28/07/2016 05:29 AST
With Saudi Vision 2030 pivotal to the diversification and restructuring of the economy in lieu of decreasing oil prices, both Riyadh and Jeddah continue to maintain an overall slowdown in performance, JLL said Wednesday in its “Q2 2016 Riyadh and Jeddah Real Estate Overview” report assessing the latest trends in the office, residential, retail and hotel sectors.
Jamil Ghaznawi, National Director and Country Head of JLL KSA, said: “We have witnessed a general softening of the residential market this quarter, with a marginal decline in both rentals in Riyadh and sale prices in Jeddah. Further delays have been experienced in the completion of projects in Jeddah, despite increased efforts being made to address the shortage of affordable housing. The continuing slump in residential transactions (with sale volumes down a further 5% this quarter) shows the pace of demand growth is certainly now slowing. Riyadh is braced for an increase of housing supply, bringing the total stock of residential units to over 1 million units, whereas in Jeddah, supply remains stagnant in comparison to last quarter’s findings. However, with the White Land Tax being introduced earlier in June, the future development pipeline is likely to increase, which could push both land and housing costs down in 2017 and 2018.”
“In Riyadh, the office market observed a marginal decrease in rental values in Q2 2016 and will continue to see downward pressure as new stock enters the market, especially in the King Abdullah Financial District (KAFD) and the Information Technology and Communications Compound (ITCC). Meanwhile in Jeddah, project completions managed to stabilize the office performance rates in Q2.
“The fluctuation in oil prices throughout the quarter has led to reduced corporate demand and government spending which has negatively impacted the performance of the hotel sector in both Riyadh and Jeddah. Hotel occupancies have declined in both markets, with two new hotels opening in Jeddah that have increased competition.”
In regard to the retail sector, lease rates in both markets have stabilized over the second quarter.
Jamil said: “The delivery of multiple projects in the coming quarters and slow demand evident by the decline of point of sales transactions in both cities, is likely to keep lease rates stable for the time being. However with Saudi Vision 2030 in place, foreign investment into the Kingdom is likely increase, boosting the retail sector in Jeddah in particular, over the long term. Even though there is mounting strain on both markets currently, the markets are likely to recover in the foreseeable future as Saudi government ambitiously takes new initiatives to stimulate the country.”
Riyadh:
Office: Saudi Vision 2030 is encouraging economic diversification by allowing foreign companies to enter and invest in the Kingdom. Such encouragement will help increase the demand for office space as foreign investors show interest in the Saudi market. However, this change is expected to require time as companies setup their strategy to enter the Saudi market. Also, the demand for office space from these companies is not expected to be significantly large until the economy stabilizes and new rules and regulations are set in place.
Residential: The Ministry of Housing has started implementing the first project to construct 7,000 villas in collaboration with the private sector on a 6.5 million square meters land in the eastern part of Riyadh. East Gate, the project name, will consist of villas and has a total land size of 316 square meters with a built-up area of 250 square meters. The villas will however be differentiated by internal and external designs depending on the buyer’s financial capability. Each villa will cost around SR640,000 and can be borrowed from the Real Estate Development Fund.
Retail: Demand for neighborhood centers is still strong. Vacancy rates
Saudi Gazette
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