SAUDI ARABIA INDUSTRIAL MARKET REVIEW - H1 2020 - As Saudi Arabia's industrial and logistics sector continues to mature it is providing new ...
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As Saudi Arabia’s industrial and logistics sector continues to mature it is providing new opportunities for occupiers and investors SAUDI ARABIA INDUSTRIAL MARKET REVIEW H1 2020
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
MACRO E C ONOMI C OV ERV I EW S E CTOR OV ERV I EW
The COVID-19 pandemic, which has spread to demand backdrop. With almost a third of the Despite some of the immediate challenges Vision 2030, the National Industrial Development These long term initiatives will be supported by
around 185 countries and territories, has severely global population going into lockdown for an that the Saudi Arabian economy faces, the Logistic Program (NIDLP) looks to position Saudi the recent improvement of Saudi Arabia’s soft
impacted global economic activity across the elongated period, demand came to a virtual fundamentals underpinning the development Arabia as a leading industrial destination and as infrastructure where its ease of doing business
Saudi Arabia, GDP, IMF WEO, Estimate,
world. Prior to the onset of the pandemic, standstill. As a result, the IMF expects global Constant Prices, Change Y/Y of Saudi Arabia’s industrial and logistics sector a global logistics hub for the mining, energy and ranking has improved from 92nd in 2019 to 62nd in
global economic growth looked set to enter a trade volumes to fall by 11.9% in 2020 before 5.0
are continually strengthening and in time will logistics sectors. 2020.
renewed phase of growth, where global GDP was growing by 8.0% in 2021. mean the sector will provide ample investment
4.0 The NIDLP program aims to transform Saudi These initiatives and a more conducive business
expected to grow by 3.3% in 2020, up from 2.9% opportunities. In the short term, to help the
Saudi Arabia’s GDP is expected to contract by 3.0 Arabia into a leading industrial powerhouse environment are set to underpin growth in Saudi
in 2019. However, as a result of COVID-19 these sector deal with the demand shock of COVID-19,
6.8% in 2020 on the back of strict lockdown 2.0 and international logistic hub, generating Arabia’s industrial and logistics sector according
forecasts have been slashed. In its June 2020 the Saudi Industrial Development Fund (SIDF)
measures, the collapse and then tepid recovery 1.0 employment opportunities for Saudi nationals, to data from Oxford Economics. Saudi Arabia’s
World Economic Outlook, the IMF now expects has announced several initiatives including
YoY % Change
in oil prices and subsequent reductions in 0.0 boosting the country’s trade balance and industrial sector (which consists of the extraction,
the global economy to contract by 4.9% in 2020 the rescheduling of loan payments for small
production as part of the OPEC+ deal, where non- -1.0 maximising local production. manufacturing, utilities and construction
before returning to a growth in 2021 with a growth and medium enterprises (SMEs) and medical
oil GDP is expected to decline by 4.0% in 2020, -2.0 sectors) is expected to grow by 15.1% over the
rate of 5.4%. Advanced economies are expected factories, making available new financing In an attempt to achieve these objectives, the
according initial estimates by the IMF. -3.0 10 years to 2030 whereas its transport, storage
to bear the brunt of this economic contraction products for pharmaceutical and medical supplies NIDLP program plans to provide a range of
-4.0 and information and communication services
with a projected contraction in GDP of 8.0% in More so, whilst the tripling of VAT from 5% to producers and revolving lines of credit initiatives essential enablers, including the provision
-5.0 sector is expect to grow by 27.8% over this period.
2020, compared to the 3.0% contraction in GDP 15% may help bolster public finances in the short to finance operating expenses of qualified SIDF of financing, development of infrastructure,
-6.0 Employment over the same period is expected
expected in emerging and developing economies. term, it is likely to come at a cost of non-oil GDP SME clients. implementation of digitisation procedures,
-7.0 to increase in both sectors by 14.8% and 12.8%
contracting at a faster rate than the IMF‘s initial enhancing research, innovation and training and
2014
2015
2016
2017
2018
2019
2020
2021
Pre COVID-19, the global manufacturing sector More so, the government has identified the respectively. By 2030, both sectors will account for
forecast. Looking ahead, GDP is forecast to grow raising the efficiency of available cadres.
was already witnessing considerable headwinds industrial and logistics sector as a key component 33.7% of total employment in Saudi Arabia.
by 3.1% in 2021, as oil prices and consumption
as a result of the US-China trade war and a weak Saudi Arabia, GDP, IMF WEO, Constant Prices of its economic diversification strategy. As part of
recovers to pre-COVID-19 levels.
