The average price of apartments in the residential and commercial office segment declines
Amlak-Agencies
A recent report prepared by Jones Lang LaSalle (JLL), the world's largest real estate investment and advisory firm, revealed its report on the performance of the real estate markets in the cities of Riyadh and Jeddah during the third quarter of 2013, stressing that labor shortages are hindering the delivery of new real estate projects despite the continued strength of demand. The report covered the residential, office, commercial and hotel segments of the real estate markets in the Kingdom's two largest cities.
Large real estate projects
<Commenting on the report, Alan Robertson, CEO of Jones Lang LaSalle, said: “The report forecasts the Kingdom's real GDP growth rate of 4% in 2013, as Saudi banks have increased their lending to real estate projects and customers to their highest levels in the past five years. Although a number of large real estate projects are meeting strong demand for office, residential, commercial and hotel segments in the Riyadh and Jeddah real estate markets, the lack of sufficient labor is likely to delay the completion and delivery of new projects and increase construction costs.”Riyadh Real Estate Markets
Riyadh real estate markets
The report noted that the Supreme Authority for the Development of Riyadh announced more details on the proposed Riyadh Metro project, which will consist of 6 lines with 96 stations and a total length of 176 kilometers. The project is scheduled to begin construction in the first quarter of 2014, with the first phase set to open in the fourth quarter of 2016. SAR 3 billion has been allocated for the acquisition of additional land for the project, although the intention is to keep the acquisition process to a minimum.
Apartments and commercial offices
Average advertised rental rates for offices in Class A and B buildings declined slightly to SAR 1,059 per square meter per annum at the end of Q3 2013, due to increased vacancies in Class B buildings in the city's commercial center and south. Demand for office space remains strong, with a significant number of offices occupied over the past six months. However, a combination of vacancies in new buildings and the marketing of office units in new buildings currently under construction is providing tenants with more options and fueling competition among developers to attract more tenants.
Rents for apartments and villas in the residential segment of the market are expected to continue to rise in 2013. The average purchase price of residential apartments fell by 10% to SAR 2,534 per square meter over the past six months (excluding luxury apartments owned by real estate companies with prestigious brands). This reflects the fact that most of the residential apartments available for sale are located in low-income areas such as Dahra Laban, Al Areeja in the west and Shifa Badr and Al Suwaidi in the south. The average price of villas increased by 4% compared to the same period last year to SAR 4,274 per square meter. Supplies in the residential sector are expected to include the delivery of 6,000 residential units in expatriate residential complexes.
Average retail rents rose slightly in the cross-regional mall segment, while remaining largely stable in regional and local malls during the third quarter of 2013. Total retail mall supply is expected to reach 1.7 million square meters by the end of 2016 and the number of malls on offer is expected to increase significantly. The Jones Lang LaSalle report forecasts limited increases in regional and local mall rents due to the availability of vacant space and continued downward pressure on underperforming mall rents.
Hotel segment
The hotel segment is stabilizing following a period of underperformance as hotels were unable to keep up with the surge in supply in 2011 and 2012. A significant increase in the number of hotel rooms entering the market is expected in 2014 and beyond, including those provided by the opening of the Hyatt Regency and Fairmont Business Gate hotels.
Jeddah real estate markets
Jeddah real estate markets
Read more
Jeddah real estate markets
In Jeddah's real estate markets, average office rents in Class A and B buildings have increased significantly over the past six months, while vacancies decreased from 12% in Q2 to 10% in Q3 2013, due to strong demand from the government and private sectors.
The average asking price for apartments in the residential segment decreased between the second and third quarters of the year to SAR 3,800 per square meter. The average selling price of villas in areas monitored by Jones Lang LaSalle fell by 4% to SAR 4,400 per square meter over the past six months, driven by lower prices in luxury residential neighborhoods in western Jeddah, and the limited number of villas for rent contributed to higher rents.
Hotel and retail units
In the retail markets, rents remained at the levels recorded during the third quarter of 2012. Average retail rents in major shopping malls are expected to stabilize, although markets may become more fragmented as many malls are unable to maintain the current level of rents. New supply is unlikely to be added to retail units in 2013, with many retailers planning to expand and open new branches, while new brands continue to enter Jeddah's retail markets.
Jeddah remained one of the best performing markets in the Middle East in terms of occupancy rates in 2013. Although occupancy rates have continued to rise since 2010, they are now stabilizing, with Q3 2013 recording a slight decrease in occupancy rates to 78% compared to Q3 2012 (81%). The continued strong performance of Jeddah's hotel segment reflects the continued strong demand from pilgrims and the city's popularity as a leisure destination among Saudi families.
