Opportunities abound in Jeddah’s residential sector as the market is expected to continuously experience rent and sale price appreciation. An additional 25 million sq m of land offered by the Jeddah Municipality for future large scale residential developments will encourage market activity by mitigating one of the key barriers to development: the high cost of land. Expanding the supply of land available for development can help address inventory and affordability issues to meet the growing housing demand from both the local and expatriate population. The Jeddah market will be further supported by the government’s increased spending on housing and the large capital injection into the Real Estate Development Fund (REDF).
“Already one of the regions’s best performing economies; Saudi Arabia recently received an additional economic boost from the government’s multi-billion riyal financial package. Affordable housing was the largest single component, which reflects the government’s prioritisation of housing its young and growing population. Like the rest of Saudi Arabia, Jeddah is particularly well positioned to benefit from this massive flow of public capital into housing and infrastructure. Although this stimulus package will have several wide-ranging implications, one of the most important is establishing structures – like Public Private Partnerships – that facilitate delivery of such large scale, critical projects,” Soraka Al-Khatib, Co-Head of Jones Lang LaSalle Saudi Arabia said.
Over the past six months, the residential market experienced rents and sale price growth, marking evolution of the market cycle. Supported by increasing demand and limited supply growth, rent and price appreciation is expected to continue through 2011.
The office market continues to become more tenant favourable as market competition escalates leading to lower rents and more options available to occupiers.
New supply handovers in the retail market are increasing options for tenants and pushing owners to revise tenant mix and reposition retail asset. Retail rents are expected to remain relatively stable throughout 2011.
The hotel market has witnessed a growth in performance over the past six months, even though occupancy has marginally declined. Driven by rising investment in tourism infrastructure and development of the city’s leisure offerings, long term prospects for Jeddah’s hotel sector remain positive.
In the short term, Jeddah’s office sector will remain tenant favourable due to existing oversupply and rent declines. Over the next twelve months, supply handovers will push up vacancy across Jeddah and spark relocation demand by tenants seeking to update to higher quality properties in better locations. Consequently, landlords will improve lease concessions like rent free period, flexible payments and other terms to attract occupiers.
Limited expansion of retail supply has led stability of retail rents in Jeddah. In the second half of 2011, significant supply will enter the market sparking greater competition, more attractive rents across a wider variety of assets, and improved lease concessions in the coming years. Retailers will also be encouraged by macroeconomic trends: the government’s recent financial stimulus package is boosting consumer spending.
Growth in business travel and domestic tourism will fuel hotel demand in Jeddah. Combined with limited anticipated supply deliveries, strong demand will improve sector performance through 2011. (In terms of room stock, Jeddah ranks behind Makkah and Madinah, but ahead of Riyadh). The expansion of Jeddah’s airport, additional infrastructure investment, expansion of the city’s leisure offering as well as upgrading of the waterfront areas, will cumulatively have a positive impact on the hospitality sector in the city.