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KSA real estate market to get support from government reforms

CBRE’s latest report on Saudi Arabia’s real estate market for H1 2020, reveals that the government reforms will look to support the office, residential, retail and hospitality sectors in the country.

Given the scale of the pandemic and current world economic conditions, the government of Saudi Arabia has launched a set of stimulus packages totalling more than SAR 120 billion to support the private sector, according to the Real Estate Market Outlook H1 2020 for Saudi Arabia, published by global real estate advisor CBRE.

However, with the recent tripling of VAT to 15%, further fiscal measures are expected to weigh down the recovery for domestic demand. Consequently, GDP is estimated to decline by 7.5% in 2020, impacting the overall business and consumer sentiment across KSA.

Office:

Asma Dakkak, Senior Manager, CBRE Consulting commented: “Demand for office space is primarily driven by business activities and the growth of SMEs supported by the government incentives and initiatives. A prominent trend witnessed in the market, is the introduction of innovative and flexible office offerings, with potentially larger allocations of space per employee.”

Residential:

According to CBRE, historically, demand for residential property in Saudi Arabia was driven by large households with typology offerings focused on villas. CBRE expects demand will shift to smaller, yet efficient unit sizing with affordable rates. Driven primarily by growing residential demand, the Riyadh market is expected to witness the delivery of around 120,200 units between H2 2020 and 2022, led by mega-developments such as KAFD Residences and Ministry of Housing (MoH) - East Gate Phase 3. In line with the Vision 2030 goal of increasing homeownership rates amongst nationals to 70% by 2030, MoH beneficiaries are expected to continue absorbing the residential supply offered by the Sakani program.

Despite the COVID-19 effect on the Jeddah market, the MoH commenced with handing over units to their beneficiaries as part of the Ruba Jeddah development, which will add approx. 1,300 units to the market this year.

Retail:

In Riyadh developers and investors continue to deliver quality retail, incorporating complementary elements such as entertainment and leisure to capture demand from residents and the growing numbers of tourists, supported by the entrance of international operators. Rental rates are expected to continue decreasing in the medium term, as significant new supply enters the market. Key new projects include Riwaq Cordoba along Al Thumamah Road and Ishbiliyah City Center along King Abdullah Road.

Whilst in Jeddah, developers are adopting new strategies by introducing retail spaces within mixed-use developments in a bid to secure steady footfall and healthy performances. Key examples include Jeddah Park along Al Tahlia Street and City Yard along Abdulmagsoud Khoja Street.

Hospitality:

The hospitality sector has been heavily impacted by COVID-19, leading many hotel operators to either postpone or announce the temporary closure of their hotels. Jeddah’s hospitality performance witnessed a significant decline in H1 2020 recording a 32% decline in occupancy levels and a 37% decline in ADR from H1 2019. Despite overall market conditions, the easing of restrictions during the 3rd week of June led to the popularity of waterfront resorts amongst locals and residents of the city. Makkah is expecting the delivery of approximately 19,000 keys by the end of 2021. However, some developments may face delays or even be placed on hold due to current market conditions. Government initiatives, such as the relaxation of visas, and the enhancement of leisure and entertainment within Riyadh are expected to support demand growth in the city, particularly among the leisure sector.

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