Source: Knight Frank Research, Macrobond
Global GDP and Trade Volumes Saudi Arabia, Ease of Doing Business Ranking
Dealing with Construction Permits 36
36
15.0
Ease of Doing Business 92
12.5 62
Enforcing Contracts 59
10.0 51
7.5 Getting Credit 112
112
5.0
Getting Electricity 64
18
YoY % Change
2.5
Paying Taxes 78
0.0 57
Protecting Minority Investors 7
-2.5 3
-5.0
Registering Property 24
24
-7.5
Resolving Insolvency 168
168
-10.0
Starting a Business 141
-12.5 38
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
Trading Across Borders 158
86
Source: Knight Frank Research, Macrobond GDP, Constant Price Trade Volume of Goods and Services Source: Knight Frank Research, Macrobond 2019 Rank 2020 Rank
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
IN DUSTRIAL DIV ERS I FICATI ON
The Saudi Arabian government has implemented This is in addition to waiving expatriate workers’ an attractive ecosystem consisting of industrial
several diversification initiatives, the industrial fees in the industrial sector for five years. cities, well-developed infrastructure, high-quality
Saudi Arabia’s Vision 2030
sector is one of the core sectors where such supply chains, and a ever improving logistics
economic diversification is targeted to be achieved
Saudi Arabia’s Vision 2030 outlines the logistics
network. To gain economic benefits from these
outlines the logistics and
and manufacturing sectors as one of the key
from. These initiatives include implementation underlying fundamentals, we have witnessed the manufacturing sector as one of
drivers in its economic diversification strategy.
of required infrastructure, construction of the launch of several industrial projects across the the key drivers in its economic
The development and growth of the logistics and
industrial cities of Jubail and Yanbu, as well as
manufacturing industries is being catalysed by
Kingdom. diversification strategy
other industrial cities in various other regions.
King Salman Energy Park (SPARK) Asfan Smart Industrial City 2, Jeddah King Abdullah Economic City (KAEC) Riyadh Integrated Logistics Bonded Zone (ILBZ)
Project Eastern Province Project Asfan area in the North West Project Along the Red Sea, around Project King Khalid International
Location Location of Jeddah Location 100 km North of Jeddah Location Airport
Developed/ Spark Energy Park will be Developed/ The project is developed by Developed/ The project is being developed by Developed/ Announced by Royal Decree in
Managed By managed and anchored by Managed By the Saudi Industrial Property Managed By Emaar as a joint venture between Managed By 2018, it is one of the first projects
Saudi Aramco Authority (MODON) Emaar International and local led by the General Authority of
Saudi partners Civil Aviation (GACA)
Project The project will be developed over three Project Phase 1 occupies 1.2 million square Project The project is being developed Project Goals It aims to transform the Kingdom
Phasing phases across a 50-square kilometre area, Phasing meters and was delivered in 2017 Phasing over 173 square kilometres, with and Objectives into a leading industrial power and
with phase one already underway with the majority of phases already an international logistics hub. It
delivery planned for by 2021 complete also aims to attract international
companies by providing special rules
and regulations to facilitate ease of
Project Goals Once fully completed it will Project Goals Asfan Smart Industrial City 2 is Project Goals KAEC, along with five other economic doing business
and Objectives create c.100,000 direct or indirect and Objectives spread over 3.8 million square and Objectives cities, is part of an ambitious program
jobs and contribute more than $6 meters and once completed it will to make Saudi Arabia a top global
billion to the Kingdom’s GDP offer 2,095 industrial facilities, 183 investment destination
warehouses and 22 factories
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
SAUDI ARAB IA IN DUSTRIAL MARKET OV ERV I EW R I YAD H MAR K ET R EV I EW
The Saudi Arabian industrial and logistics logistics sector and provide leasable land for
market is divided into two types of industrial development as well as leasable warehousing and
developments, first those provided by the Saudi MODON currently has 35 logistics facilities. In general, MODON’s offering
Authority for Industrial Cities and Technology industrial cities which are of infrastructure and facilities is superior to
Zones (MODON) and secondly private industrial either completed or under that on offer from the private sector which lack
cities. comparable infrastructure and institutional grade
development, spanning almost
real estate.
MODON currently has 35 industrial cities which 200 million square metres
are either completed or under development, across Saudi Arabia. Whilst private industrial developments do exist,
spanning almost 200 million square metres they represent a fraction of the market. Within
across Saudi Arabia. All activities in MODON’s these industrial cities, land is not solely allocated
industrial cities are regulated by MODON. for industrial developments. In most cases land
is also allocated for the development of staff and
More so, MODON aims to work with the private
labour accommodation, commercial spaces, retail
sector to develop the national industrial and
and showroom outlets.
