Saudi Arabia's Property Market showing first signs of a post-COVID recovery

Residential mortgage activity increased by 38% in the 12-months to February 2021

  
  • 60% rise in foreign investment licenses between Q4 2019 and Q4 2020;
  • Average daily room rates rise in Jeddah and the Dammam Metropolitan Area.

Saudi Arabia – Knight Frank has released its Q1 2021 Saudi Arabia Real Estate Market Review which highlights an overall improvement in business activity. This is in turn driving an improving outlook for the Kingdom’s real estate market.

Faisal Durrani, Head of Middle East Research at Knight Frank, explained: “Like other global economies, the pandemic has driven a widespread economic slowdown across the Kingdom, however improved business confidence during the closing months of 2020, underpin by economic reforms linked to Vision 2030 and the rapid response to COVID-19 has helped to drive a turnaround in performance in all main segments of the real estate market.”

Office Market

In the Grade A office market, rents experienced fragmented performance in the Kingdom’s three main centres, with rents in Riyadh increasing marginally by 0.5% to SAR 1,465 per sqm during Q1,  while Jeddah, Grade A office rents have continued to decline, falling by 2.8% to SAR 1,008 per sqm. Similarly, in the Dammam Metropolitan Area Grade A office rents edged down by 4.3% to just over SAR 900 per sqm in the first three months of 2021.

Residential Market

The recent decision to exempt real estate transactions from a 15% VAT charge has helped to boost activity in the residential market.

“The overall improvement in business confidence and market sentiment has led to a surge in residential mortgage loans, which rose by 38% in the 12-months to the end of February, which has in turn materialised in the form of a marked increase in residential transactions across the country, with Riyadh and Jeddah experiencing a 25% and 34% increase in deal numbers over the last 12 months. Despite this, the Kingdom’s three main centres have experienced diverging performance in values for apartments and villas”, said Durrani.

Apartment values in Riyadh (4.4%), Jeddah (6.5%) and the Dammam Metropolitan Area (3.2%) all increased to end Q1 at SAR 3450 per sqm, SAR 3950 per sqm and SAR 2,050 per sq m, respectively.

Villas on the other hand experienced price falls across the board. In Riyadh, average villa prices fell by 1.6% to SAR 3750 per sqm. In Jeddah, villa sales prices fell by 6.3% to a little over SAR 5,000 per sqm, while in  villa sales prices fell by 6.3% to SAR 5,023 per sqm, while in the Dammam Metropolitan Area (DMA), villa values declined by almost 8% during Q1, leaving them at around SAR 3,250 per sqm.

Retail Market

In an effort to help increase SME’s share of GDP to 35%, Kafalah, the Saudi SME guarantee program, has to date achieved substantial growth, with close to 10,000 establishments now benefiting from the Kafalah fund in Saudi Arabia. The fund’s guarantees have reached SAR 30 billion in 2020, double its 2019 total, with the wholesale and retail sectors the biggest beneficiaries.

In Riyadh’s retail market, market performance softened in all segments in the year to Q1 2021, with average regional and super-regional mall rents falling by 2.5% to reach approximately SAR 2,700 per sqm, whilst average community mall rents fell by 3.0% during Q1, leaving them just shy of SAR 2,000 per sqm. The market-wide vacancy rate in Riyadh increased by 1% in the year to Q1 2021 to 16%. Despite COVID-19, the average vacancy rate in malls where landlords have adopted digital transformation strategies to redefine consumer experiences and introduced more innovative omnichannel retail experiences, have managed to retain their existing and attract additional demand.

Hospitality Market

Saudi Arabia has the world’s largest hotel construction pipeline and the country’s supply is expected to increase by 61.1% over the next three years, the highest rate among the most 50 populated countries in the world (STR Global).

Durrani added: “The hospitality market has been somewhat of a bright spot. Despite continued weakness in Riyadh, Jeddah and the Dammam Metropolitan Area have experienced strong growth in both average daily room rates, as well as revenue per available room.”

Performance in Riyadh’s hospitality market continued to soften in the year to March 2021, where ADR and average occupancy decreased by 11.6% and 20.2% respectively and as a result, - RevPAR levels fell by 29.4% over this period.

The resumption of the Umrah pilgrimage has underpinned performance in Jeddah’s hospitality market, where in the year to date to March 2021, ADRs grew y-o-y by 18.7%, whilst occupancy decreased marginally by 2.2%. Over this period, RevPAR grew by 16.2%.

Read the full report here - https://bit.ly/2SdWqqM 

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