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Although the introduction of VAT could have caused challenges for the market due to reduced consumer spending, the retail sector in Riyadh saw increased sales activity in the first quarter, outlines JLL's Q1 2018 Riyadh Real Estate Market Overview report.
Government data shows point of sale transactions in Riyadh over the first 2 months of 2018 were 32 per cent higher compared to the same period last year. In addition, the value of retail sales also increased by 5% over the same period as 'Shoppertainment' continues to be a hot topic in the retail industry, with the opening of the first cinemas in Riyadh expected in Q2 2018. Despite these positive signs, rents and vacancies continued to soften owing to lower consumer purchasing power and the continued departure of expatriates.
"The retail sector in Riyadh witnessed minimal effect from the introduction of VAT in Q1 2018, given its relatively low level of just 5%. Many retailers absorbed some of the price increases rather than passing the tax on to consumers," said Engr. Ibrahim Al Buloushi, Country Head, KSA, JLL.
"The latest data from SAMA shows that despite VAT, point of sale transactions in Riyadh increased by 32% YT February 2018, compared to last year. Furthermore, a number of retail malls are currently examining how to accommodate cinemas, while other operators seeking to identify freestanding sites for new cinemas," he added.
The office sector continued to be relatively stable, with rents unchanged and vacancies improving. Total office space in Riyadh reached 3.9 million sq m in Q1 2018, with no major completions tracked. Smaller, mixed-use developments less than 10,000 sq m, however, were active.
The affordable sector of the residential market remained active in Q1 with ongoing efforts by the Ministry of Housing to increase home ownership from 47% to 52% by 2020, in line with the National Transformation Program. The residential sector however saw further decline in sales prices and rental prices, particularly due to the departure of expatriates.
The hotel sector is expanding its current stock of almost 12,300 keys as of Q1 2018, with 1,900 keys scheduled to complete by the end of 2018. The main indicators showed a small improvement over the first two months of the year, with occupancies increasing by 6% and ADRs by 3% compared to the same period in 2017. The hotel market, however, could experience further downward pressure over the remainder of 2018.
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