Summary

Saudi Arabia recorded strong economic growth in 2019 fueled by improved oil prices and strong GDP growth. The continued government spending on giga-projects, coupled with growing developments in the entertainment sector is likely to stimulate demand in the commercial real estate market in Saudi Arabia.

With conditions remaining soft across most of the commercial real estate sectors of the market in the first half of 2019, the hospitality industry witnessed a number of major development announcements. These included the introduction of some mega projects in the country such as Al Qiddiya’s master plan in Riyadh, aiming to project the city’s position as the ‘Capital of Entertainment, Sports, and the Arts’, Red Sea and Amaala project. These projects are anticipated to trigger other large scales of commercial real estate development activities in the country.

As part of Vision 2030, the government has also launched international tourist e-visas in Saudi Arabia, as an initiative to boost tourism in the country and increase global competitiveness, is set to have a positive long term impact on the Kingdom’s real estate market.

The office market however, remained slightly under pressure across the major cities in Saudi Arabia. But with the improving economic conditions in the country, it is expected that in the medium-to-long term corporate demand will pick up as business conditions improve, owing to various new projects such as Riyadh’s 176.7 km metro and Dammam’s King Salman Energy Park (SPARK).In addition, increased investment opportunities and the ease of travel stimulated by the new King Abdulaziz International Airport (KAIA) are also expected to bring a positive effect for commercial real estate expansion especially in Riyadh, as it remains the major business center of the Western Region.

Key Market Trends

Rise in retail sector in Riyadh

The retail real estate market in Saudi Arabia particularly in cities like Riyadh is witnessing developments that have transformed the retail market which consists of various outlets ranging from high-end dining to fast-food restaurants, in addition to luxury brands that were once absent from Riyadh’s retail scene.

In the second quarter of 2019, Riyadh’s retail market saw the delivery of approximately 157,630 sq m GLA of new retail space which increased the total market inventory of Riyadh to nearly 2.3 million sq m. In 2019, some of the prominent additions in retail space included The Zone and University Avenue which were completed in the second quarter of 2019. The addition to the retail real estate sector

The country is witnessing increased construction activity in the retail space and as per estimates, an additional 277,100 sq m of retail space is expected to be completed by the end of 2020. Although there may be some delays in the handover of the retail spaces, the majority of this stock is expected to be of high-quality shopping centers with strong entertainment and food and beverage element. These include retail centers such as Qurtoba Boulevard, River Walk Center and Shorofat Al Nada Park. which comes as developers in the Kingdom look to differentiate their products to secure a large consumer base.

Demand for office spaces likely to increase across key cities in Saudi Arabia

In 2019, the office market in Riyadh witnessed the delivery of the first phase of one major project, Riyadh Business Front which provides new potential for the office market in Riyadh. The project boasts advanced and modern workspaces based on smart technologies and provides flexible working spaces to suit companies of various sizes and requirements. The construction is currently underway on the second phase of the project which is anticipated to be completed by 2020. An additional 104,000 sq m of office GLA is expected to be handed over by 2020.

In Jeddah, in the upcoming years, there is a large amount of potential office space that could be released to the market, the majority of which is Grade A (60%-70%), while an additional 30% of the stock is set to come online in smaller projects along major arterial routes. A key prime scheme in the pipeline is Jeddah Gate which is a masterplan development by Emaar. The development will offer nearly. 230,000 sq m of high-quality office space within a mixed-use environment.

In the longer term, it is anticipated that the demand for office space will pick up from current levels as economic reforms under the National Transformation Plan (NTP) and Vision 2030 start getting implemented and benefit the economy. Moreover, various urban regeneration initiatives including mixed-use communities and large-scale infrastructure projects are also expected to act as a catalyst for the commercial real estate market. Furthermore, it is expected that the planned wave of privatization will boost investment and foster growth in the business environment creating favorable conditions for the office sector.

Competitive Landscape

The government's vision of reducing the reliance on oil economy and diversifying into other sectors especially on real estate has resulted in growth of the commercial real estate industry in Saudi Arabia. The market has high competition where the demand for new properties is increasing due to growth in the commercial activities and increase in competition. Some of the major real estate development companies operating in the Saudi Arabia are Al Saedan Real Estate, Kingdom Holding Company, SEDCO Development, Jabal Omar Development Company, Makkah Construction & Development Co, Dar Alarkan Real Estate Development Co and Saudi Taiba Investment and Real Estate Development Co. Competition among developers majorly happens on the parameters such as land bank, location of the property, upcoming projects, construction costs, reputation of the company and other parameters.

Additional Benefits:

The market estimate (ME) sheet in Excel format
3 months of analyst support

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