The residential market in Riyadh and Jeddah softened over the first quarter with the sales and rental rates predominantly reporting marginal decreases both through quarter-on-quarter and year-on-year indicators across the villa and apartment segments, said a report.

The lease rates in the apartment sector in Jeddah achieved a y-o-y growth of 8.3 per cent, while in Riyadh this indicator reached three per cent, stated PKF Consulting, an international firm of management consultants and industry specialists.

Although this is the highest growth rate achieved in the residential market in these cities in Q1, this was the slowest rate of growth recorded in Jeddah since mid-2015, stated the report citing a third party report.

The villa segment in Jeddah witnessed a marginal annual growth in rental rates (1.2 per cent), while this segment experienced no annual change in Riyadh. Furthermore, q-o-q rental rates in Riyadh
demonstrated a marginal decline of 1 per cent (across both villa and apartment products).

The apartment segment in Jeddah reported a relatively stable performance q-o-q, while the villa segment declined by -2.5 per cent.

As far as sales rates are concerned, a third-party industry report indicated that prices were declining;
apartment prices during Q1 decreased by two per cent y-o-y in Jeddah and by four per cent y-o-y in Riyadh.

Sale rates in the villa segment in Jeddah remained similar (+1 per cent y-o-y) to last year's indicators, while in Riyadh, average villa sale prices declined by 4 per cent compared to Q1 2015.

With regards to q-o-q performance, sales rates in Riyadh marginally decreased in Q1 2016 (-1 per cent in both segments), while sales rates in the Jeddah apartment and villa segment decreased by -0.3 per cent and -5.4 per cent respectively.

According to a set of new regulations, issued by the Saudi Arabian Monetary Agency (Sama), the
maximum loan-to-value ratio for mortgages for real estate companies has increased from 70 per cent to 85 per cent.

This adjustment can potentially make housing investments more affordable, which would thus support demand.

Based on the data, issued by Eskan Committee of the Jeddah Chamber of Commerce and Industry, the
residential supply in Jeddah in Q1 was standing at 793,000 units. In Riyadh, the supply reached
approximately 995,000 units.
 
These figures include the 4,000 and 6,000 units that entered Jeddah and Riyadh markets respectively in Q1 2016.

In order to address the current shortage of housing in Riyadh, the Ministry of Housing has launched a
100,000-unit project in the North of Riyadh near the Riyadh International Airport.

The housing project will be developed by Hanwha Engineering & Construction, Daewoo Engineering & Construction and Saudi Pan Kingdom for Trading, Indian & Contracting (Sapac) over the next 10 years.

On the retail sector, PKF said the first quarter witnessed a nine per cent y-o-y decrease in the value of sale transactions in Saudi Arabia, predominantly driven by sustained low oil prices, reduced government spending and additional cuts in energy subsidies, resulting in reduced consumer purchasing power.

While the total retail space supply in Riyadh remained unchanged at 1.41 million sq m of GLA from the last quarter of 2015, Jeddah witnessed the opening of Yasmin Mall taking the total GLA in Jeddah to 1.13 million sq m, it stated.

The new regional mall developed by Arabian Centres, features a total GLA of 60,000 sq m and will house 210 units along with a wide range of entertainment and leisure options.

In Riyadh, q-o-q rental rates remained stable while vacancy rates decreased by seven per cent according to third party reports.

However, with the expected supply of approximately 221,000 sq m of GLA for the rest of the year, vacancy rates are expected to increase, stated the report by PKF.

The new malls expected to open this year include Arabian Centres-owned Al Khalej Mall (55,340 sq m GLA) and Al Hamra Mall (52,940 sq m GLA), Al Malaz Square (50,556 sq m GLA) besides the community centres like Robeen Plaza (22,521 sq m GLA) developed by Hamat Property Company.

In Jeddah, rents increased on a y-o-y basis, for both super regional and regional centers by 18 per cent and 5 per cent respectively. Compared to q-o-q, rents remained stable with a marginal decrease recorded across regional centers, said the report by PKF.

Whilst y-o-y vacancy rates increased to 10 per cent from 7 per cent, driven by the amount of space available in old traditional malls, q-o-q vacancies only decreased marginally.

The only mall set to enter the Jeddah market in 2016 is the Le Prestige Mall, a premium luxury boutique mall with a GLA of 24,000 sq m, it stated.

According to PKF, Majid Al Futtaim is set to invest $3.73 billion in the construction of two malls in Riyadh. The Mall of Saudi, which boasts a 300,000 sq m GLA, is set to be the kingdom's largest featuring shops, restaurants, entertainment, offices, hotels and residential units. It will also include Saudi Arabia's first indoor ski slope.

The work is likely to start in mid-2017, with the first phase expected to be completed by 2022. Whilst, the second mall, City Centre Ishbiliyah in the eastern part of the capital is expected to feature 250 units, it added.

On the office sector, PKF said the Jeddah market remained stable throughout Q1, registering a marginal decline in lease rates q-o-q and a y-o-y growth of 2 per cent. Average lease rates stood at approximately SR1,120 per sq m.

The first quarter of the year witnessed the delivery of approximately 33,000 sq m of GLA, which included the Al Andalus Crown Tower development (12,000 sq m of GLA).

In terms of key projects set for delivery for the rest of the year, Al Khair Tower is expected to enter the market featuring approximately 43,000 square meters of GLA, permitting it remains on schedule, according to the report by PKF.

However, a weakening demand from the public sector due to sustained low oil prices is likely to influence project completion dates.

In Riyadh, lease rates and vacancy rates remained relatively unchanged. According to a third party report, average lease rates in the city during Q1 2016 stood at approximately SR1,260 per sq m, recording a marginal y-o-y increase of 2 per cent, while market wide vacancy rates remained unchanged at 16 per cent, said the PKF report.

With the delivery of parts of the ITCC development expected before the end of the year and a weakening demand from the public sector due to sustained low oil prices, performance indicators are likely to come under pressure, however the impact of this is likely to be subdued in the short-term as Grade A office space remains limited and upcoming projects (especially within KAFD) are pushed back, it added.-TradeArabia News Service