The real estate market in Saudi capital Riyadh is currently being driven by a number of master-developed projects mainly in retail market which will increase the volume of stock in the marketplace significantly, said a report.
Saudi Arabia’s economy remains robust as a result of sustained high oil revenues and continued government spending on infrastructure, healthcare and education projects
Saudi Arabia’s economy remains robust as a result of sustained high oil revenues and continued government spending on infrastructure, healthcare and education projects in a bid to diversify the economy away from the petrochemical sector, said real estate specialist Cluttons.
A key milestone in the real estate development has been the Royal approval of the mortgage law, which will open up the possibility of home ownership to a larger proportion of the market, the report stated. This, coupled with increased regulation, will help move the market forward in a positive manner, it added.
Office stock in Riyadh is mainly located along King Fahd Road, which is the location of two of Riyadh’s prime office developments, Kingdom Tower and the Faisaliah Tower
Historically, office stock in Riyadh was located along King Fahd Road, which is the location of two of Riyadh’s prime office developments, Kingdom Tower and the Faisaliah Tower. However, due to increasing congestion, poor car parking and impractical floor plans, a number of ‘out of town’ office developments have been completed in 2012, such as the Riyadh Business Gate located in the north east of the city which is over 95 per cent let.
This migration to north will become even more evident in 2013 as the initial phases of the King Abdullah Financial District (KAFD) and the Information Technology Communications Complex (ITTC) release 800,000 sq m onto the market, the expert pointed out.
A total of 180,000 sq m of office accommodation was added to the Riyadh stock in 2012 with a further 1,000,000 sq m in the pipeline for the end of 2014
According to Cluttons, a total of 180,000 sq m of accommodation was added to the Riyadh stock in 2012 with a further 1,000,000 sq m in the pipeline for the end of 2014.
The impact of the release of this additional development remains to be seen, but many commentators predict that this will place increasing negative pressure onto a market where vacancies currently are running between 15 to 20 per cent and downward movement is being seen in rents in all but the prime buildings.
Many are considering taking drastic action and converting office buildings to the hospitality sector
Many are considering taking drastic action and converting office buildings to the hospitality sector, where the supply demand balance is not as great, observed Cluttons, which has enjoyed a dedicated Middle Eastern presence since 1976.
The retail environment continues to be an important part of life for the Saudi family, as malls remain the main entertainment focus and leisure destinations, leading to a number of different retailing formats being developed across the Kingdom.
These include mega destination malls which tend to be anchored by a food hypermarket and offering a mix of international brands, he pointed out.
Examples of such malls within Riyadh include Riyadh Gallery, Saharah Plaza and Khurais Mall, all of which offer an excess of 10,000 sq m of retail accommodation. This year has seen the addition of the 75,000 sq m plus Al Qasr Mall, located in the Dar Al Akhan development to the south west of the city.
The Kingdom Centre and the Faisaliah dominate the ‘high end’ market and operate at close to 100 per cent occupancy
A key retail type outlined in the report is the mixed-use retail scheme, such as the Kingdom Centre and the Faisaliah which have dominated the ‘high end’ market and have been operating at close to 100 per cent occupancy.
Commenting on the hospitality sector, Cluttons said unlike in the western and eastern regions of the Kingdom, the business tourist generally drives the hospitality sector in Riyadh.
"This has meant that the city traditionally has lagged behind other areas of the Kingdom, which in turn lead to a flood of new developments entering the market in 2011, increasing stock to in excess of 7,000 bedrooms, across all star categories," it stated.
Unfortunately, this supply came on stream as demand slowed, leading to considerable downward pressure on Average Daily Rates (ADR) and occupancy levels which are currently hovering at around SR1,000 ($267) with occupancy levels at their lowest ever level of 60 per cent, it added.
This increase in hotel stock is mainly focused in the 4 to 5 star market
Cluttons stated that it was unlikely that this downward trend would be reversed in 2013, given the short to medium term supply pipeline in this sector, which is set to see 5,000 bedrooms come to the market in the next five years.
This increase in stock is mainly focused in the 4 to 5 star hotel market, it added.
Future hotspots for new projects include a number of the major master developed mixed-use schemes such as the King Abdullah Financial District (KAFD), Riyadh Business Gate, the Information Technology and Communications Complex (ITTC) and the Granda Business Park.