The residential market in Riyadh, Saudi Arabia, continued to witness growth in rental rates during the third quarter, while the sales market remained under downward pressure due the lack of affordability, said a report.

The demand remains strong within the residential sector, particularly as high-end residential properties and community developments, such as the Rafal and Damac projects, continue to be active and on track for scheduled completion in 2016 and 2017, stated property expert JLL in its Q3 2015 Real Estate Market Overview.

A total of 4,000 new units have been completed during the third quarter, bringing the total supply to 984,000 units, it added.

According to JLL, rents continued to increase across the board, owing to the strong demand for rental property.

However, the sales prices for villas and apartments in Riyadh fell in the third quarter, driven primarily by the more restrictive mortgage regulation issued in November 2014 and the seasonal nature of market activity during Ramadan, the report pointed out.

On the office sector, JLL said the market saw no major completions during the third quarter, with the total supply of high quality office space remaining at 2.4 million sq m.

The property expert said an additional 36,000 sq m of high quality office space is expected during the fourth quarter, including projects such as Hamad Tower and Nakhla Tower.

Vacancy rates have decreased marginally from last quarter, but remain at 16 per cent, while Central Business District (CBD) vacancies remained at seven per cent, largely due to continued strong demand and limited new supply.

Occupancy levels are expected to improve in the short to medium term as landlords capitalise on the opportunities presented by the delays in delivery of  King Abdullah Financial District (KAFD) and the IT and Communications Complex (ITCC), Riyadh’s most prominent projects, said the JLL report which analyses the latest trends in the office, residential, retail and hotel sectors.  

On the retail sector, JLL said it saw no additional retail completions this quarter, and total supply remains at 1.4 million sq m of high quality office space.

An additional 44,000 sq m of high quality space is expected in the fourth quarter, including Robeen Plaza and the Boulevard. As the market absorbs this new supply, vacancy rates, which remained stable in Q3 at eight per cent, are expected to increase marginally over the next 12 to 18 months.

Although retail rentals also remained stable across the board, rents are expected to increase over the next couple of years, as demand remains strong and is further supported by the government’s decision to allow 100 per cent foreign ownership of retail businesses, said the JLL in its report.

On the hotel market, the expert said Riyadh had experienced marginal growth levels, with occupancy rates increasing slightly by one to 60 per cent. The average daily rates (ADRs) reached $236, a two per cent increase over the same period in 2014, while RevPAR figures increased by three per cent to $140.

The delivery of the Movenpick Hotel during the third quarter added 436 rooms, increasing the total supply to 10,500 rooms. More than 3,000 new rooms are scheduled to enter the market within the next 15 months, including The Crowne Plaza in ITCC and the Millennium Hotel on King Fahd Road, which are expected to be delivered by the year-end, the report added.

On the residential market in Jeddah, JLL said the supply had increased steadily this quarter to a total supply of 785,000 units, due to the introduction of 4,000 units.

The average sale prices decreased across the board, in line with the eight per cent decrease in residential unit transactions registered by the Ministry of Justice this quarter as compared to the same quarter in 2014.

Although regulations around the white land tax are not expected to be formally announced before 2016, speculation surrounds the size of the lands that will be taxed and the tax amount, increasing uncertainty in the market and limiting new project launches, said the property expert.

The rental market experienced a slight increase over the past quarter, with a year-on-year increase of 19.7 per cent and 4.5 per cent for apartments and villas, respectively, and is expected to expand modestly during the remainder of the year.  

On the retail scenario, JLL said the rents in Jeddah increased by 2.7 per cent during the past quarter, while vacancy rates increased to 12 per cent, due to the introduction of newer and higher quality retail centers and the renovation of older centers.

The opening of Yasmin Mall in the east of Jeddah, to be delivered in 2016, is expected to divert customers from shopping centers in the western parts of the city, it added.

On the hotel sector, the property expert said new openings were limited this quarter as only 112 new rooms were delivered with the opening of the Radisson Blu Plaza and the Ascott Tahlia in the serviced apartment sector.

Two more serviced apartment properties and several hotel projects, including the Ritz Carlton, are scheduled to be delivered by year-end, although some of these projects’ completion dates might be postponed until 2016, said JLL in its statement.

Despite these delays, year to August ADRs are healthy at $257, the highest in the region, and occupancy rates remain stable at 76 per cent, it added.

Jamil Ghaznawi, the national director and country head of JLL (Saudi Arabia), said: the Riyadh real estate market had maintained a steady performance this quarter.

"The office sector shows signs of stability, attributable to continued demand for existing office space and further delays in the delivery of mega-projects KAFD and the ITCC. Additionally, sentiment in the retail market and demand for retail space among international retailers continues to strengthen, in light of the Sagia's (Saudi Arabian General Investment Authority) decision to allow 100 per cent foreign ownership of retail and wholesale businesses, as part of national plans to diversify the kingdom’s economy and attract investment.”

On the Jeddah market, Ghaznawi pointed out that the real estate market has been showing continued growth momentum.

"The residential sector saw an increase in both apartment and villa rentals, as buying property remains a difficult option for middle-income households. The Ministry of Housing, however, has plans to combat this shortage with the construction of around 15,000 additional units of affordable housing by 2017," stated the expert.

"The office market continues to perform well, as multiple office buildings entered the market during the past quarter. With a steady supply of office space entering the market during the last quarter of 2015 and early 2016, we expect vacancy rates to remain stable and lease rates to increase moderately," he added.-TradeArabia News Service