Industrial Cities – Developed land Supply Breakdown by Industrial
23.2%
19.8%
19.7% Jeddah
16.4% Dammam
Ar-Riyadh
12.7%
Other
Al-Kharj Cities
5.3%
Al-Madina
2.9%
Al-Ahsa
Source: Knight Frank Research
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
Riyad h Indus tri al O vervi ew R iya d h Wa re ho u se a nd L o g is t ics O ve rv iew
Existing supply
Existing warehouse and logistics locations
Industrial City 1
Sulay Industrial
Industrial City 2
Al Faisaliyah Industrial
Al Fanar Industrial City
Al Nur Industrial
Al Ajaimi Industrial City
Mishal Industrial
Obaikan Industrial City
Al Aziziyah Industrial
Development of Industrial City
Al Masani Industrial
Jabal Ali Industrial City
The Logistic Park
Shifa Industrial Area
RIYADH Ongoing/Upcoming
RIYADH Al Manakh Industrial
Al Bariah Industrial
Al Marwah Industrial
Industrial City 3
Dar Al Baida Industrial
Industrial Gate City
Al Faruq Industrial
Riyadh Investment Park
Taybah Industrial
Mansuriya District
Riyad h Ind us t r ial Manufacturi ng S e ctor Suppl y R iya d h Wa re ho u se a nd L o g is t ics Su p p l y
Knight Frank research estimates that Riyadh’s Warehousing and logistics facilities in Riyadh cold-storage, and open yards. Whilst there have expected to originate in a limited range of master
eight existing industrial areas and four have historically been centred in three major been recent additions of international quality planned industrial and logistics areas. However,
upcoming industrial areas occupy a land area of districts namely Al Sulay, Al Faisaliyah and Al stock, stock of this caliber remains limited. rather than speculative developments, any
Industrial Cities - Total Allocated Industrial Cities - Total Developed
approximately 50 million square meters. Of the 12 Aziziyah, where all three districts are almost additional developments are likely to be driven by
Land Supply by MODON and Private Land supply By MODON & Private In the short to medium term, new stock is
industrial developments, MODON has developed Sector Q1 2020 Sectors Q1 2020 fully developed and have longstanding tenants build-to-suit requirements.
three of the industrial cities, which account for 38% in place. As land availability in these areas
of the total allocated land while private industrial has become scarce, there are a number of new
38%
developments accounting for the remaining eight warehousing and logistics areas which have
27% Warehouse & Logistics Leasable Area Breakdown By Major Districts Q1 2020
developments. been developed. Currently the majority of
Riyadh’s warehouse and logistic facilities stock 12%
As at Q1 2020, of the 50 million square metres of Total Supply Existing Supply 24%
54 million 28 million is concentrated near the industrial hubs of the
land earmarked for industrial development, circa
Square Meters Square Meters First and Second Industrial City and the logistics 4%
28 million square metres has been developed. Areas Al Sulay District Al Aziziyah District
corridors of the Eastern and Southern Ring Road 6%
developed by MODON account for the majority Total Supply Al Mishal District Al Marwah District
networks. 23 million
of the developed area, where developments by 6% Al Faisliyah District Al Mansuriyah District
62% Square Meters
MODON account for 73% of the total developed 73% As at Q1 2020, Riyadh’s warehouse and logistics Al Nur District Other (Warehouse & Logistic)
area. The remaining 27% of developed land has supply stands at an estimated 23 million square 6%
MODON Industrial Cities MODON Industrial Cities Al Masani District
been developed by the private sector. Private Industrial Cities Private Industrial Cities metres of GLA. The vast majority of existing 8% 23%
stock is comprised of developments featuring Source: Knight Frank Research
Source: Knight Frank Research Source: Knight Frank Research 11%
conventional warehouses such as dry-storage,
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
MARK ET P ERF ORMANCE J ED DAH MAR K ET R EV I EW
Over recent years there have been two major Secondly, with a flight to quality, rental rates in
driving factors which have underpinned softer assets of Grade B and below quality have begun to
market conditions in Riyadh’s warehousing and decline at much faster rates compared to Grade A
logistics sector. stock, where rents have remained relatively stable
First, Saudi Arabia has faced a challenging On average, rental rates in as a result of limited supply.
macroeconomic backdrop over recent year, this Riyadh’s warehousing and As at Q1 2020, rental rates for dry-storage
has been underpinned by volatile oil prices, the logistics sector fell by 5.4% in averaged SAR 120/sqm/annum. Howver, as a
implementation of VAT and the introduction of the year to Q1 2020. result of varying quality in the market, rental
levies on expatriate workers. This has in turn has rates range from SAR 50/sqm/annum to SAR 250/
led to a softening in consumer demand and as a sqm/annum.
result, demand for warehouse and logistics real
Occupancy in Riyadh’s warehousing and logistics
estate, which is used to service such demand, has
sector decreased by four percentage points in
also declined.
the year to Q1 2020, where occupancy stood at an
estimated 90%.
