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Strong demand reinforces Riyadh's real estate market
Published in The Saudi Gazette on 20 - 12 - 2011

Most of Riyadh's real estate market is strengthening, driven by continued interest from the public and private sectors as well as consumer demand, Jones Lang LaSalle said in its latest quarterly review of the Riyadh real estate market which looked at the office, residential, retail and hospitality sectors.
This confident outlook is further enhanced by proactive government initiatives to increase spending on housing, benefits, education and infrastructure.
With favorable demographics and a strong economy, Riyadh's residential sector continues to be the strongest performer in the market. Sale prices and average rentals are expected to rise further in 2012 due to inflation linked to the Government's economic stimulus package which includes the ongoing development of its public housing development program being implemented for Saudi nationals and an anticipated increase in housing allowances for government employees. The current housing stock stands at 876,000 units with another 132,000 additional units expected to be added from now through to the end of 2015. However, most of the supply completed over the last quarter has already been sold leaving very little left on the market for sale.
John Harris, Co-Head of Jones Lang LaSalle Saudi Arabia, said “the consistent performance of the Saudi real estate market stems from the Kingdom's political stability, the growth of its young population and large economic base. With the government's multi-billion riyal stimulus package, there is a renewed drive to increase employment among Saudi nationals and invest in skills development. These economic drivers are encouraging the development of large-scale real estate projects across all sectors which are set to transform the city's business and social environments. Factors such as higher GDP growth, greater oil production and increased bank lending have also contributed to the strong outlook across most real estate sectors.”
Average rentals in Riyadh's office market continue to fall in spite of the strong Saudi economy, largely due to new space coming into the market. Vacancy levels remained generally stable in Q3, with city-wide and CBD vacancies at 12 percent and 16 percent respectively. With an expected 830,000 sq m of future supply, the city's office market may be facing an upcoming supply shock but confidence remains high that most of these developments will eventually transform into new business districts, heralding a completely new form of modern urban environment. With an increase in high quality space, landlords of existing buildings will need to be much more competitive in order to retain or attract tenants. In such a scenario, tenants will be able to trade up from their existing stock, but they may need to consider paying rental rates similar to those in Abu Dhabi or Dubai to take advantage of these new projects.
In Riyadh's retail sector, vacancy levels are bottoming out reflecting a continued trend from the last two quarters. Total mall based retail supply is expected to reach around 1.3 million sq m by the end of 2014, with the completion of a number of small centers and additions to existing malls. With limited future supply of major malls during 2011-14, an upward trend of rentals is expected for in-line stores in major malls. Due to the growth in the national economy, the youth market and correspondingly strong retail sales, there is an increasing demand for good quality and family-oriented malls offering unique shopping and leisure experiences. Interestingly, most rental upswings have been in the larger regional centers, while average rentals remained unchanged in community centers in recent quarters.
Characterized by increasing average daily rates (ADR) and occupancy levels, the Riyadh hotel market continued to be the second best performing sector during the last three quarters. Approximately 1,100 rooms were added to the Riyadh hospitality market in 2011 after stagnant supply growth in the city since 2009. The supply pipeline for Riyadh reflects a robust line up of branded hotels set to enter the city. Notable openings in 2012 include the Marriott Courtyard Makarim, Aloft Riyadh, Hilton Garden Inn Al Muroj and Hilton King Saud University among others. However, delays and cancellations may impact the final delivery of some of the projects in the current pipeline.


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