Jeddah's real estate market 'subdued'
JEDDAH, July 12, 2017
The retail sector in Jeddah is experiencing some improvements, but overall the Saudi city’s real estate sector has remained relatively subdued in the second quarter with further declines in performance recorded, according to property expert JLL.
Sentiment in the retail sector has been boosted by the reinstatement of benefits to public sector staff, it said in the report.
The removal of the 20 per cent quota restriction on Hajj pilgrims should see increased demand for both retail and hospitality in Jeddah. Further reforms to energy costs and the general higher cost of living may, however, curb domestic spending compared to historical trends, it stated.
There was a minor completion in the office sector over Q2 2017 that saw the gross leasable area (GLA) of quality office space in Jeddah increase to over one million sq m. Office rents showed little change quarter on quarter (Q-o-Q), but both rents and occupancies showed significant decreases year on year (Y-o-Y), it added.
“The pace of decline has generally declined suggesting that some sectors are approaching the bottom of their current cycle,” remarked Jamil Ghaznawi, national director and country head, JLL, Saudi Arabia.
“Market sentiment is expected to improve somewhat later this year,” said Ghaznawi.
According to JLL, there were no notable completions in the residential sector over the second quarter of the year either.
However, the reinstatement of public sector employee benefits came as positive news for the retail sector, which had been struggling following the removal of the benefits. Although point of sale transactions showed slight improvement, retail rents decreased, stated the real estate expert.
The hotel sector witnessed the opening of the Ritz Carlton in Q2 2017 in addition to a completion in the serviced apartment segment with the Staybridge Suites Al Andalus Mall.
On residential sector, JLL said the expansion of the city towards the north has slowed over the last two years, as increased interest has turned to more centrally located sites due to the introduction of the White Land Tax.
However, as the number of large scale, quality developments in North and South Obhur progress, the draw of the northern corridor is expected to resume over the next two – three years, it said in the report.
According to JLL, the total supply of residential units in Jeddah in Q2 2017 stood at approximately 809,000 units - there were no notable completions.
Expected completions later this year include Gardenia Residence (370 apartments), the latest in a growing number of lifestyle developments.
The first phase of Al Ra’idah, owned by the Public Pension Agency and located in South Obhur, is currently under construction, said the property expert in its report.
This project will deliver approximately 2,500 apartments in the first phase, making it the largest, recent residential completion in Jeddah. The development is predominantly residential, with later phases including close to 4,000 apartments and 1,100 villas.
Another prominent development in the area, the 170 storey Jeddah Tower (pegged as the world’s next tallest tower), has been officially delayed according to Kingdom Holding. This will see the delay of approximately 500 apartments until 2019.
The tower is the first phase of a more ambitious plan to eventually develop a mixed-use city spanning an area of 5.3 million sq m.
According to JLL, the prices and rents remained relatively stable over Q2. Apartment rents rebounded marginally (1.4 per cent), after recording a sharp drop in Q1 2017 as a result of departing expatriates over 2016. Villa rents also remained relatively stable.
Sale prices also showed stability in Q2 2017 with both apartment and villa sale prices decreasing marginally by 1.2 per cent.
The reinstatement of benefits to public sector workers in Q2 is positive news for the retail market, which suffered weaker performances in light of the introduction of these cuts in 2016.
Whether or not household spending will return to the same levels as the pre-wage cuts period is yet unclear. Although wage levels have been restored, the cost of living remains higher than before, due to the removal of subsidies on utilities and energy costs.
The cost of living is also set to increase further with the government considering further revisions to energy costs in 2017, in addition to the recent Sin Tax on tobacco and energy drinks, and the introduction of VAT in January 2018.
Q2 2017 witnessed the completion of the expansion of Red Sea Mall, adding 18,000 sq m of retail GLA to the market. The total stock of quality retail space now stands at approximately 1.2 million sq m.
The Avenue Mall in North Obhur (116,000 sq m) is expected to be the next major completion following Jeddah Park, with this project likely to draw demand from other malls in the northern districts once completed.
Notable scheduled completions in 2017/2018 include Jeddah Park, which is in advanced stages of construction and Al Basateen Centre, which is currently under renovation.
The number of community and neighborhood shopping centers in Jeddah is expected to increase as well.-TradeArabia News Service
