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A quarterly review of the residential, office, retailand hospitality markets across Saudi ArabiaSaudi ArabiaReal EstateMarket ReviewQ2 2021
S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1OFFICE MARKETR I YA D HJEDDAHDMARiyadh's office market continues toJeddah'sRentalexperienceperformance.remained relatively subdued in the yearMetropolitan Area's (DMA) office marketAverage Grade A rents increased byto Q2 2021, with Grade A rents fallingcontinued to soften, with Grade A and1.5% over the last 12 months, whilemarginally by 0.8%.Grade B rents declining by 1.7% and 2.5%,Grade B rents experienced declines ofdeclined by 1.6% over the same period.fragmentedofficemarketperformanceGrade B rentsMarket Performance IndicatorsKey trendsGrade A and B rental rates and YoY % change as at Q2 2021performanceinrespectively, over the last 12 months.1.1% over the same period. The relativeoutperformance of Grade A offices canLike in many other markets around theSupply, however, continues to trickle onyears. The unemployment rate for Saudibe attributed to a marked increase in theworld, the pandemic is driving a rethinkto the market. Q2 saw the completioncitizens fell to 11.7% in Q1, down fromnumber of licences granted to foreignin occupational strategies, keeping officeof Joaib Tower and Deim Commercial12.6% at the end of last year.investors wishing to set up businessesdemand muted. Indeed, some businessesCentre,in the Kingdom. Indeed, the numberhaveoffice22,600 sqm of space to the city's supply.Several factors have contributed toforeign investment licenses issued havefootprints, not necessarily in response toThese additions bring the total officethis; primarily the government's rapidalmost doubled from about 700 in 2018emerging hybrid working patterns, butstock to 1.3 million sqm. By 2023 totalresponse to COVID-19 and economicto nearly 1300 last year, suggesting thatmore due to the need to contain costs.stock is expected to grow to 1.5 millionreformsnot only is office demand being created,This cost-conscious behaviour is alsosqm.2030, which have led to an overallbut it is also being sustained.manifesting itself in the form of a rise inFurthermore, we have also seen qmSAR/sqmSAR/sqmSAR/sqmSAR/sqmSAR/sqmGrade AGrade BGrade AGrade BGrade AGrade emmingfromVisionOver the next 12 months we expect theshorter leases.office market in DMA to remain underIn addition, an increase in femalepressure. Rents and occupancy rates areparticipation in the workforce, which-1.6%Y-o-YY-o-YY-o-YY-o-YGrade A and B vacancy as at Q2 2021improvement in business conditions.requests for flexible payment plans anduptick in office requirements from newlyDMASaudi Arabia's unemployment rate hasdropped to its lowest level in almost 30%28%41%created public sector companies. InSupply however continues to grow, withlikely to soften further as supply outstripsrose to 33.6% from 32.1% in Q1, hasgeneral, demand is expected to continuethe MASIC Business Centre and Nagydemand. In the long term, however, wehelped to lift overall employment levels.rising as government driven economicTower adding 25,000 sqm of new spacesee demand for office space picking upreforms spur renewed confidence andto the city’s stock in Q2, taking the totalas economic reforms drive job creation1 pp-2 pp-1 pp-2 pp-1pp-2 pphasten business growth.to 1.3 million sqm. By 2023, this figure isrates and inward investment, spurringY-o-YY-o-YY-o-YY-o-YY-o-YY-o-Yexpected to rise to 1.8 million sqm.office space demand.On the supply front, the completionGrade A Officeof a small office development alongKing Fahad Road added approximatelyVacancyOccupancyGrade B OfficeEvolution of office supply9,000 sqm to the city’s supply. Thisminor addition left the total office stockrelatively unchanged at 4.2 million sqm.Riyadh4,227Total office space is expected to reach 5.3million sqm by the end of 2023.1,290JeddahDMA1,254200500800Q2 20211,100 1,400 1,7002021f2022fSource: Knight Frank22,00032,3002,600 2,9002023f3,2003,5003,8004,1004,4004,700 5,0005,300 5,600sqm (thousands)
