According to a report by Amlak newspaper, the Saudi market is facing a sharp surge in real estate prices, which will have a negative impact on the economic stability of small and medium-sized enterprises due to their inability to continue operations as commercial property owners demand exorbitant rents, In light of these threats, a number of real estate professionals have called for the establishment of specific contract terms that protect the landlord’s rights while ensuring the tenant’s continued occupancy of the premises.
Unjustified Rent Increases
Well-informed sources confirmed that rent increases for some stores reached 650%, which led tenants to leave and their commercial and economic activities to cease, despite the tenants" acceptance of a reasonable increase of up to 60% of the previous rent amount, Real estate experts emphasized that rising rents for showrooms and retail stores in major cities threaten small businesses that rely on providing their services through shops and showrooms, following the rise in rents for commercial buildings and showrooms on shopping streets, which means they will be forced out of the market if rents continue to rise at this rate, Investors in these showrooms believe it is unreasonable for the annual rent of a small showroom—no larger than 25 square meters—to jump from 60,000 to over 450,000 without any logical justification.
Establishing a specific mechanism for drafting contracts
In the same vein, a number of businesspeople called for state agencies to intervene to establish a specific mechanism for drafting commercial office leases, similar to the standardized residential lease agreement, to protect the rights of all parties, set a cap on rent increases imposed by landlords, and limit the bidding wars initiated by tenants to drive up the value of the leased property.
Therefore, we find that there is a concern plaguing businesspeople and threatening the operations of those establishments that rely on providing services through stores and showrooms—specifically the large markets and malls that people have come to know and have become a haven for them to meet their needs, The trend has also spread to buildings and showrooms on commercial streets in Saudi cities, and experts believe that reasonable increases should under no circumstances exceed 35%.
The growing number of shopping complexes
According to a local study conducted by Cloutons on the Kingdom’s shopping complex market, in recent years, the Kingdom has needed an increase in shopping malls, exhibitions, and specialty markets to meet the growing local demand resulting from economic liberalization, the promotion of domestic tourism, and the popularity of shopping festivals in a number of cities—to the point where it has taken a leading position among thetrends observed by shoppers. This is in addition to encouraging and stimulating local investment and supporting small and medium-sized enterprises. In Riyadh, the shortage in supply was addressed in the period following the midpoint of the last decade, when a large number of shopping centers were opened to meet demand in the commercial sector, thereby increasing investment opportunities in the exhibition and retail sectors. and the news continues to report daily on the development or renovation of new centers, resulting in a significant increase in supply.
High-end malls and markets
In the same context, the study noted that Riyadh accounted for the lion’s share of expansion in commercial markets, where the leasable area of retail units more than doubled—from approximately 600,000 square meters in 2005 to about 2.3 million square meters from approximately 600,000 square meters in 2005, as a result of the opening of numerous shopping centers.
With the new trend of offering attractive investment incentives to local and foreign companies, Riyadh’s urgent need for more shopping centers has emerged, a need that is directly proportional to population growth and the expansion of the urban area through increased development of master plans. As a result of all these developments, the High Commission for the Development of Riyadh approved a number of massive investment projects earlier this year with a total estimated value of 21 billion riyals led by the "Saudi Mall« by the UAE’s Majid Al Futtaim Group and »Riyadh Avenues» by Kuwait’s Al Shaya Group, which will serve as a significant addition to the city’s centers, malls, and markets offering integrated services.
Saudi Mall… and Riyadh Avenues
As a result of the investment appeal of Riyadh and the growing need for more commercial centers, the "Saudi Mall« project—which is considered an integrated development—was recently approved, located in the Al-Narges neighborhood at the intersection of Al-Thumama Road and Abu Bakr Al-Siddiq Road (may Allah be pleased with him) in the Al-Narges neighborhood in northern Riyadh. Its total area is estimated at at 866,000 square meters, at an estimated cost of 10.5 billion riyals. It will help increase the supply of retail stores and showrooms, and the project will create 6,000 jobs.
As for the "Riyadh Avenues" project, located at the intersection of King Fahd Road and King Salman Road in the Al-Malqa neighborhood, with a leasable area of 400,000 square meters and an estimated cost of 7 billion riyals, is expected to create 3,000 jobs. The project consists of a shopping center, two hotel towers with 500 rooms, two residential towers containing 1,050 units, and a medical tower housing 240 clinics.
Study on Commercial Real Estate Growth
For their part, real estate professionals emphasized the need to take into account the situation of small and medium-sized businesses, ensuring that rent increases are capped at a specific percentage, so as not to cause the closure of many small businesses, and to allow tenants to adapt to the new rent levels, thereby preventing them from suffering losses due to closing their shops or ceasing operations. In addition, the study examined growth in commercial real estate, specifically buildings housing showrooms and retail stores, given the competition between shopping complexes, showrooms, and small stores, as well as the significant activity in the construction of this type of real estate.
The recent period has seen various developments, including store closures and changes in business activities, as well as a shift away from high-rent areas toward more affordable ones, as major cities have seen an increase in showroom rental prices ranging from 2,500 riyals ($666) to 5,000 riyals ($1,333).