Warehouse and Logistics Lease Rates By Districts Q1 2020
350
300
259 250
250 233
215
200 194 197
200 183 189 199
161 160 171
150
128 138 126 170
124 112
108 102 104
100 86 123 88
100 97 90
50
56 59 50 50 59 52 50 50
0
Al Sulay
District
Al Mishal
District
Al Faisliyah
District
Al Nur
District
Al Masani
District
Al Aziziyah
District
Al Marwah
District
Al Bariah
District
Al Faruq
District
Al Manakh
District
Dar Al Baida
District
The Logistic
Park
Source: Knight Frank Research Range Average Rent
Low-quality warehouses are
expected to see reduced levels
of demand in the coming years
as prospective tenants will
more likely demand better
designed, sustainable,
high-quality premises.
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
J e d d ah Indus tri al O vervi ew J e d d a h Wa re ho u se a nd L o g is t ics O ve rv iew
Existing warehouse and logistics locations
Existing supply Ongoing/Upcoming
Al Khomra South (Ad Dahiah District)
Industrial City 1 Asfan Smart Al Khomra Central (As Sarawat District)
Industrial City 2 Industrial City Al Khomra North
JEDDAH Industrial City 3 JEDDAH Shammaa Nakhil
Al Kawathar
Qwauzah & Muntazahat
Al manar
J e d d ah Ind us t r ial Manufacturi ng S e ctor Suppl y J e d d a h Wa re ho u se a nd L o g is t ics Su p p l y
As at Q1 2020, Jeddah’s four industrial cities have Over the last five years Jeddah’s warehousing and The majority of Jeddah’s existing supply Due to the availability of large land plots and
a total of approximately 105 million square metres logistics landscape has seen a marked change. comprises projects featuring conventional proximity to Industrial City 1 and Jeddah
of land allocated for industrial development, with One of the most noteable changes which has warehouses such as dry-storage, cold-storage and Islamic Seaport, the majority of forthcoming
Industrial Cities - Total Allocated Industrial Cities - Developed land
all areas being developed by MODON. Of the four Land Breakdown By Each Industrial breakdown By Each Industrial City taken place has been the relocation of industrial open yards whilst modern logistics facilities are warehousing and logistics stock is located
areas, Industrial City 3 accounts for 76% of the City Q1 2020 Q1 2020 activities from the districts of An Nuzha and limited in number. within the Al-Khomra district.
total land allocation. Al Jamiah as part of Jeddah Municipality’s
regeneration plans for these area.
As at Q1 2020, of the 105 million square metres
of land allocated for industrial development, 5% 11% 9% As at Q1 2020, Jeddah’s warehousing and logistic
approximately 29 million square metres has been facilities supply reached approximately 17.2
Warehouse & Logistics Leasable Area breakdown By Major Districts Q1 2020
developed. Industrial City 1, 2, 3 and 4 account 8% million square meters of GLA. The existing supply
for 41%, 26%, 24% and 9% of the total developed
Total of warehousing and logistics centres in Jeddah is
Developed 41%
area respectively, where the majority of the Total Land 24% primarily concentrated in locations in Industrial 2% 5%
105 million Land 3%
undeveloped land is located in Industrial Cities Square Meters 29 million City 1 and the Jeddah Islamic Seaport. Several 3% 33%
3 and 4. Jeddah’s upcoming industrial areas are
Square Meters other warehousing and logistic facilities are 6% Al Khomrah South (Ad Dahiah Districts) Al Kawthar
situated in two main locations, the southern and located along the logistic corridors of Haramain
76% Total GFA Al Khomrah Central (As Sarawat District) Qwaizah & Muntazahat
north eastern parts of the city. and Alsfan Roads.
17.2 million
26% Square Meters Al Khomrah North Al Manar
The Al-Khomra district has the largest share of
Industrial City 1 Industrial City 3 Industrial City 1 Industrial City 3 19% Shammaa Nakhil Other
warehousing and logistics supply in Jeddah.
