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JLL Research Report
The KSA Real Estate Market
Mid-Year Review 2019
KSA02 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 03
Riyadh Market Summary
The real estate market in Riyadh softened further during the second quarter of 2019.
In the office sector, rental rates continued to register declines while vacancy increased
on an annual basis, amid limited corporate activity. Similarly, residential sale prices
and rental rates dropped Y-o-Y. The strong government initiatives to boost demand are
expected to reflect positively on performance levels in the long-run. Meanwhile, retail
malls recorded mixed performance with average rental rates in the better quality super
regional malls remaining stable, while decreases where noted in regional centers and
community centers. Hotel occupancy rates in the year-to-May 2019 registered 59%,
while average daily room rates dropped 10% Y-o-Y to register USD 162 over the same
period. Our long-term outlook for the hotel market remains positive due to growing
developments in the entertainment sector.
Riyadh - Prime Rental Clock
Rental Rents Rental Rents
Growth Falling Growth Falling
Slowing Slowing
Retail
Residential
Rental Rents Rental Rents
Growth Bottoming Growth Bottoming
Accelerating Out Hotel* Accelerating Out
Office Office
Retail
Hotel*
Residential
Q2 2018 Q2 2019
* Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate)
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of
investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets
will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL04 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 05
Office Residential
Supply Supply
The office market in Riyadh witnessed the delivery of 5 Q2 2019 witnessed the delivery of 7,600 residential units, 1.5
0.10 0.03
one major project, the first phase of Riyadh Business 0.15 increasing the total inventory of apartments and villas 0.02
0.03
Front, adding 33,000 sq m of office GLA. Along with a few to 1.3 million units. More than 50,000 units are expected
other minor additions, this brings the total office stock 4 to be delivered over the next two years (2019 and
to 4.3 million sq m as of end Q2 2019. An additional 2020). These are expected to comprise of high-quality
1.0
GLA (sq m million)
155,200 sq m of office GLA is scheduled for delivery over apartments and townhouses that meet the population’s
Units (million)
the next six months. 3 need for more modern and contemporary living
solutions at affordable rates.
The completion and delivery of the first phase of Riyadh
Business Front ushers in new potentials for the office 2 These efforts continue to be supported by growth in
market in Riyadh. The project boasts advanced and demand as a result of government initiatives to increase 0.5
modern work spaces based on smart technologies and home ownership rates to 60% by 2020 and 70% by 2030
1
provides flexible working spaces to suit companies 3.47 3.57 4.07 4.26 4.29 4.45 4.55 as stipulated in Vision 2030. Statistics from the Saudi 1.19 1.24 1.26 1.29 1.30 1.32 1.35
of various sizes and requirements. Construction is Arabian Monetary Agency (SAMA) shows an annual
currently underway on the second phase of the project acceleration in real estate loans in Q2 2019 versus Q2
0 0
which is due to complete within the next two years. 2018. This indicates financial institutions have been
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
allocating an increasing share of their loans to housing
Looking ahead, an additional 104,000 sq m of office and real estate.
Current Supply Future Supply Current Supply Future Supply
GLA is expected to handover by 2020. However we
remain cautious of the delivery of projects within their
timeframe, and can expect some projects to be delayed Source: JLL Source: JLL
to 2021.
