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Jeddah's property market well positioned for growth
Published in The Saudi Gazette on 03 - 06 - 2010

Jeddah will reap the benefits of new public and private investment in the real estate market, according to Jones Lang LaSalle's latest report “Jeddah: Planning for Growth”. The report covers the office, residential, retail and hospitality market segments of Jeddah. The residential sector offers the most opportunities, the report said.
Jeddah accounts for 14 percent of the national population of Saudi Arabia with around 3.4 million people. While this figure will increase, driven by the young local demographic structure and the continued attraction of expatriate labor, the demand for housing more rapidly than the population; given the faster rate of household formation and improvements in housing affordability.
John Harris, head of Jones Lang LaSalle in Saudi Arabia, said “the Saudi economy enjoys scale, growth and stability, attributes which have seen it weather the recent economic crisis relatively well. In Jeddah in particular, we have seen a slowdown in property markets. However the medium and long term outlook is very positive with major infrastructure projects working to drive growth alongside investments in the office, residential, retail and hospitality sectors.”
The report highlighted Jeddah's huge investment to improve its infrastructure. Investment in water, drainage and major transportation projects form the core of the urban renewal initiatives that could significantly change the face of Jeddah over the next 10 years.
The housing sector remains the most buoyant real estate market at the present time. Developers are shifting interest within this sector to more affordable housing, which will receive a major boost when the long delayed mortgage law is passed.
The office market continues to move in favor of tenants who are benefiting from more competitive market conditions in the face of an increasing choice of space and more flexible leasing terms.
There are increasing opportunities for sale and leaseback arrangements as owners seek to free up capital currently tied up in real estate. The office and retail sectors of the market have become more competitive and attractive for tenants as significant levels of new supply have entered the market. This has resulted in falling rents and higher vacancies in recently completed buildings compared to past levels. In the office market, a total of 67,000 sq m was completed in 2009 including Jameel Square, the Shemeisy, Bin Suleiman and HMS buildings.
Similar levels of construction are expected in 2010. New supply of office space at Bay La Sun at the King Abdullah Economic City will directly appeal to some tenants based in Jeddah and will ensure the competitiveness of the market. Tight credit and the disruption caused by the November floods have reduced the short-term buoyancy of the residential market. However, it is expected to rebound over the medium to long term. This will be driven to a large extent by mid-market apartments in new sub-divisions west of the Haramain Highway.
In the last two years, the retail market has seen significant growth with a number of new major shopping centers entering the market. This new supply has caused average rents to decline, although they are now stabilizing and no major change in the market is expected over the next 12 months. The hospitality market showed little development over the past year, with only two new properties, the Park Hyatt on the Corniche and the Elaf at the Red Sea Mall.
Looking ahead, Jeddah's hotel room supply is estimated to increase to meet the demands of business, summer leisure and religious tourism.
A number of projects of between 160 and 600 rooms will come online between now and 2013. Additionally, the expansion and future development of Jeddah will introduce new hospitality projects, especially targeting new areas to the north of the city.


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