S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1RESIDENTIAL MARKETKey trendsR I YA D HJEDDAHDMAThe residential sector has been a key areaIn the Red Sea coastal city of Jeddah, theMirroring the trend in Jeddah, averageof focus for the government in recentresidential market appears to be a story ofapartment prices in DMA increased byyears, with attention primarily centredtwo halves: apartment prices have risen4.6% in the year to Q2 2021, whereason boosting home ownership levelsby 5.9% over the last 12 months, whileaverage villa prices fell by 4.1% over theIn the year to the end of Q2, residentialand providing higher quality housingvilla prices have declined by 2% oversame period. Like Jeddah, affordabilitysales volumes across Saudi Arabiaoptions and the efforts are paying off.the same period. The drop in villa pricesissues are growing in DMA, with averagesurged by 26%, with the total valueThe mortgage market has boomed andhighlights the rising affordability issues,villa prices standing at 6 times annualof residential transactions increasingthe delivery of affordable residentialwith the average income multiplier forincomes, compared to 2.8 times annualby 2% over the same period. Aroundunits through the Sakani Program hasvillas standing at 12.4, compared to 4.8incomes for apartments.58,000 residential transactions wereunderpinned the market’s buoyancy.for apartments. And this disparity looksUnsurprisingly, apartment and villa saleset to widen, particularly given theUnlikeprices have increased by 7.6 % and 4.7%,lack of suitable supply aimed at mid-transactionrespectively, over the last 12 months anddemand for housing continues to rise.inKingdom,deals during the same period last year.slippedThe government's continued efforts totier buyers, which is fuelling a supply-in DMA, falling by 8% over the lastwiden the mortgage market, combineddemand imbalance.12 months, while the total value ofwith the delivery of large affordabletransactions decreased by 12% over thehousing schemes through the SakanivolumesthehaveOn the transactions front, the totalResidential transaction volumes andsame period. The rising affordabilityProgram have fostered a remarkablynumber of homes sold has increased byvalues in Jeddah increased by 44% andchallenge, combined with a lack ofresilient residential landscape.77% in the 12 months to June, while the13% respectively in the year to June; asuitable supply for middle and lower tiertotal value of transactions has growntrend driven by a notable increase in thebuyers, is contributing to slowing salesIndeed, the value of real estate loansby 34% over the same period.uptake of mortgages provided by banksactivity.provided by Saudi banks increasedThegovernment’s continued focus on theand financial institutions.sector is also delivering a far more activedevelopmentmarket,withVilla & apartment sales prices and YoY % change as at Q2 2021JeddahRiyadhrecorded in Q2, compared to 47,000elsewhereMarket Performance VillaYoY % change in the volume and value of residential transactions as at Q2 lumeby 10.8% to reach SAR 474.5 billionAs at the end of Q2, DMA's housing stockin Q1, with new mortgage loans for100,000Jeddah's housing stock is expected tostood at about 338,000 units. 