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JLL, the world's leading real estate investment and advisory firm, today released its second quarter (Q2 2015) Riyadh Real Estate Market Overview that asses the latest trends in the office, residential, retail and hotel sectors in Saudi Arabia's largest city.
Mr Jamil Ghaznawi, National Director and Country Head of JLL KSA, commented: "there has been relatively little change in the real estate market in Riyadh in the second quarter of 2015 although recent changes to mortgage regulations have caused downward pressure in the residential sales market. The office market has seen little change in occupancies and rentals over the past quarter but rents are expected to soften going forward as a result of major new completions in the long delayed KAFD and ITCC projects during 2016. Retail remains one of the best performing sectors in Riyadh, as super-regional and regional mall performance continues to improve and retail spending remains strong.
The hotel sector has seen average daily rates and revenue per available room increase by around 2.5% over the year to May. Continued growth in performance will be tempered by the large potential increase in supply, with the current room supply increasing by 50% over the next 18 months if all proposed projects complete on schedule. Fortunately, many of these projects are unlikely to materialise in this timeframe, as construction delays remain a major feature of the Riyadh market."
He added: "With the new integrated action plan from the Ministry of Housing, we anticipate an easing of the current shortage of affordable homes and a subsequent boost to prospects for economic growth."
Sector summary highlights
Office: City wide vacancy rates have remained relatively stable over the year at around 17%, while CBD vacancies continue to drop (1%) to 7%. There has been little change in office rentals over the past year. The second quarter of 2015 saw the completion of the first buildings in ITCC, adding around 60,000 sq. m to the market. Completion of nearly half a million sq. m of new office space in two landmark projects (the ITCC project and the first phase of KAFD) are now expected to be in 2016, which is likely to result in a major change in market conditions next year, with increased vacancy levels exerting downward pressure on rentals.
Residential: While sale prices have continued to decline (-1% for apartments and -0.5% for villas), the rental sector has seen increased demand, with rentals increasing by 2% for apartments and 1% for villas over the last quarter. The new mortgage regulations continue to negatively impact the sales market with the volume of residential transactions decreasing by 7% for Q2 2015 vs 2014, according to the Ministry of Justice, as citizens struggle to find the 30% down payment required by lenders to be eligible for a mortgage. The second quarter of 2015 saw the completion of around 4,000 housing units, bringing the total stock to 980,000 units. The developers of residential units have started to show signs of slowdown in construction, as the appetite for the sales market declines. However, it is expected that the implementation of the tax on undeveloped land will encourage the development of residential units to satisfy some of the shortage of housing in Riyadh.
Retail: The Riyadh retail market continues to see subdued growth, with vacancy rates decreasing marginally (-1%) and rentals increasing (1.6%) across super regional and regional malls over the quarter, while average rents in community centres decreased slightly (-0.5%). Over the past year, vacancies have decreased by 4% and rentals increased by almost 7% across super regional malls and 3% across regional malls. While there were no major new retail centres completed during the second quarter of 2015, an additional 95,000 sq. m of retail space is expected to enter the market in the last quarter of 2015 with the completion of a number of community centers (including The Boulevard and Robeen Plaza).
Hotel: Occupancy rates (67% in the year to May) and room rates (up slightly more than 2% y-o-y to USD 245 for the first five months of 2015) have both remained relatively stable on an annual and quarterly basis. As a result, RevPAR increased 3% to USD 164. Most of the projects due to open over the first half of 2015 were postponed due to construction delays and the shortage of qualified labor, however, current room supply will increase by almost 50% by the end of 2016 if all announced projects complete on schedule. Q2 2015 saw the opening of the Suites Novotel serviced apartments and next quarter is expected to see the completion of the 386 room Crowne Plaza in the ITCC project and 436 rooms in the Movenpick Hotel.
Riyadh prime rental clock
This diagram illustrates where JLL estimates each prime market is within its individual rental cycle as at the end of the relevant quarter.
*Hotel clock reflects the movement of RevPAR.
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