An outlook for Saudi Arabia's real estate and property market

09 January 2020 4 min. read

Global real estate consultancy Knight Frank has released its 2020 outlook for the Saudi Arabia property market. The report’s authors provide a roundup of the key findings across the office, residential, retail and hospitality segments. 

Office market

The office market is likely to remain favoured towards occupiers in the year ahead where rents are likely to trend down. However, we are likely to witness a fragmentation in relative performance in key commercial hubs and asset grades. 

In Riyadh, where strong rates of employment growth are being witnessed we expect the vacancy rates in the Grade A segment to continue to decline at the expense of increased vacancy in the Grade B segment of the market. As additional Grade A stock is delivered we are likely to see a flight to quality.

Performance Indicators

The Dammam Metropolitan Area and Jeddah have, over the course of 2019, both witnessed challenging market conditions driven by a slowdown in the oil sector for the prior and due to relocations of key occupiers in the latter. In these markets, we expect challenging market conditions to continue as occupiers consolidate and as additional supply enters the market. These trends are likely to put sustained pressure on average rents and occupancy rates going forward. 

Residential market

Saudi Arabia’s residential market has been a key point of focus for government initiatives over recent years with a range of regulatory, finance and supply side reforms enacted which aimed to underpin activity in this sector. Over the course of 2019, we have witnessed a marked increase in activity as a result of these reforms. 

Looking ahead, as these initiatives further take effect alongside the provision of additional affordable residential stock, we expect the volume of the residential transactions to maintain positive momentum. With regards to sales price performance, we expect performance to remain stable in the short to medium term.

Performance Indicators - Villas & Apartments

Retail market

As a result of the government’s economic diversification strategies and the drive to boost Saudi nationals’ and female workforce participation rates, we have witnessed growth in disposable incomes, which has in turn underpinned stability in the Saudi Arabian retail sector.

Given these improving economic fundamentals, we expect rental rates in regional and super-regional malls to remain stable in the short run across all key commercial hubs. However, Grade B stock is likely to continue softening given the influx of quality retail supply due to come to fruition.

Riyadh’s retail stock stood at around 2.76 million sqm GLA at Q4 2019. By 2022, total stock is expected to reach 3.42 million sqm GLA. Jeddah’s retail stock stood at around 1.86 million sqm GLA, that of DMA at around 1.11 million sqm GLA, and stock in these two cities is forecasted to grow to 2.75 million sqm GLA and 1.53 million sqm GLA respectively by the end of 2022.

Performance Indicators - Retail

Hospitality market

In 2019, total quality hotel supply in Riyadh stood at around 16,384 rooms, of which the luxury and upper-upscale (typically associated with a 5-star hotel keys) accounted for 39%. The upscale, upper-midscale and midscale segments account for 27%, 23% and 11% of the total quality hotel supply respectively. 

Meanwhile, in Jeddah, total quality hotel supply stood at 10,997 rooms, while DMA’s total quality hotel supply stood at 7,805 rooms. In all three cities, supply of hotel rooms is expected to increase in the coming period, by 29% in Riyadh by the end of 2022, by 55% in Jeddah and 44% in DMA in the same period. 

As a result of recent easing of tourism visa regulations, where the citizens of 49 countries are now able to apply for e-visas and holders of Schengen, UK or US visas are eligible for visas on arrival, we are likely to witness a marked increase in visitation to the Kingdom which in turn will provide support to its hospitality market.

Performance Indicators - Hotel

Despite these encouraging developments, we expect muted performance in key performance indicators across major tourism hubs over the short to medium term, mainly due to the Covid-19 pandemic and its aftermath.

Commenting on the overall outlook, Taimur Khan, an Associate Partner at Knight Frank in the Middle East said: “Whilst Saudi Arabia’s real estate market will face challenges in parts, particularly its hospitality and retail sectors, the fundamentals underpinning its real estate market remain steadfast for the long-term.”