20,000individuals accounting for 75.4% ofhomes expected to complete by the endgrow by just 35,000 units by the end ofunits are due to complete by the endthe total. According to data from theof 2023, taking the total housing stock in2023, taking the total number of homesof 2023, most of which are expectedSaudi Central Bank, around 90,000the capital to 1.4 million units.to over 890,000.to be better quality apartments andnew mortgage contracts were issued intownhouses.Q1 2021, with a total value of SAR 46.7billion, up 50% from Q1 2020.A view of RiyadhValue 13%Value-12% Evolution of residential supplyAround 17,500 new mortgages worthSAR 7.5 billion were issued in June alone,up 13.3% from June 2020. 80% werelinked to villa or townhouse purchases,with the rest granted to purchaseapartments and residential land plots.This is perhaps unsurprising given thatvillas are, on average, more than 8009001,0001,1001,2001,3001,4001,500times as expensive as apartments acrossthe country.Q2 20212021f2022fSource: Knight Frank452023funits (thousands)
S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1RETAIL MARKETR I YA D HJEDDAHDMAAverage regional and super-regionalLike Riyadh, rents in Jeddah's retailMirroringmall lease rates registered a decline of 1%market faltered during Q2, with averagein the Kingdom, DMA's retail marketacross the Saudi capital in the 12 monthsregional and super-regional mall rentsexperienced rental declines of 2.7% andto the end of June. Community mallsfalling by 1.5% in the 12 months to the1.7% in community malls and regional(-1.5%) too have seen rents softening.end of Q2. Community mall rents fell byand super-regional malls, respectively,Repeated lockdowns and border closures2.8% over the same period.over the last 12 months.retailers’ appetite to expand or take newThe market-wide vacancy rate in JeddahDespite there being no major newspace has remained subdued as a result.rose to 15% in the year to Q2. The risingadditions of stock, the vacancy ratevacancy rate was in large part drivenacross DMA crept up by 2% as retailerscontinuesby the completion of Wow Square andcontinue to right size operations toto be delivered to the market, furtherCrystal Mall, which together addedmatch the much-reduced footfall as adampeningotherRetail market lease rates as at Q2 2021marketselsewherehave taken their toll on footfall andFurthermore,newthesupplyprospectsforaaround 23,000 sqm of new space, takingresult of the pandemic. Total retail stockreturn to growth in rents. The mostthe total formal retail stock to almost 2currently stands at about 1.2 million sqm.noteworthy completions this quartermillion sqm.By 2023, this figure is expected to reach1.6 million sqm.were Park Avenue and the extensionof Nakheel Mall, which together addedBy the end of 2023, this is expected to riseapproximately 100,000 sqm to the city’sby almost 30% to 2.7 million sqm, whichIn the short term, we expect lease ratesretail stock, taking the total to 3 millionis likely to keep rental growth suppressed.and occupancy levels of regional andsqm.Market Performance IndicatorsKey trendssuper-regional malls to demonstrategreater stability as no major schemesWhile demand for new space fromare due to be delivered over the next 12retailers has been mute, /sqm-1.5%-2.8%-1.7%-2.7%According to the Saudi Central Bank(SAMA), consumer spending in SaudiArabia increased by 2.1%, to around SAR261 billion in Q1, compared to SAR 256-1.0%billion over the same period last year.-1.5%Y-o-YY-o-YY-o-YY-o-YY-o-YY-o-YThe food & beverages sector hasenjoyed the most significant boost, withRegional/Super-Regional mallspending surging by 35% to SAR 17.4Community mallbillion, while spending in restaurantsand cafes alone rose by 59% over theRetail occupancy ratessame period.17%in part to the slight easing of lockdownrestrictions,whichboostedJeddahRiyadhThis relative outperformance is linkedfootfallQ22021Q22020across the Kingdom’s food and beverageoutlets.13%18%Q22020-1 pp8%15%10%Q22021Q22020Q22021-2ppY-o-YY-o-Yhave taken note of changing attitudesDMA-2 ppY-o-Yand expectations from consumers, withthe majority of new supply focussingdevelopments, where placemaking isEvolution of