Performance Performance
Performance of the office market remained weak in Q2 Vacancy Rate The performance of the residential market continued Residential rents and sale indices
2019 with average Grade A rents dropping 4% to reach to soften in Q2 2019, with average rents decreasing at
SAR 1,360 per sq m per annum, while average Grade 8% 8% a slower rate than average sale prices. Rents across Apartments - Sale Rent
B rents dropped 1% to register SAR 1,030 per sq per apartments and villas declined 1% on an annual and
annum. In turn, vacancy rates remained relatively stable quarterly basis. Meanwhile sale prices dropped 5% Y-o-Y
Y-o-Y at 8% as no corporate expansions were noted. in both apartments and villas. -5% -5% -1% -1%
In the face of limited demand, we expect rents to face Q2 2018 Q2 2019
further downward pressure should additional supply be Looking ahead, as more supply is expected to enter the Q-o-Q Y-o-Y Q-o-Q Y-o-Y
delivered over the next six months. 12 month market over the next two years, rents and sale prices
outlook are likely to remain under pressure. However, the rate of
In the medium-to-long term, the office market is set decline is expected to slow down as the impact of the
12 month 12 month
to benefit from the expected opening of the 176.7 km government initiatives takes effect. These are expected outlook outlook
Riyadh metro and a parallel bus network. The first to increase demand for residential properties, which is
section of the metro, which is set to open by the end of Average Rent (SAR / sq m) expected to reflect positively on the performance of the Villas - Sale Rent
2019, will bring new travel options to the city’s rapidly market in the long-run.
expanding population and ease business travel as it
links to the main commercial hubs. When it becomes -4% -5% -1% -1%
fully operational in 2021, the Riyadh metro will be the 1,300 Y-o-Y
1,250 Q-o-Q Y-o-Y Q-o-Q Y-o-Y
world’s largest public transport project and an integral
-4%
component to achieving the country’s Vision 2030. Q2 2018 Q2 2019
12 month 12 month
12 month
outlook outlook
outlook
Source: JLL Source: Ministry of Justice (MoJ), JLL06 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 07
Retail Hotel
Supply Supply
Riyadh’s retail market saw the delivery of approximately 3 The total number of hotel keys in Riyadh increased to 20
157,630 sq m of GLA in Q2 2019. This increased the 0.13 14,350 by the end of Q2 2019, with the addition of Shaza 2 0.16
0.27
total market inventory to 2.3 million sq m. The Zone Riyadh Hotel Residence (225 keys). An additional 1,500 2
and University Avenue were two prominent and well keys are expected to enter the market over the second
received additions to the market over the second half of 2019. 15
2
GLA (sq m million)
quarter. In line with global trends and the growth of the
Keys (thousand)
Food and Beverage industry, these additions consist of Future supply includes Narcissus Classic Tower, Hilton
various outlets ranging from high-end dining to fast food Riyadh King Saud University, Nobu Hotel Riyadh by 10
restaurants, in addition to luxury brands that were once Nobu Hospitality, the first property for the brand in the
absent from Riyadh’s retail scene. middle East, the Grand Millennium, and the New Airport
1
Marriott Hotel.
Construction is currently underway to complete an 5
additional 277,100 sq m of retail space over the next 1.69 1.84 2.05 2.15 2.31 2.59 2.71 Further growth in the branded serviced apartment 10 11 12 14 14 16 18
six months. While we remain cautious of the delivery segment is expected, with several properties due to
of stock within the timeframe, and can expect some hand over in 2019 including Hilton Riyadh King Saud
0 0
delays in handover, the majority of this stock is expected University Residence and Mercure Al Anoud by Princess
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
to be of high-quality shopping centers with a strong Al Anoud Foundation.
entertainment and food and beverage element. These
Current Supply Future Supply Current Supply Future Supply
include retail centers such as Qurtoba Boulevard, River
Walk Center and Shorofat Al Nada Park. This comes as
developers in the Kingdom look to differentiate their Source: JLL Source: JLL
products to secure a large consumer base.
Performance Performance
Retail rents in Riyadh registered mixed performance Vacancy Rate Hotel occupancy rates recorded 59% in the YT May 2019 Occupancy
over the second quarter. While average rents in regional versus 58% in YT May 2018. Meanwhile, average daily
malls and community centers declined 6 % and 5% 12% 14% room rates (ADR’s) fell significantly to USD 162 (SAR 608) 58% 59%
respectively in Q2 2019 versus Q2 2018, rents in high over the same period. In turn, revenues per available
quality super regional malls remained stable over the room (RevPar’s) declined to reach USD 94 (SAR 353).
