Residential prices continue to increase in Riyadh and Jeddah, showing the strong demand for the real estate, according to a latest report.
The strong demand’s correlation with upward prices trends in the two major cities of Saudi Arabia were discussed by Jones Lang LaSalle which published its first quarter (Q1) 2012 Jeddah and Riyadh Real Estate Overview reports.
The findings revealed that with more new stock entering the market, occupiers have an increased choice of options and this is resulting in greater competition and more variation in performance as tenants increasingly focus on better quality projects. Older and poorer performing projects are losing out in the competition for tenants and are consequently requiring repositioning and more active property management.
In Jeddah villa prices increased by 11% in the areas of Jeddah monitored by Jones Lang LaSalle during Q1-2012 to an average of SR 4,600 per sq m with the western region of the city (closest to the Red Sea) remaining the prime location for villas.
Continued demand for new and high quality office space in Jeddah is reflected by the sale of the Eastern Tower in the upcoming Headquarters project on the Corniche (13,400 sq m) to the Savola Group for its new head office. The completion of additional projects is however likely to result in downward pressure on office rentals over the second half of 2012.
The Jeddah retail market is becoming more fragmented. While rents for line stores in the best performing centres have increased to more than SAR 3,000 sq m, other centres are experiencing increased vacancies and reduced rentals as landlords seek to attract tenants.
Jeddah has been one of the strongest performing hotel markets in the GCC during 2012, with occupancies (79%), room rates (SAR 770) and RevPAR, all up over the year to April. This reflects the continued attraction of Jeddah as a leisure destination for Saudi families.
“The residential and hotel sectors of the Jeddah market have so far performed most strongly this year, with continued growth in sale prices, rental levels and occupancies. In the office and retail markets, the completion of more projects will increase options for tenants during 2012 and will lead to more competitive rental levels being offered to retain and attract tenants,” Soraka Al Khatib, Head of Jones Lang LaSalle’s Jeddah office, said.
Riyadh has seen an increase in both sale prices and rental levels across all sectors of the residential market monitored by Jones Lang LaSalle. The average sale price for villas has increased to SR 4,200 per sq m with apartment prices also higher at SR 2,600 per sq m.
The take up of space in office projects due to complete later this year (eg: ITCC and Riyadh Business Gate) shows the continued demand for office space in Riyadh. This includes an 80,000 sq m pre-commitment to a large Saudi telecom provider in the ITCC project which represents one of the largest deals in the Riyadh market for some time.
The Riyadh retail market remains relatively well balanced, with no significant change in either occupancies or rental levels recorded so far this year. As with Jeddah, there is an increasing variation between the rents that can be achieved for line stores in the most popular centres and the average rental value (around SR 2,380 sq m) that has remained unchanged over the first quarter of the year.
No new hotels have been completed in Riyadh during the first quarter of 2011, with the market continuing to adjust to the input of 1,200 new rooms during 2011. Occupancy levels and room rates have declined over Q1 2012 but this position is expected to be short lived as government initiatives promote more visitors to the capital.
“Continued take up in ITCC and Riyadh Business Gate shows that there remains active demand for new high quality office space in Riyadh. The completion of these and other major projects (such as phase 1 of the King Abdullah Financial District) later in 2012 will change the face of the Riyadh CBD, resulting in a ‘flight to quality’ as tenants trade up from older buildings,” John Harris, Head of Jones Lang LaSalle’s Riyadh office, said.