Between growth ambitions and mounting pressures, Saudi Arabia's commercial real estate sector continues to attract attention, amid bets on domestic demand and tourism, versus concerns over oversupply and market changes.
S&P Global has expressed an upbeat outlook on the future of commercial real estate in Saudi Arabia.
S&P Global S&P Global is bullish on the future of commercial real estate in Saudi Arabia in 2025 and 2026, citing strong drivers such as population growth, increasing numbers of tourists, and changing consumption patterns. However, the agency did not neglect to mention a number of challenges that may restrict the growth of the sector and affect the profitability of companies operating in the sector.
Vision 2030 and market transformation
S&P Global said in its report that the commercial real estate sector in Saudi Arabia is undergoing a fundamental transformation, driven by the Kingdom's Vision 2030 initiatives and diversification efforts, as well as an evolving consumer landscape that is witnessing a change in shoppers“ preferences and trends.
S&P Global said in its report that the commercial real estate sector in Saudi Arabia is undergoing a fundamental shift, driven by the Kingdom's Vision 2030 initiatives and efforts to diversify national income sources. On the other hand, the report warned of challenges such as the risk of an oversupply of commercial space and the growth of new retail formats such as e-commerce, which could put pressure on rental prices and reduce the profitability of real estate owners, especially with the high capital expenditure required to develop new projects.
On the other hand, the report warned of challenges such as the risk of an oversupply of commercial space and the growth of new retail formats such as e-commerce, which could lead to pressure on rental prices and reduce the profitability of real estate owners.
Oil prices and global economic volatility
Despite the overall optimistic mood, the agency warned that oil price fluctuations, global trade tensions, and geopolitical division could dampen the pace of government spending and negatively impact the growth of the non-oil economy, which could directly impact the performance of the commercial real estate sector.
According to the report. According to the report, Saudi consumer behavior could be affected if oil prices decline, which could lead to a decline in consumer spending and market sentiment, something that developers should take into account when planning new projects.
According to the report, Saudi consumer behavior could be affected if oil prices decline, which could lead to a decline in consumer spending and market sentiment, something real estate developers should take into consideration when planning their new projects.
Rising costs put pressure on profitability
S&P confirmed that the development costs of commercial projects in Saudi Arabia are a real challenge, especially those related to large-scale retail centers, which could put pressure on the credit quality of real estate companies, if they do not achieve expected rental yields.
S&P confirmed that high development costs are a real challenge, especially those related to large-scale retail centers, which could put pressure on the credit quality of real estate companies, if they do not achieve expected rental yields. In addition to execution risks, companies may face difficulties in controlling operating expenses and achieving satisfactory profit margins, especially in light of increasing competition and changing consumer behavior.
Senomy Centers in Focus
The report highlighted Senomy Centers as a prime example of the challenges and opportunities facing developers in the Saudi market. The agency expects the company's capital expenditure to range between SAR 2.4-2.6 billion through 2025, as part of its expansion plan to increase its leasable area by 44% to 1.4 million square meters by 2027.
The company is currently in the midst of an expansion plan to increase its leasable area by 44% to reach 1.4 million square meters by 2027. <The company is currently working on six projects, most notably Jewel Riyadh and Jewel Jeddah, which are expected to be completed by the end of 2025 or the beginning of 2026. S&P expects the EBITDA margin to improve to more than 70% by 2026, after the company's profitability was affected during the COVID-19 crisis (2020-2021) and declined in the following years due to high costs and impairment of receivables.
The company is currently working on 6 projects, most notably the Jewel of Riyadh and the Jewel of Jeddah, which are expected to be completed by the end of 2525 or the beginning of 26.
Future Outlook: Efficiency and adaptation
The agency emphasized that Sinomi Centers has begun to take steps to improve cost efficiency and control operating expenses through structural reforms, which could contribute to its profitability in the coming period.
The report concluded. The report concluded by confirming that the sector has strong fundamentals to continue to grow, provided it deals intelligently with the challenges, especially in terms of changing consumer behavior, digital transformation in shopping patterns, and oversupply risks.
The report concluded.
