Demand has remained robust for apartments and small-sized villas in Riyadh, while sale prices of apartments and villas were subdued in 2015, KPMG Saudi Arabia, the world's leading audit and advisory firm, said recently in its comprehensive study "Riyadh Real Estate Market Overview" which highlighted the economic and demographic trends in Riyadh's residential, retail, office and hospitality sectors. The report noted that waiting period in residential compounds ranged between two to six months, with the highest waiting period being in class B compounds. On the occupancy front, market wide figures touched 87 per cent with steady increase of 3-5 per cent year on year over the past three years. Meanwhile, the overall future outlook of Riyadh's residential sector would remain positive, as approximately 3,500 units are expected to enter the market in the next 3-4 years. It is anticipated that majority of the supply will be targeting the rental housing segment. The report also highlighted that the recently announced white land tax on undeveloped residential and commercial urban land would free up developable land and boost tax collection. In addition, it is also anticipated that property prices may witness some correction in line with their fair values. Focusing on the retail sector, the report indicated that current retail mall stock stands at approximately 1.5 million square meters. The sector also experienced marginal growth of 2% in rentals and occupancies compared to 2014 as the market went through a consolidation phase during this period. The report also highlighted that the average rental across the city ranged between SR1,800 to SR3,000 per square meter and average market wide occupancy was recorded at 95%. Moreover, the demand for retail space in Riyadh is likely to remain healthy in the next 2 to 3 years despite the sector having the likelihood of an additional supply of more than 1 million square meters. Moving forward rentals and occupancies are likely to remain steady. It is also believed that few of the announced projects are likely to get delayed given the current investor sentiment in Saudi economy and the budget cuts from the government. Despite the existing over-supply condition, office market is about to witness an additional supply of approximately 1.3 million square meters within the next 2 – 3 years, the KPMG report said. Rentals and occupancies have remained stable in Central Business District (CBD) over the past year; however, office buildings located on secondary locations experienced weakening rentals and increasing vacancy rates. A correction and cautious phase will persist for office market in short to medium term. The demand for office space in coming years, meanwhile, would be slower economic growth due to the recent decline in oil prices and its continuing anticipated volatility (for remaining part of the year) is expected to impact the demand for office space in coming years, as companies have become more vigilant about investment and expansion strategies. The upcoming supply coupled with weakening demand is likely to have ripple effect on the Riyadh office market in short to medium term. Declining trend in both rental and occupancy levels is expected till the equilibrium is achieved between demand and supply. Riyadh's hospitality sector will likely to remain robust in the next 2 to 3 years, even though the sector is likely to experience an additional supply of more than 4,550 rooms (4 & 5 star) in the coming 3 - 4 years, the study said. This is due to the opening up of the economy allowing more foreign investors to enter the Saudi Market along the active tourism activities that the Saudi Commission of Tourism and Antiquities is promoting. The hospitality sector's performance is likely to remain steady. KPMG's report highlighted that the total number of keys in Riyadh is estimated to be approximately 11,940 which comprises of 3, 4 and 5 star hotels. Almost 50% of the current supply of hotel rooms is located in the central locations like King Fahad Road, Olaya Road and its vicinity. Given the robust demand from business travellers, Average Daily Rates (ADRs) for 3, 4 and 5 star hotels stand at SR580, SR800 and SR930 per night respectively with a market wide occupancy of 65 - 67%. Rani Majzoub, Head of Real Estate, and KPMG Saudi Arabia, said: "Approving the national transformation plan reflects the government's determination to enhance the security of real estate sector, being one of the important sectors that will create an alluring real estate investment environment for international and local investors alike. It will also undoubtedly boost confidence in Saudi economy." He added "the Saudi market will witness new types of real estate investments, particularly in entertainment and tourism sectors whereas the residential products will be diversified in order to serve Saudi consumers. If the government implements the Vision 2030 effectively, it will turn the country into one of the most important real estate markets that can attract investments not only from the region but also from all over world. After all, the demand generated by the Saudi market continues to be robust while economic growth remains to be strong." — SG
