Dubai, UAE – The Saudi Arabia Industrial Market Review H1 2020 released today by Knight Frank Middle East confirms that the outlook for Saudi Arabia’s industrial, warehousing and logistics sectors is likely to be challenging in the short to medium term. Despite these challenges, the development in regulations and soft and hard infrastructure are set to provide sizeable opportunities for occupiers and investors alike.

Macroeconomic Overview

Saudi Arabia’s GDP is expected to contract by 6.8% in 2020 on the back of strict lockdown measures, the collapse in oil prices and subsequent reductions in production as part of the OPEC+ deal, where non-oil GDP is expected to decline by 4.0% in 2020, according to initial estimates by the IMF.

Sector Overview

In the short term, to help the sector deal with the demand shock of COVID-19, the Saudi Industrial Development Fund (SIDF) has announced several initiatives including the rescheduling of loan payments for small and medium enterprises (SMEs) and medical factories. This will make available new financing products for pharmaceutical and medical supplies producers and revolving lines of credit initiatives to finance operating expenses of qualified SIDF SME clients.

The government has identified the industrial and logistics sector as a key component of its economic diversification strategy where the National Industrial Development Logistic Program (NIDLP) looks to position Saudi Arabia as a leading industrial destination and as a global logistics hub for the mining, energy and logistics sectors.

In an attempt to achieve these objectives, the NIDLP program plans to provide a range of essential enablers, including the provision of financing, development of infrastructure, expansion of the implementation of digitisation procedures, enhancing research, innovation and training and raising the efficiency of available cadres.

These long-term initiatives will be supported by the recent improvement of Saudi Arabia’s soft infrastructure where the ease of doing business ranking has improved from 92nd in 2019 to 62nd in 2020.

Saudi Arabia Industrial Market Overview

The Saudi Arabian industrial and logistics market is divided into two types of industrial developments, first those provided by the Saudi Authority for Industrial Cities and Technology Zones (MODON) and secondly private industrial cities.

MODON currently has 35 industrial cities which are either completed or under development, spanning almost 200 million square metres across Saudi Arabia.

Riyadh industrial manufacturing supply

In Riyadh, around 50 million square metres of land has been earmarked for industrial development, circa 28 million square metres of which has been developed to date.

Areas developed by MODON account for the majority of the developed area, where developments by MODON account for 73% of the total developed area. The remaining 27% of developed land has been developed by the private sector.

Riyadh’s warehouse and logistics supply

Riyadh’s warehouse and logistics supply stands at an estimated 23 million square metres of GLA. The vast majority of existing stock is comprised of developments featuring conventional warehouses such as dry-storage, cold-storage, and open yards.

Jeddah’s industrial manufacturing supply

Jeddah’s four industrial cities have a total of approximately 105 million square metres of land allocated for industrial development. Out of the 105 million square metres of land, approximately 29 million square metres has been developed to date.

Jeddah’s warehouse and logistic supply

Over the last five years, Jeddah’s warehousing and logistics landscape has seen a marked change. One of the most notable changes, which has taken place, has been the relocation of industrial activities from the districts of An Nuzha and Al Jamiah as part of Jeddah Municipality’s regeneration plans for these areas.

Jeddah’s warehousing and logistics supply reached approximately 17.2 million square meters of GLA as at Q1 2020. The Al-Khomra district has the largest share of warehousing and logistics supply in Jeddah. Warehousing and logistics stock in the areas of Al-Khumra North, Central and South districts account for 81 percent of total leasable space. 

Industrial and logistic market performance:

Riyadh and Jeddah’s warehousing and logistics markets have faced similar economic headwinds and structural challenges. As a result, rental rates in Riyadh and Jeddah average have softened by 5.4% and 4.0% in the year to Q1 2020 respectively.

Occupancy in Riyadh’s warehousing and logistics sector decreased by four percentage points in the year to Q1 2020, where occupancy stood at an estimated 90%.

Occupancy in Jeddah’s warehousing and logistics sector increased by three percentage points in the year to Q1 2020, where occupancy stood at an estimated 93%.

Low-quality warehouses are expected to see reduced levels of demand in the coming years, as prospective tenants will more likely demand better designed, sustainable, high-quality premises. The potential growth of e-commerce is expected to become a major driver of change in the logistics sector.

Market Outlook
In the short run, Saud Arabia’s industrial and logistics sectors face some considerable headwinds, namely as a result of COVID-19 and on the back of multiple reforms enacted by the Saudi Government. Given these challenging macroeconomic conditions, we expect that rental rates and occupancy levels will soften over the course of 2020.

Taimur Khan, Associate Partner at Knight Frank Middle East commented: “The outlook for Saudi Arabia’s industrial, warehousing and logistics sector is likely to be challenging in the short to medium term. This trend is likely to be underpinned by lower levels of consumer demand – a trend which is likely to be further exacerbated by the tripling of VAT- amid expectations of a marked downturn in economic activity over the coming year as a result of the COVID-19 pandemic and as a result of multiple reforms enacted by the Saudi Arabian government. New regulations, which may initially pose challenges, are designed for the long-term prosperity of the sector. Given the prosperity nascent nature of the sector in Saudi Arabia, Saudi Arabia’s strategic location and sizeable domestic economy alongside its flexible regulations, the fundamentals underpinning a growing industrial and logistics sector remain strong, despite some of the aforementioned short run challenge.”

Read the report here - https://bit.ly/30IyWMv 

-Ends-

For all media & PR enquiries, please contact:
Thomas Farmer, Thomas.Farmer@me.knightfrank.com 

Knight Frank has grown to become the world’s largest privately owned global property agency and consultancy company and has a strong presence in the Middle East with offices in Dubai, Abu Dhabi, and Saudi Arabia.

Together with its New York-based affiliate Newmark, Knight Frank has an impressive global footprint network across 60 territories, 520+ offices and 21,500 property professionals and as the world’s leading international property consultant, they continue to build on their long-term global presence across the residential and commercial property and service sectors.

For further information about Knight Frank, please visit www.knightfrank.com or www.knightfrank.ae 

Send us your press releases to pressrelease.zawya@refinitiv.com

© Press Release 2020

Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.

The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.

To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.