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News Release

KSA

Office and Hotel Sectors Lead in Jeddah While Retail Continues its Growth in Riyadh, According to New JLL Q3 2014 Real Estate Market Overviews


​​​​​​JLL, the world's leading real estate investment and advisory firm, today has released its third quarter (Q3 2014) Riyadh and Jeddah Real Estate Overview reports that asses the latest trends in the office, residential, retail and hotel sectors in Saudi Arabia's two largest cities.

Commenting on the Riyadh market report, Mr Jamil Ghaznawi, National Director and Country Head of JLL's KSA, said: "The Riyadh real estate market maintained a positive performance in Q3 2014. The residential sector saw prices and rental increases across all areas due to the continued shortage of housing units. The retail sector also continued to experience rental growth, despite the major malls in the pipeline. While selected preferred office buildings have seen an increase in asking rents, the overall market saw no growth in rentals due to the anticipation of large levels of new office supply in the near future. Hotel performance remains patchy, with higher occupancy levels but lower room rates than over the same period in 2013."

Commenting on the Jeddah market report, Mr. Ghaznawi added: "The real estate market in Jeddah is showing continuous signs of growth across most sectors. Although the residential sector saw rents decrease sale prices have increased, particularly for apartments. The hotel and office sectors continue to perform well, experiencing an increase in rental rates and ADRs while vacancy rates remain relatively stable and in some cases are decreasing. The retail sector has experienced a marginal increase in vacancy rates, which are likely to increase as more supply enters the market. This has not affected retail rents which are showing overall healthy growth."

Sector Summary Highlights

Riyadh

Office: Average rentals in the Riyadh office market have remained unchanged over the last quarter. This average does however disguise a greater variation in rents between projects. As tenants continue to prefer Grade A offices buildings, some owners have been able to take advantage of the delays in the delivery of office space in the KAFD and ITCC projects to raise their asking rents in the light of declining vacancy rates. Although Riyadh's economy is growing, the excess supply of office space from KAFD and ITCC is likely to result in increased vacancies over the next 12 months, thereby creating downward pressure on average rentals.

Residential: Approximately 13,000 units were completed during the last 6 months, bringing the total supply to around 957,000 units. The market is still witnessing an increase in rental and sale prices for both villas and apartments. This increase is due to the continued undersupply of housing affecting the Kingdom as a whole. 75,000 housing units are expected to enter the market in 2015 and 2016 which is expected to relieve some of the shortage in Riyadh. Sale prices have increased across all areas of the capital with increases being highest in the North. Rentals saw small decreases in the South and Center. However, rents continued to increase in the East, West and North.

Retail: Among the major completions in 2014 have been the Al Nakheel Mall and the Olaya Towers retail space. Rentals have slightly increased in super regional and regional shopping centres whereas community centres have seen no significant increase since the last quarter. Vacancy levels have slightly decreased (-1%) during this quarter. Delays in the KAFD and ITCC projects have resulted in their retail components being pushed back into 2015.

Hotel: The occupancy rates of hotels in Riyadh have been showing signs of improvements as the market absorb the increase in supply experienced over the last couple of years. However, the increase in occupancy has come at the cost of a lower average room rates. Average Daily Rates over the third quarter stood at USD237, a decline of almost 10% compared to the same period in 2013. RevPAR figures have shown a decline of almost 6% compared to the same period in 2013.

Riyadh prime rental clock

This diagram illustrates where JLL estimate each prime market is within its individual rental cycle as at the end of the relevant quarter.

*Hotel clock reflects the movement of RevPAR.

Source: JLL

Sector Summary Highlights

Jeddah

Office: Although additional supply continues to enter the market, further economic growth and the anticipated rise in office based employment is expected to absorb much of the new supply. This has certainly been the case over the last three quarters, which have seen a continued decline in vacancies. Vacancy rates have decreased by 4% compared to the same period last year and now stand at the lowest level of any major city in MENA. Office rents per sq m have increased by around 6% compared to the same quarter in 2013. However, as 172,000 sq m of high quality office space is expected to enter the market over the next quarter, vacancies may increase in the short term.

Residential: Residential supply continues to experience healthy growth with supply totaling 754,000 units at the end of Q3 2014 and expected to increase by a further 16,000 units by the end of Q4 2014. While average sale prices have continued to increase for apartments, villas have seen a marginal (-3%) decline over Q3. The rental market has also witnessed further declines in Q3 (with villa rents down by 3% and apartment rents down by almost 4%) as demand has shifted more towards purchase rather than rental, partly due to the increased availability of mortgages to purchase residential property.

Retail: With the recent addition of high quality retail supply, lower grade community centers have seen their rents decrease by 8% since the same quarter in 2013, whileacancy rates have increased by almost 5% since Q3 2013. This is due to the substantial increase in retail space entering the market with the opening of Flamingo Mall and Salam Mall over the past nine months which are still being absorbed by the market. A further 32,000 sq m of retail space is expected to enter the market by the end of 2014 which is likely to see vacancy rates increase whilst the excess supply is absorbed.

Hotel: Only 150 keys (or hotel rooms) have been delivered this quarter. While a further 300 are expected to be delivered by the end of 2014 many projects have been pushed into 2015. Despite the increasing supply of hotel rooms, occupancy rates have remained relatively stable at 76%., a slight decrease of 2% compared to the same period last year. ADRs have increased by 6% to USD 262. Yearly RevPar continues to increase and has reached an all-time high of USD 199.

Jeddah prime rental clock

This diagram illustrates where JLL estimate each prime market is within its individual rental cycle as at the end of the relevant quarter.


*Hotel clock reflects the movement of RevPAR.

Source: JLL