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News Release

KSA

JLL MENA unveils “Top Trends for Saudi Arabia’s Real Estate in 2011”

JLL MENA, the world's leading real estate investment and advisory firm has today released its ‘Top Trends for 2011’


​​​JLL MENA​, the world's leading real estate investment and advisory firm has today released its ‘Top Trends for 2011’ shaping the Kingdom of Saudi Arabia’s real estate in the coming year and beyond.

Soraka Al Khatib, Co-Head of KSA, Jeddah Office said: “Recent initiatives outlined in the stimulus package, illustrate the strong leadership role of the government, which will act as a catalyst for real estate. Importantly, these initiatives offer an excellent opportunity to achieve critical social goals, like job growth and community building.
 
Greater integration across the Kingdom through civil projects and infrastructure investment will promote economic stability, job growth and ultimately benefit the real estate markets in Saudi Arabia. Progress in the real estate sector parallels the long term growth potential for Saudi Arabia’s economy. New demand drivers, like the improvement of transportation systems and infrastructure projects, will create investment opportunities and increase the connectivity and attractiveness of the market.

This is compounded by the regional political situation elsewhere within the MENA region where real estate markets are currently facing challenges. The Kingdom’s relative stability, combined with the strong long term fundamentals, solidifies its role as a strategic commercial location in the region.”

The key predictions are:

  • Stimulus package will help to build communities: For 2011, Saudi Arabia announced the largest budget ever at SAR 580 billion, which was more recently increased to over SAR 1 trillion. The implementation of the budget will provide significant support to the real estate sector, on both the supply and demand sides. The Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz Al Saud has issued a Royal Decree aiming to improve living conditions for all Saudi citizens. For example, the capital for the Real Estate Development Fund was increased to SAR 40 billion and the limit of the loans provided has risen from SAR 300,000 to 500,000. Under the supervision of the General Commission for Housing, a project totaling SAR 250 billon was announced to build 500,000 residential units in all regions of the Kingdom. These initiatives will stimulate construction activity and increase supply. While there may be short term inflationary pressures, in the long term these investments will create jobs, increase the standard of living and can improve the social fabric through community building.

John Harris, Co-Head of KSA, Riyadh Office said: “Citizens in the Kingdom of Saudi Arabia have a better opportunity to own their homes than in the past, due to the recent guidance and directives of the Custodian of the Two Holy Mosques King Abdullah bin Abdulaziz Al Saud to build 500,000 housing units in various regions of the Kingdom. The existing shortage of affordable housing will decrease significantly, while the large scale initiatives provide an excellent opportunity for holistic community building.”

  • Government leadership is a catalyst for real estate: The stimulus package and leadership initiatives provided by the government, will have a direct and indirect impact across real estate sectors. Directly stimulus will be provided to the residential sector through large scale residential plans from initiatives like the General Housing Authority (500,000 units), National Guard (17,000 units), and GOSI (691 units). Developing new residential communities creates opportunities for retail, which will be further supported by increased consumer spending enabled through recent salary adjustments. More generally, the stimulus will boost economic activity, create jobs, and boost demand for office space. The government leadership also directly mandates the addition of new civic facilities with plans for 610 new schools and 12 new hospitals and health related facilities. The successful delivery of all of these initiatives will necessitate effective frameworks fom implementation, which will require a diverse range of strategic partnerships with the private sector to ensure social goals are achieved.  

Soraka Al Khatib, Co-Head of KSA, Jeddah Office said: “Recent initiatives create a massive potential for growth in the real estate sector, but there will be some implementation and delivery challenges. Achieving social objectives, like community building, through the strategic development of residential communities is an ideal opportunity to create public-private partnerships to overcome these challenges.”

  • Infrastructure is critical for realising real estate objectives: Investment in a world class transport infrastructure will create investment opportunities and underpin demand for real estate in KSA. Major long term investments in infrastructure and transport for Airports (6 projects, SAR 25 billion), Ports (2 projects, SAR 12 billion), and Railway (23 projects, SAR 96 billion) improve the competitive advantage, attract investment, and enable connectivity within the Kingdom, but also connectivity to the region with KSA as the core. Critically, the infrastructure investment will have a direct impact on real estate through a nation-wide rebalancing by integrating outlying cities and creating new hubs of value, job growth that will augment demand, and generally supporting the growth of all real estate sectors, especially industrial. 

  • Property Management will differentiate the winners from the losers: Long term capital values will be directly determined by the quality of property and facility management. With many sectors experiencing a significant increase in supply, the new high value assets will require a higher quality property management to maximise revenues, manage costs, and minimise depreciation. Injections of new supply will tip some markets in favour of tenants, which will require leasing strategies and frameworks that ensure occupancy. This trend will be led by large multinational tenants that prefer to lease space managed by professional property management firms. Within facility management, a component of property management, opportunities will emerge to reposition non-performing office and retail assets and, more generally, industry stakeholders will focus on the importance to lifecycle services. The delivery of world class assets will shift the focus from development to operation and to the protection of the long term value of investment. Due to the nature of the supply pipeline, this trend will first emerge in the office and retail sectors in the short term and in the residential sector in the long term. 

  • Light industrial and logistics sectors are on the rise: Driven by state owned enterprises and buoyed by strong oil prices, the growth of light industrial and logistics will promote economic growth and increase employment opportunities. In 2011, the focus will shift to more specialist logistics developments and for locations offering multimodal logistics networks integrate air, sea and rail. This already extensive sector is still poorly serviced in terms of quality, creating opportunities for high quality modern real estate. The focus on quality will be supported through investor demand, which is strongest for securely leased, institutional grade product. Although a long term trend, the industrial sector is backed by the emergence of university related research parks that aspire to commercialise academia in order to create a positive feedback loop: developing intellectual property, creating jobs, fostering economic growth, which will ultimately boost demand for industrial real estate.

  • Growth of middle income, mid-scale residential developments: Whereas the residential sector was traditionally dominated by micro-developments (less than 5 units), the market will move more to mid-scale planned communities built by professional developers. Since the market will require approximately 900 new homes delivered each day over the next five years, the efficiency realised through centrally planned mid- to large-scale communities is ideal. In terms of market segmentation, high-end demand is largely met and the extensive government initiatives are targeting the affordable housing segment. Thus, the market niche for private developers is primarily in mid-scale developments targeting the middle income housing bracket (SAR 650,000 – 800,000). Due to the unique family dynamics and larger space requirements of citizens, the target purchase price is approximately SAR 200 – 250 per square foot, which is best achieved through the economies of scale realised in mid- to large-scale developments. While the residential market is supported through the stimulus package and infrastructure investment, delivering homes to citizens and achieving social objectives will require innovative acquisition structures. Although off-plan sales have started, the mortgage law remains a critical factor in expanding homeownership among citizens.