Hotel occupancy up 3% year on year in Riyadh n Jeddah hospitality RevPAR and average daily rates up 8% and 10% respectively year-on-year RIYADH/JEDDAH — Despite large office supply deliveries expected in the city, Riyadh is continuing to witness demand for office space that caters specifically to SMEs and start-ups according to new data released by global real estate consultancy firm CBRE. Total office stock in Saudi Arabia's capital stood at 4.2 million sqm of gross leasable area (GLA) by the end of 2018, with an additional 870,000 sqm of GLA expected to be delivered by 2022. Increasing demand from SMEs follows a number of Government-led initiatives aimed at stimulating private sector growth and promoting a spirit of innovation and entrepreneurship in line with Vision 2030. CBRE's Market Snapshot for 2018 also highlights a growing trend towards office supply as part of mixed-use projects. This trend is anticipated to shift the dynamics and performance of office space in Riyadh. Despite the positive long-term outlook, rental performances have continued to record pressures within both the primary and secondary office locations with rental rates down 4% and 7% year-on-year respectively. However, increased incentives by landlords, discounts for long-term leases, energy efficient units and unique design offerings are expected to help mitigate declines in the market. The hospitality sector in Riyadh is broadening due to the country's fledgling entertainment sector, according to CBRE. Traditionally the capital's hospitality industry has been driven by the corporate market. However, the recent change in legislation to promote tourism in the country in addition to investments in leisure and entertainment, has enhanced opportunities for more diverse stock in the medium and long-term. In the short-term, CBRE states that it expects daily rates to remain under pressure given the volume of supply that is due to enter the market in the next few years. According to CBRE's Market Snapshot, more than 5,000 keys are expected to be delivered to the market by 2022. Simon Townsend, Head of Strategic Advisory at CBRE MENAT and General Manager, CBRE KSA, said: "The recent economic and social initiatives and legislation introduced by the Saudi Government have already had an extremely positive impact on the country's real estate sector. Meanwhile, the increased Government spending on large-scale infrastructure and mega-projects is expected to further stimulate the overall market, with a positive trickling down effect on all key sectors. Oversupply remains a challenge, however the innovative spirit employed by the Government and private entities alike demonstrates the encouraging direction that the sector is moving in and the promising opportunities that exist across all asset classes." CBRE figures reveal a current supply of 1,252,000 residential units with an expected delivery of 130,000 additional units by 2022. Demand reflects an ongoing focus by the government to provide citizens with increased affordable housing options. The Saudi Ministry of Housing has been particularly active in meeting such demand through a number of programs including the ‘Sakani' initiative aimed at increasing the national rate of home ownership to 70% by 2030. The Government has also signed a number of PPPs to develop affordable housing units. Rental rates within the retail sector have fallen - with super regional and regional mall rental rates down 7.5% year-on-year according to CBRE's Market Snapshot report. However, the introduction of cinemas and other entertainment offerings into the city's malls is likely to increase footfall in the long-term. The growing prevalence of omnichannel retail and the entry of new APAC brands into the market will further stimulate the capital's retail sector. The report suggests that diversification will prove key in the coming years with an expected 320,000 sqm of GLA expected to enter the retail market by 2022. Meanwhile, Jeddah's broadening hospitality sector continues to experience impressive growth with revenue per available room (RevPAR) and average daily rate (ADR) up 8% and 10% respectively year-on-year – according to new data released by global real estate consultancy firm CBRE. CBRE's 2018 Jeddah Market Snapshot reveals that an additional 6,400 keys are expected to be delivered to market by 2022, in addition to an existing supply of 13,760 keys. Given the city's strategic location on the Red Sea and its role as the gateway to the holy city of Makkah, CBRE predicts ample opportunity for Jeddah's hospitality sector, owing to the growing number of pilgrims and the anticipated flow of tourists as key entertainment projects are delivered. Furthermore, the introduction of the new KSA tourism visa will further boost Jeddah's hospitality sector. CBRE states that it expects to see further activity in the northern areas of the city, towards Obhur, as Jeddah continues to expand beyond its role as an historical trading port. Simon Townsend, Head of Strategic Advisory at CBRE MENAT and General Manager, CBRE KSA, said: "Saudi Arabia's recent focus on developing its entertainment sector is already stimulating important growth across a range of sectors including hospitality. Large-scale infrastructure including projects such as the Jeddah Opera, the Obhur Bridge and the tram on the Corniche, will further add to the city's growing reputation as an important cultural, leisure and business hub in the Kingdom. This market, as witnessed by the entire region, has experienced downward pressures over the last year. However, promising opportunities are consistently arising across all asset classes, and continued investment by the government will only serve to further grow confidence in KSA's real estate sector." New trends are emerging in the market, specifically relating to delivery in residential communities such as J1 and Diyar Al Salam. As the city continues to expand to the North, CBRE expects increased activity and the delivery of similar projects. "Through the ‘Sakani' program, the KSA Government is looking to increase the rate of home ownership among its citizens by 60% in 2020 and by 70% in 2030. These positive initiatives have generated traction within the market, which has previously seen a slight decline. The total residential supply is currently at around 980,000 units. Collaboration between both the public and private sector in the development of affordable housing will be key in attaining Government targets," added Townsend. The office sector is witnessing a greater move towards more flexible leasing, whilst landlords are adding facilities such as F&B and on-site retail to further attract corporate clients. There is an existing supply of 1.13 million sqm gross leasable area (GLA) in Jeddah, with an additional 0.04 million sqm GLA expected to enter the market by 2022. Like many major cities regionally, there has been some downward pressures on rental performance with underlying rentals seeing a decline year on year of up to 10%. "To alleviate pressure, landlords need to start adjusting the nature of their offering to cater to the requirements of tenants – these include greater flexibility with respect to lease terms, the addition of alternate facilities, such as F&B, which can act as a catalyst to attract more corporate tenants," said Townsend. Jeddah's retail landscape, with an existing 1.5million sq m of GLA continues to evolve, due to the country's increased focus on its growing entertainment sector. The report shows a notable move towards malls as leisure destinations, with brands incorporating live music and entertainment offerings. This change in focus and expansion in the retail sector is expected to bring an additional 560,000 sq m of GLA by 2022.
