RIYADH — New, relaxed regulations as well as steps taken to attract multinational companies are likely to positively impact demand for commercial office space in the medium-to-long term, according to JLL’s latest KSA Real Estate Market Performance report.
Earlier this year, the Royal Commission for Riyadh announced a target to attract up to 500 multinational companies to set up their regional headquarters in Riyadh over the next 10 years. This is in addition to the new sponsorship system's announcement, as part of which expatriate workers will be able to have job mobility and the freedom to enter and exit the Kingdom without the need for an employer’s permission.
“Going forward, these initiatives are bound to increase foreign talent, accelerate economic recovery and create more opportunities, setting the Kingdom on a sustainable growth trajectory. We expect to see it positively drive demand in the office sector in the long run,” said Dana Salbak, head of research at JLL MENA.
During the first quarter of 2021, the office sector saw the completion of two corporate office projects in Riyadh, increasing the total stock by around 50,000 sq m to 4.4 million sq m of GLA. Meanwhile, Jeddah saw two smaller, new deliveries keeping the stock stable at 1.1 million sq m.
The residential sector witnessed increased demand in the first quarter of the year backed by strong government support. Residential new mortgage loans for individuals registered a recent historical performance, increasing 33,000 contracts in January 2021.
The total value of mortgages raised to SR16.4 billion, according to the Saudi Arabia Monetary Agency (SAMA). From a supply perspective, the first quarter recorded an increase in construction activity with around 7,700 and 2,000 units handed over in Riyadh and Jeddah, respectively.
Meanwhile, retail rents in Riyadh remained under downward pressure, as average rents for super-regional malls registered annual declines of 9% in Q1 2021. Regional centers dropped at a slower rate of 3% over the same period. Similarly, retail rents in Jeddah recorded an annual decline of 3% for super-regional retail centers and a 1% decrease for regional centers.
Significant retail developments are likely to continue offering tenants incentives to maintain occupancies and attract new retailers to add variety and increase footfall.
In the hotel sector, occupancy levels registered 51% in the year to (YT) February 2021, while Average Daily Rates (ADR) declined to reach $151 in Riyadh. Similarly, Jeddah saw occupancy rates decrease to register 38%. While ADR remained higher than those in Riyadh, revenue per available room (RevPar) in Jeddah registered substantial declines to reach $70 in the YT February 2021.
“The Ministry of Tourism’s recently announced amended regulations to boost tourism accommodation facilities in line with the general strategy to develop national tourism may serve as an opportunity for investors and new market entrants to consider the hospitality sector's significant potential in Saudi Arabia,” Salbak added. — SG
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