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Government initiatives help boost Riyadh real estate market

RIYADH, July 18, 2019

Government initiatives have stimulated the residential and commercial sectors during the first half, whilst the country’s hospitality and retail segments continue to benefit from diversification efforts, according to global real estate consultancy firm CBRE.

On the residential sector, CBRE said despite the increase in upcoming supply, the housing market was expected to stabilise over the next 12 months.

This is a direct result of government efforts to activate the supply of residential units and stimulate demand, through initiatives like the permanent Special Privilege Iqama, which allows non-nationals to purchase real estate, stated the expert in its new H1 2019 Riyadh Market Snapshot.

Restructuring and financial support initiatives, by the Ministry of Housing, for households with incomes in the range of SR14,000 have also had a positive effect on the market.

The residential market is likely to receive a further boost due to disruptive building technologies, such as 3D printing, augmented reality, and recent agreements such as the deal with Al Kathiri Holding Company to produce and use 3D-printed concrete for ministry projects.

The disparity between rising deal volumes and the performance of the leasing sector demonstrates how investors appear to be taking a longer-term view on the residential market, looking beyond softening rentals and focusing on the availability of attractive prices and the increasing flexibility of payment plans offered across both completed and off-plan projects.

On the hospitality sector, CBRE said the overall airport traffic through King Khalid International Airport saw increased activity during the Ramadan and Eid season.

On the lucrative retail industry, the property expert said Riyadh’s retail demand remains heavily oriented towards quality retail destinations, with prime malls continuing to demonstrate higher occupancy rates and lease rates than secondary locations.

Nevertheless, retailers are continuously looking for flexibility from landlords to help soften the impact of changes in sales volumes. Development activity across the retail sector remains buoyant with more than 1 million sq m of gross leasable area set to be handed over between 2020 and 2021.

Rental rates within the retail sector have fallen with super regional and regional mall rental rates down seven per cent year-on-year according to CBRE’s Market Snapshot.

However, CBRE said the introduction of cinemas and other entertainment offerings into the city’s malls is likely to increase footfall in the long-term.

The growing prevalence of omnichannel retail will further stimulate the capital’s retail sector. The report suggests that diversification will prove key in the coming years with an expected 1.5 million sq m of gross leasable area (GLA) expected to enter the retail market by 2022, it added.

On the office scenario fro the first half, CBRE said despite large office supply deliveries expected in the city, Riyadh is continuing to witness demand for premium office space.

The successful implementation of policies, such as Saudization, as evidenced in the decreased unemployment rate among Saudi nationals in Q1 2019, is expected to further bolster the commercial sector.

Total office stock in Saudi Arabia’s capital stood at 4.1 million sq m of GLA as of H1 2019, with an additional 2.1 million sq m of GLA expected to be delivered by 2022.

Among these supply deliveries, King Abdullah Financial District is among the largest and most-awaited, expected to contribute significantly to office supply figures upon completion, stated the real estate expert.

The continued development of the Riyadh Metro is also expected to impact the office sector, with commercial properties in proximity to key metro stations likely to benefit from increased accessibility and connectivity, it added.

Despite the positive long-term outlook, rental performances have continued to record pressures within both the primary and secondary office locations with rental rates down two and five per cent year-on-year respectively.

However, increased incentives by landlords, discounts for long-term leases, energy efficient units and unique design offerings are expected to help mitigate declines in the market.

Commenting on the report, Simon Townsend, the general manager at CBRE Saudi Arabia, said: "Riyadh’s real estate sector is currently going through a period of transition. The country’s recent investment in entertainment and leisure has had a positive trickling down effect on sectors such as hospitality and retail."

Diversification, he stated, will prove key in the coming years, as the nation continues to cater to a wider visitor base, and this will be reflected in the type of brands entering the market.

"The commercial and residential sectors have certainly benefited from government initiatives and policies aimed at stimulating growth; and we can expect to see further improvements in these segments – which have experienced pressures in recent months," he added.-TradeArabia News Service




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