retail supplycentral. In general, we expect rents toremain supressed, particularly as newOnline retailing continues to boom incompletionsaccelerate.Saudi Arabia, chipping away at demandIn fact, some 700,000 sqm of retailfor new bricks and mortar stores. Acrossspace is due to complete by 2023.the country, e-commerce sales increasedlooksettoVacancyOccupancyon lifestyle or experience-based retail3,004Riyadh1,999by 28% to reach a record SAR 22.5 billionJeddahin 2020. Saudi Arabia’s e-commercemarket is forecast to grow at a CAGR ofDMA1,1577% between 2020-2024 (Statista).200500Q2 20218001,100 1,4002021f2022fSource: Knight Frank671,7002,0002023f2,3002,600 2,9003,2003,5003,800 4,1004,400sqm (thousands)
S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1HOSPITALIT Y MARKETMarket Performance IndicatorsKey trendsR I YA D HJEDDAHAverage daily rates (ADR) and averageJeddah’shasIn the year to May 2021, averageoccupancy levels have continued tooutperformed the rest of the country foroccupancy in DMA remained relativelyslip, dropping by 3.3% and 18.4%,a number of reasons. The principal driverstable at c.50%, while ADR grew y-o-y byrespectively, in the year to May 2021. Ashas been the resumption of the Umrah8.3%. Over this period, RevPAR increasedAccording to World Travel and Tourisma result, market-wide RevPAR levels fellpilgrimage, the recent Eid holidays andby 7.4%. Performance in DMA has beenCouncil, Saudi Arabia advanced to 16thby 21% over this period to SAR 254. Theincreased summer domestic tourism,driven by Al Khobar, where RevPARplace in the global ranking of the largestfaltering performance is largely due tostemming from various internationalincreased by 16.7% y-o-y, whereas inTravel and Tourism Economies in 2020,the significant reduction in corporatetravel restrictions. As a result, in the yearDammam, over the same period, we havefrom 17th place a year earlier. Sauditourism in Riyadh due to Covid-linkedto May 2021, ADR grew y-o-y by 32.5% toseen RevPAR fall by 33.7%. Al Khobar’sArabia's progress in the ranking of top 20travel restrictions.SAR 722, while occupancy increased byperformance has been underpinned bycountries comes from the government’shospitalitymarketDMAKPIs - ADR, Occupancy and RevPAR - Y-o-Y % change YTD May 2021Riyadha fifth to nearly 49%. Over this period,the appeal of its beach resorts to domesticambitious strategy to transform theIn the short term corporate demandRevPAR grew by a substantive 60% totourists who have sought out staycationtourism sector and establish a vibrantfor hospitality in Riyadh is expected toSAR 352.options in the Kingdom due to Covid-entertainment and tourism industry.linked international travel restrictions.This is expected to be realised throughremain subdued. In addition, with supplydue to increase by 27%, or 4,800 rooms,Total quality hotel supply in Jeddahby 2023, we expect sustained downwardstood at 13,230 rooms as at the end ofDMA currently has 11,800 quality hotelthe Red Sea coast, Amaala, NEOM,pressure on both occupancy and ADR.May 2021. Taking into considerationrooms. This figure is expected to increaseAlUla and Diriyah Gate. Together, theseTotal quality hotel supply in Riyadhonly projects that have broken ground,by almost a fifth (18%) by the end of 2023schemes will add around 70,000 hotelcurrently stands at about 17,700 rooms.supply is expected to increase by 64% byto 13,800 rooms.rooms to the Kingdom, spread 0.1%RevPAR7.4%Existing quality hotel supply market segmentation YTD May 2021mega tourism projects in Qiddiya, alongthe end of 2023 to 20,600 rooms, higherdevelopments worth USD545 billion, allthan Riyadh and DMA combined.to be completed by 2030.Ritz Carlton, RiyadhRiyadhJeddah13% ately, the Saudi Cruise Company,UpscaleUpper UpscaleUpscaleUpper UpscaleUpscaleUpper Upscalelaunched in January 2021 by the vestment Fund (PIF), has recentlyUpper MidscaleUpper MidscaleUpper Midscaleinaugurated its first cruise ship terminalat Jeddah Islamic Port, with a capacityof 2,500 passengers. The Saudi CruiseCompany expects to create 50,000 jobsin the sector by 2025, with 1.5 millioncruise visitors annually forecast by ingoftheExisting and upcoming quality hotel supplyRiyadhJeddahDMA17,708 keys13,230 keys11,820 keysExisting SupplyExisting SupplyExisting Supply 27% 64% 18%Increase insupply until 2023Increase insupply until 2023Increase insupply until 2023country’s borders to fully vaccinatedtourists from 49 countries (mainlythe EU, US and UK), after a 17-monthclosure. Clearly, this change will gosome way in aiding the recovery of thetourism sector.8Source: Knight Frank, STR Global9
S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1S A U D I A R A B I A R E A L E S TAT E R E V I E W Q 2 2 0 2 1KEY CONTACTSMACROECONOMIC OUTLOOKAccording to the General Authoritythe centre of Saudi Arabia’s Visionlast year. The Q1 reading of private sectorfor Statistics, Saudi Arabia's real GDP2030 and the reforms launched tocontribution to Saudi GDP is now at thecontracted by 3.3% year-on-year as atbolsterhighest level in over 10 years.the end of Q1. This sharp decline wasbeing felt widely across the economy.underpinned by a substantial fall inIndeed, the latest private sector PMILooking ahead, the IMF forecasts a returnhydrocarbon sector activity, which fellreading for the Kingdom stood at 55.8to growth for the Kingdom’s economy.by 12% due to crude oil production cutsin July, representing the 11th monthThe region’s largest economy is expectedagreed by OPEC in May 2020. However,ofexpansion and business growth.to see GDP growth of 2.1% in 2021, downthe non-oil sector registered growth ofAccording to the General Departmentfrom the 2.9% predicted in April 20213.3% over the same period.ofdue to the lingering global impact of thetheareprivatealreadysector’scontribution to GDP rose to over 44% inThe non-oil and private sectors are atpandemic.Q1, compared to 41% at the same timeKing Abdullah Financial District, RiyadhStephen Flanagan, MRICSPartnerHead of Valuation & Advisory, MENA 966 55 8866 480Stephen.Flanagan@me.knightfrank.comAmar HussainData ManagerMEA Research 966 55 2323 036Amar.Hussain@me.knightfrank.comShehzad JamalPartnerHealthcare & Education 971 56 4101 298Shehzad.Jamal@me.knightfrank.comAli ManzoorPartnerHospitality & Leisure 971 56 4202 314Ali.Manzoor@me.knightfrank.comAbdullah M AlsayeghManagerReal Estate Strategy & Consulting 966 55 2323 660Abdullah.Alsayegh@me.knightfrank.comYazeed HijaziManagerReal Estate Strategy & Consulting 966 54 525 4794Yazeed.Hijazi@me.knightfrank.comRECENT MARKET LEADING PUBLICATIONSAbu reviewDhabi ofOfficeMarket.A biannualkey trendsandReviewthe performanceofSummer 2021Abu Dhabi’soffice marketDubaiOfficeMarketReview. performance ofA biannualreviewof keytrendsand theDubai’sSummer 2021office marketSAUDI ARABIAREAL ESTATEMARKET REVIEWDubai OfficeMarket ReviewAbu Dhabi OfficeMarket Reviewwww.knightfrank.aeStatistics,sectorsFaisal DurraniHead of Middle East Research 971 4 4267 k.aetheseHarmen De JongPartnerReal Estate Strategy & Consulting 966 56 3045 356Harmen.DeJong@me.knightfrank.comSummer 2021Summer 2021Q1 2021(Y)OURSPACEDISCOVER YOUR NEW WORLD OF WORKSaudi Arabia Real EstateDubai Office MarketAbu Dhabi Office MarketMarket Review Q1 2021Review Summer 2021Review Summer 2021(Y)OUR SPACEOur research reports are available 11@KnightFrankMiddleEast
DMA Rental performance in Dammam Metropolitan Area's (DMA) office market continued to soften, with Grade A and . 200 500 800 1,100 1,400 1,700 2,000 2,300 2,600 2,900 3,200 3,500 3,800 4,100 4,400 4,700 5,000 5,300 5,600 Riyadh Jeddah DMA Riyadh Jeddah DMA 4,227 1,290 1,254 Q2 2021 2021f 2022f 2023f Market Performance Indicators Key trends.
