Saudi retail real estate sector undergoing key transformation
RIYADH, 7 days ago
Saudi Arabia's retail real estate sector is undergoing a transformation, driven by the country’s
Vision 2030 initiative, economic diversification efforts, and an evolving consumer landscape.
The outlook for 2025-2026 remains optimistic, with strong demand anticipated due to factors
such as population growth, increasing tourism, and changing consumer preferences, according to top ratings agency S&P Global.
The growth path for retail real estate in Saudi Arabia is looking good for 2025-26. However, the sector is also facing challenges, including oversupply risks and evolving retail formats that could weigh on rental rates and real estate landlords’ profitability amid high capital spending, said the ratings agency.
Additionally, lower oil prices and market volatility amid escalating global trade tensions and a
fragmented geopolitical environment could dampen government spending and non-oil
economic growth in Saudi Arabia, it stated.
S&P Global said the government’s commitment to infrastructure development, the rise of mega projects, and the expansion of international brands into the Saudi market will boost demand for retail spaces.
Riyadh, Jeddah, and other key cities are seeing a surge in new retail developments, ranging from
shopping malls and entertainment complexes to mixed-use developments that integrate retail,
hospitality, and residential spaces.
An influx of tourists, driven by Saudi Arabia’s push to become a tourism hub, will further boost retail sales and attract investors and developers, it stated.
The government’s foreign investment policies - such as allowing 100% foreign ownership - could also help grow the sector.
Saudi Arabia's Vision 2030 aims to diversify the economy beyond oil, with a strong focus on
retail, tourism, and entertainment.
The plan includes ambitious projects such as NEOM, The Red Sea Project, and AlUla, which are intended to attract millions of visitors, boosting retail demand.
Saudi Arabia’s per capita income is strong, and consumer spending on retail and entertainment is expected to grow given the dominance of youth in the growing population, said S&P Global.
The country’s gradual transformation toward being a more socially liberal, entertainment-friendly
society is leading to higher footfall in malls and retail destinations, it stated.
"While the overall market outlook remains positive, the sector will also need to navigate
challenges such as changing consumer behavior, e-commerce growth, and most importantly
the potential effects of oversupply," the ratings agency said in its review.
Additionally, Saudi Arabia’s consumer spending and sentiment could be materially affected by weaknesses in oil prices, which remain volatile given trade tensions, it stated.
S&P Global said the Saudi retail real estate market was witnessing a wave of new supply, with several large-scale developments set to open in 2025-2030.
According to Knight Frank's 2024 Saudi Arabia Giga Projects Report, 7.4 million sq m of new retail real estate is under development, including at Diriyah Gate, The Red Sea Project, and NEOM.
The volume of retail projects in the pipeline raises the risk of potential oversupply, in our view, particularly in secondary locations where demand may not be sufficient to absorb new retail spaces, it added.
With the volumes of retail space entering the market, rental rates could face downward pressure. Key factors influencing rental rates are location, competition, and asset quality, among others. With new malls and retail centers in the pipeline, landlords will likely offer competitive leasing terms to attract tenants.
Global real estate expert Knight Frank had in its forecasts said Riyadh’s supply would grow by 50% by 2027 and Jeddah’s by 75% over the same period.
This rapid growth could lead landlords to provide rental discounts, revenue-sharing lease models, and other incentives to maintain occupancies.
S&P Global pointed out that retailers are increasingly prioritizing foot traffic and tenant mix over sheer size.
While prime locations in Riyadh and Jeddah will likely maintain stable rental rates due to strong demand, secondary locations might see a drop in rental values due to oversupply.
Traditional retail offerings face the need to evolve to meet changing consumer preferences.
The demand for large anchor stores is declining as Saudi consumers increasingly shift toward
digital shopping and experience-driven retail, stated the top raatings agency.
"We have seen this trend in the UAE as well. This shift could weigh on rental rates in traditional malls, where businesses could struggle if they fail to adapt to these trends," it added.-TradeArabia News Service
