is delivered we are likely to see a flight to quality. The Dammam Metropolitan Area and Jeddah have, over the course of 2019, both witnessed challenging market conditions driven by a slowdown in the oil sector for the prior and due to relocations of key occupiers in the latter. In these markets, we expect challenging market conditions to continue as occupiers consolidate and as additional supply enters the market. These trends are likely to put sustained pressure on average rents and occupancy rates going forward.
Residential Market
Saudi Arabia’s residential market has been a key point of focus for government initiatives over recent years with a range of regulatory, finance and supply side reforms enacted which aimed to underpin activity in this sector. Over the course of 2019, we have witnessed a marked increase in activity as a result of these reforms. Looking ahead, as these initiatives further take effect alongside the provision of additional affordable residential stock, we expect the volume of the residential transactions to maintain positive momentum. With regards to sales price performance, we expect performance to remain stable in the short to medium term.
Retail Market
As a result of the government’s economic diversification strategies and the drive to boost Saudi nationals’ and female workforce participation rates, we have witnessed growth in disposable incomes, which has in turn underpinned stability in the Saudi Arabian retail sector. Given these improving economic fundamentals, we expect rental rates in regional and super-regional malls to remain stable in the short run across all key commercial hubs. However, Grade B stock is likely to continue softening given the influx of quality retail supply due to come to fruition.
Hospitality Market
As a result of recent easing of tourism visa regulations, where the citizens of 49 countries are now able to apply for e-visas and holders of Schengen, UK or US visas are eligible for visas on arrival, we are likely to witness a marked increase in visitation to the Kingdom which in turn will provide support to its hospitality market. Despite these encouraging developments, we expect muted performance in key performance indicators across major tourism hubs over the short to medium term due to the influx of supply scheduled over this.
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