A recent report reveals that 2017 is a fundamental turning point in the Saudi real estate market. Increased activity in the real estate sector through the Public Investment Fund, the listing of more real estate investment trusts, tax reforms and a series of public-private partnerships.

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Market movement in Gharbia

JLL's Q1 Jeddah Real Estate Market Outlook, which analyzes trends in office space, residential units, retail outlets and hotels, shows that most segments of the real estate market underperformed during the first quarter as the market moved towards tenants who are able to negotiate better terms from landlords.

JLL's Q1 Jeddah Real Estate Market Outlook report discusses the impact of the market movement in Jeddah, which includes the impact of a series of tax incentives and a series of public-private partnerships (PPPs) on the real estate market. <The report discusses the impact of the unified rental contract regulations that the Saudi government announced to apply to the residential sector in February 2017. The move follows the government's initiative to regularize the private sector and accelerate the development of new units and their entry into the market. The implementation of the unified contract will provide a more attractive environment for investors while increasing confidence in the residential sector with affordable housing units continuing to be a key focus throughout 2017.

Rents fall

<Rents in the residential sector during the first quarter saw a decrease of 9% compared to the previous quarter and 8.5% compared to last year. Following the economic slowdown experienced by the market in 2016 and the departure of a large number of expatriates, there is more room to negotiate rents, pushing rents down.

Tourism

In the office space sector, the market saw 23,000 square meters of new office space enter the market, with vacancy rates increasing during the first quarter due to a combination of factors including new space entering the market, supply that temporarily stopped entering the market in 2016 and slowing market demand. The retail sector was significantly affected by the decline in household purchasing power, with the vacancy rate increasing by 1% to 11% in the first quarter of 2017 from 10% in the same period last year.

The vacancy rate increased by 1% to 11% in the first quarter of 2017, up from 10% in the same period of the previous year.

Hotel sector

<The first quarter saw a weak start to the year for the hotel sector as corporate and institutional demand continued to be exposed to economic pressures. Despite this, the Novotel Jeddah opened on Tahlia Street, bringing the number of hotel rooms available in Jeddah to 10,000. Two new brands are expected to enter the market over the next two years: The Langham Hotel Jeddah and DoubleTree by Hilton over the next two years, ensuring that Jeddah continues to maintain its position as an attractive destination for hotel operators.

With Jeddah being the main gateway to Mecca and with the decision to cancel the 20% Hajj quota reduction, hotel operators are expected to benefit from the influx of pilgrims for the 2017 Hajj season.

Hotel operators are expected to benefit from the influx of pilgrims for the 2017 Hajj season.

Increased supply of office space

<The supply of office space in Jeddah increased by about 23,000 m2. Notable completed projects in the office space sector include Al Shihanah Tower on Prince Sultan Street and Al Khayal Tower on Prince Saud Al Faisal Street. These two buildings added approximately 8,800 m2 and 9,100 m2 to the market, respectively. The first quarter of the year saw Umm Al-Qura complete Aster 33 on Tahlia Street. A number of other office buildings are expected to be completed later this year as a number of buildings are in the final stage of finishing, most notably the Ibrahim Center on King's Road and the first phase of Lilian Towers on Prince Sultan Street.

Residential Units

<The first quarter of 2017 saw the completion of Farsi Seven Towers, a new addition to the high-rise segment overlooking Sharm Abhar. A number of other high-rise towers are under construction or planned along the Corniche and within the city including: Crescent Towers 2, Emaar Residences by Emaar, Golden Tower by Solidere, and Bayat Plaza by Al Sabban Group. By the end of the first quarter, the total available residential units in Jeddah amounted to around 806,000 units. This year is also expected to see the handover of Diyar Al Salam Residences (140 apartments) and Gardenia Residences (370 apartments) on Medina Road, both of which offer a modern lifestyle in the area.