Thursday 28 March 2024
 
»
 
»
Story

The office rents in Saudi Arabia are witnessing growth.

Saudi Arabia sees steady office rental growth

RIYADH, October 19, 2014

The office market in Saudi Arabia continued to witness solid growth in the third quarter with key cities Riyadh and Jeddah registering a steady rise in average rental rates, said a report.

The average rentals in the Riyadh office market have remained unchanged over the last quarter, stated JLL, the leading real estate investment and advisory firm, in its third quarter Riyadh and Jeddah Real Estate Overview report.

This average does however disguise a greater variation in rents between projects, it stated.

As tenants continue to prefer Grade A office buildings, some owners have been able to take advantage of the delays in the delivery of office space in the King Abdullah Financial District (KAFD) and Information Technology and Communications Complex (ITCC) projects to raise their asking rents in light of declining vacancy rates.

Although Riyadh’s economy is growing, the excess supply of office space from KAFD and ITCC is likely to result in increased vacancies over the next 12 months, thereby creating downward pressure on average rentals, stated JLL.

On the Riyadh hotel sector, the real estate expert said the occupancy rates have been showing signs of improvements as the market absorbed the increase in supply experienced over the last couple of years. However, the rise in occupancy has come at the cost of lower average room rates, it noted.

The average daily rates (ADRs) over the third quarter stood at $237, down almost 10 per cent compared to the same period last year. The revenue per available room (RevPar) figures too have shown a decline of almost six per cent compared to the same period in 2013.

On the residential sector, the property expert said 13,000 units were completed during the last six months, bringing the total supply to around 957,000 units. The market is still witnessing an increase in rental and sale prices for both villas and apartments.

"This increase is due to the continued undersupply of housing affecting the kingdom as a whole. 75,000 housing units are expected to enter the market in 2015 and 2016 which is expected to relieve some of the shortage in Riyadh. Sale prices have increased across all areas of the capital with increases being highest in the North," it stated.

"Rentals saw small decreases in the South and Centre. However, rents continued to increase in the East, West and North," it added.

Commenting on the Riyadh market report, Jamil Ghaznawi, the national director and country head of JLL (Saudi Arabia), said: “The Riyadh real estate market maintained a positive performance in the third quarter. The residential sector saw prices and rental increases across all areas due to the continued shortage of housing units."

"The retail sector also continued to experience rental growth, despite the major malls in the pipeline. While selected preferred office buildings have seen an increase in asking rents, the overall market saw no growth in rentals due to the anticipation of large levels of new office supply in the near future."

"The hotel performance remains patchy, with higher occupancy levels but lower room rates than over the same period in 2013," observed Ghaznawi.

On the retail scenario, JLL said there have been some major completions in 2014 including the Al Nakheel Mall and the Olaya Towers retail space. Rentals have slightly increased in super regional and regional shopping centres whereas community centres have seen no significant increase since the last quarter.

JLL said though additional supply continues to enter Jeddah's office market, further economic growth and the anticipated rise in office based employment is expected to absorb much of the new supply.

This has certainly been the case over the last three quarters, which have seen a continued decline in vacancies. Vacancy rates have decreased by four per cent compared to the same period last year and now stand at the lowest level of any major city in Middle East and North Africa (Mena) region.

The office rents per sq m have increased by around six per cent compared to the same quarter in 2013. However, as 172,000 sq m of high quality office space is expected to enter the market over the next quarter, vacancies may increase in the short term, stated the JLL in its report.

On the hotel sector, JLL said despite the increasing supply of hotel rooms, occupancy rates have remained relatively stable at 76 per cent, a slight decrease of two per cent compared to the same period last year.

The ADRs have increased by six per cent to $262. Yearly RevPar continues to increase and has reached an all-time high of $199.

The residential supply in Jeddah continues to experience healthy growth with supply totalling 754,000 units at the end of the third quarter. A further 16,000 units are set to enter the market by the end of the fourth quarter. While average sale prices have continued to increase for apartments, villas have seen a marginal three per cent decline over last quarter.

The rental market has also witnessed further declines in the quarter (with villa rents down by three per cent and apartment rents down by almost four per cent) as demand has shifted more towards purchase rather than rental, partly due to the increased availability of mortgages to purchase residential property.

On the retail sector, JLL said with the recent addition of high quality retail supply, lower grade community centres have seen their rents decrease by eight per cent since the same quarter in 2013, while vacancy rates have increased by almost five per cent since the third quarter last year.

This is due to the substantial increase in retail space entering the market with the opening of Flamingo Mall and Salam Mall over the past nine months which is still being absorbed by the market. A further 32,000 sq m of retail space is expected to enter the market by the end of 2014 which is likely to see vacancy rates increase whilst the excess supply is absorbed, it added.

On the Jeddah market, Ghaznawi said: "The real estate market in Jeddah was showing continuous signs of growth across most sectors. Although the residential sector saw rents decrease sale prices have increased, particularly for apartments."

"The hotel and office sectors too continue to perform well, experiencing an increase in rental rates and ADRs while vacancy rates remain relatively stable and in some cases are decreasing. The retail sector has experienced a marginal increase in vacancy rates, which are likely to increase as more supply enters the market. This has not affected retail rents which are showing overall healthy growth," he added.-TradeArabia News Service




Tags: Saudi Arabia | rents | office | growth | JLL |

More Construction & Real Estate Stories

calendarCalendar of Events

Ads