Industrial City 2 MODON Oasis in Jeddah Industrial City 2 MODON Oasis in Jeddah
Warehousing and logistics stock in the areas of
Source: Knight Frank Research Source: Knight Frank Research
Al-Khumra North, Central and South districts Source: Knight Frank Research
29%
account for 81 percent of total leasable space.
SAUDI ARABIA INDUSTRIAL REVIEW H1 2020 SAUDI ARABIA INDUSTRIAL REVIEW H1 2020
MARK ET P ERF ORMANCE Given these challenging
macroeconomic conditions,
we expect that rental rates and
occupancy levels will soften
over the course of 2020.
Jeddah’s warehousing and logistics market has along logistic corridors have remained relatively
faced similar economic headwinds and structural stable over this period, where such stock has been
Occupancy in Jeddah’s
challenges as those witnessed in Riyadh. As a competitively priced.
result, average rental rates in the year to Q1 2020
warehousing and logistics
As at Q1 2020, rental rates for dry-storage facilities
have softened by 4.0%. sector increased by three
stood at an average of SAR 134/sqm/annum, with
percentage points in the year
Rental rates for Grade A warehousing and lease rates ranging from SAR 70 /sqm/annum to
logistics facilities located in close proximity to
to Q1 2020, where occupancy SAR 275 /sqm/annum, depending on the quality of
Industrial City 1, Jeddah Islamic Seaport and stood at an estimated 93%. space on offer and accessibility of the location.
Warehouse and Logistics Lease Rates By Districts Q1 2020
300 300
275
270
250 250
200 200
185 180 175
Lease Rate Range SAR /sqm
Average Lease Rate SAR/sqm
150 156
150 140 150
130 130
116 115
100 100 95 100
100 100 95
85 80 75 70
50 50
0 0
Al Manar
Bin Zakob &
Shammaa
Nakhil
Qwaizah &
Muntazahat
Al Kawthar
Al Khomrah
North
Al Khomrah
Central
Al Khomrah
South
Source: Knight Frank Research Range Average Rent
The potential growth of
e-commerce is expected to
become a major driver of
change in the logistics sector.
This fundamental shift will
likely create a wave of demand
for modern, international
grade of logistics facilities.
MA RKET OUTLO OK
The outlook for Saudi Arabia’s industrial, pandemic. In addition to the Government of COVID-19 on the private sector. Whilst these
warehousing and logistics sector is likely to be stimulus packages, the Saudi Industrial efforts are likely to provide some support to the
challenging in the short to medium term. This Development Fund (SIDF) has also announced sector, the decline in demand is likely to outweigh
trend is likely to be underpinned by lower levels several initiatives aimed to support the national various Government initiatives.
of consumer demand amid expectations of a efforts to limit the financial and economic impact
In the short run, Saudi Arabia’s industrial
marked downturn in economic activity over
and logistics sectors face some considerable
the coming year as a result of the COVID-19
headwinds, namely as a result of COVID-19
pandemic.
and on the back of multiple reforms enacted
Furthermore, with government finances being A paradigm shift in by the Saudi Government. For the prior, Saudi
materially impacted, and the tripling of VAT commercial property Arabia’s lack of status as a global trade hub will
and increases expected in customs duties, we mean the sector is likely to only face short term
is occurring, with the
are likely to see demand shrink further from headwinds as a result of lower domestic demand.
traditional bricks-and-mortar
both the corporate and consumer sector. For More so, new regulations, which may initially
the prior, the sectors most likely to be impacted
retail sector being displaced pose challenges, are designed for the long term
include automotive, construction, retail and in parts by a growing prosperity of the sector. Given the prosperity
manufacturing, which will in turn lead to a direct industrial sector driven by nature of the sector in Saudi Arabia, Saudi
reduction in demand for industrial and logistics the emergence of e-commerce Arabia’s strategic location and sizeable domestic
facilities. economy alongside its flexible regulations, the
in Saudi Arabia.
fundamentals underpinning a growing industrial
The Government of Saudi Arabia has enacted
and logistics sector remain strong, despite some
various stimulus packages to support the
of the aforementioned short run challenges.
industrial and logistics sector throughout the
KEY CONTACTS
Stefan Burch, MRICS Stephen Flanagan, MRICS Amar Hussain Abdullah M Alsayegh
General Manager & Partner Partner, Valuation & Advisory Data Manager Senior Analyst
+966 53 0893 297 +966 55 8866 480 +966 55 2323 036 +966 55 2323 660
Stefan.Burch@me.knightfrank.com Stephen.Flanagan@me.knightfrank.com Amar.Hussain@me.knightfrank.com Abdullah.Alsayegh@me.knightfrank.com
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