Saudi Arabia’s residential property market continued to grow during the second quarter of 2021, a new report from global consultancy firm, Knight Frank revealed.
The Real Estate Market Review tracked shifts during this period, and covered all segments of the Kingdom’s real estate sector. It saw mixed performances in different asset classes.
The report noted that the number of residential transactions in Riyadh were up 77 percent, year on year and a similar story is playing out on the Red Sea coastal city of Jeddah, where the number of homes sold is up 44 percent on this time last year.
Initiatives introduced by the government such as Sakani and Wafi are continuing to contribute to an acceleration in home ownership rates across the country. That’s according to Faisal Durrani, a Partner and Head of Middle East Research at Knight Frank.
“The government’s efforts to support growth in the residential market are delivering an exceptionally active development market, with 155,000 new homes scheduled to complete before the end of 2023 across Riyadh, Jeddah and Dammam Metropolitan Area; 100,000 of which are in Riyadh alone,” Durrani said.
“In addition, home values are responding to the buoyancy in demand, with apartment values in the capital accelerating at the fastest rate in the Kingdom, growing by 7.6 percent year on year, the fastest pace of growth since at least 2017,” he added.
In the Kingdom’s office market, with the exception of Riyadh, rental rates continue to ebb as demand remains muted, the review concluded.
“Grade A office rents in Riyadh are being supported by a steady stream of requirements, mainly from newly created public and quasi-public sector entities; however, consolidation activity remains a key theme, echoing global occupier behavior, which remains centered on rightsizing in the wake of the pandemic,” he said. “Looking ahead, burgeoning supply is quickly emerging as an area of concern. We’re tracking nearly 1.8 million square meters due for completion by the end of 2023, 56 percent of which is planned for Riyadh.”
Domestic demand will help to soak up some of the new supply as economic reforms drive greater business activity, but questions remain on the impact of all the new stock, he said.
“It’s likely that Grade B buildings will feel the greatest downward pressure on rents as the flight to quality intensifies, particularly in cities like Riyadh and Jeddah, which will see a 25 percent and 36 percent increase in total office supply in the next three years.”
Knight Frank expects total office stock in Riyadh and Jeddah to reach 5.3 million square meters and 1.8 million square meters by the end of 2023.
The retail sector has been one of the most significant casualties of the pandemic, with headline lease rates in prime shopping malls across the country falling by between 1 percent and 5 percent over the last 18 months, the report’s findings showed. During the second quarter of 2021 rents in the Kingdom’s best shopping malls declined by between 1.5-3 percent in Riyadh, Jeddah and DMA.
“Hugely reduced footfall as a result of the pandemic and repeated restrictions on international arrivals has been a double whammy for the retail market. That said, the reopening of the border to tourists from 49 nations this week, combined with ‘revenge spending’ from surging domestic tourism may help to cushion the market from further sharp declines”, Durrani said.
According to the Saudi Central Bank (SAMA), consumer spending in Saudi Arabia increased by 2.1 percent, to around 261 billion Riyals in the first quarter of 2021, compared to 256 billion Riyals over the same period last year.
The food and beverage sector has enjoyed the most significant boost, with spending surging by 35 percent to 17.4 billion Riyals, while spending in restaurants and cafes rose by 58.5 percent over the same period. This relative outperformance is linked in part to the slight easing of lockdown restrictions, which boosted footfall across the Kingdom’s food and beverage outlets.
Although COVID-19 clearly impacted the hospitality market’s performance, and international tourism curtailed, a shift is in play as nationals travel in greater numbers around the Kingdom, helping to support the sector in some locations, Durrani noted.
“Jeddah has emerged as a particular stand out market, outperforming the rest of the country. The principal driver has been the resumption of Umrah pilgrimage as well as the recent Eid holidays, with occupancy levels so far this year averaging 50 percent, well above the national average,” he revealed.
“The opening of the Jeddah Islamic Port cruise terminal in July, combined with a strengthening supply pipeline is going to further boost the city’s appeal among domestic tourists,” he concluded.
The total quality hotel supply in Jeddah stood at 13,230 rooms as at the end of May 2021. Taking into consideration only projects that have broken ground, Knight Frank expects the city’s room supply to increase by 64 percent by the end of 2023, to 20,600 rooms, higher than Riyadh and DMA combined.
According to the Saudi Tourism Authority domestic tourism spending on hotels, restaurants and leisure rose by a third last year.