same period. This is particularly the case in those malls Performance is expected to remain under pressure as
where owners have successfully managed to introduce more supply is added to the market over the next YT May YT May
Q2 2018 Q2 2019
new concepts such as entertainment options and niche 12-24 months. 2018 2019
F&B outlets. Meanwhile, the decline in rents in regional 12 month 12 month
and community malls can be attributed to tenants outlook In the long run however, government initiatives to outlook
moving out of the older centers and into the higher promote the hospitality sector in the Kingdom and in Y-o-Y
quality malls. As such, vacancy rates increased in Q2 Riyadh specifically, are expected to reflect positively 100 bp
2019 to register 14%. Average Rent (% change) on the performance of hotels. To this extent, Qiddiya
revealed the masterplan of its giga-project which
ADR (USD)
Looking ahead, and as the Kingdom actively progresses Super Regional Regional Community aims to cement it as the “Capital of Entertainment,
with plans to diversify its economy away from oil Sports and the Arts”. This is expected to generate
and expand its retail and tourism sector, we expect 0% -0% -4% -6% -3% -5% large opportunities for job creation and private sector
household spending to increase, particularly on Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y participation in the economy, particularly in the 179 Y-o-Y
162
entertainment and F&B. This is supported by initiatives hospitality sector. -10%
to create more job opportunities and support women YT May YT May
entering the workforce, thus increasing the purchasing 12 month 12 month 12 month
2018 2019
power of the population. outlook outlook outlook 12 month
outlook
Source: JLL Source: STR GlobalJeddah The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019
Market Summary
The real estate market in Jeddah remained subdued in Q2 2019. Office rents
weakened further while vacancy rates showed annual improvement mainly in
quality office space. With more supply expected to handover in the short term, office
09
performance will likely remain under downward pressure. In the residential sector,
sale prices and rental rates continued to decline, albeit at a slower rate, indicating
the market is close to the bottom of its cycle. The retail sector registered mixed
performance, with the better quality super regional malls with entertainment options
recording stable rents, while regional centres saw rents drop. Meanwhile, hotel
occupancy rates decreased marginally in the YT May 2019 when compared to the
same period in 2018. In turn, average daily rates and revenues per available room
registered annual declines.
Jeddah - Prime Rental Clock
Rental Rents Rental Rents
Growth Falling Growth Falling
Slowing Slowing
Residential
Rental Rents Rental Rents
Growth Bottoming Growth Bottoming
Accelerating Out Accelerating Out
Office
Office
Retail
Retail
Hotel*
Residential
Hotel*
Q2 2018 Q2 2019
* Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate)
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of
investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets
will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL10 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 11
Office Residential
Supply Supply
7 7
Demand for office space remained weak in Q2 2019 1.5 Q2 2019 witnessed the handover of Bayat Plaza Tower 850 4
on the back of slow business activity. Consequently, One on Madinah Road (176 units), with the remaining
no noticeable completions took place over the Tower Two expected to complete in 2019. The
0.026 0.005
quarter, leaving the total office stock in Jeddah at 0.079 completion of approximately 1,500 stand-alone units 680
1.06 million sq m of GLA. While some developers put bring the total stock of residential units in Jeddah to
1.0
their projects on hold, others aim to attract new tenants GLA (sq m million) 821,000, with a further 4,000 units expected to hand over
Units (thousand)
by offering them the flexibility of choice between shell during the second half of the year. 510
and core, semi or fully fitted-out or serviced offices
within the same premises. Scheduled completions this year include the mid-rise Al
Tawheed Tower along the Corniche (122 units), Emaar 340
Assuming no further delays, an additional 79,000 sq m 0.5 Residences ‘Abraj Al Hilal 3’ within Jeddah Gate (283
of stock is expected to handover in the second half of units), and the first phase of Manazil Al Safa. While
2019, which is below the previously estimated 0.89 0.97 1.01 1.06 1.06 1.14 1.17 most projects are nearing completion, some are either 170 789 803 813 817 821 825 832
91,000 sq m. Expected completions include Al Rawdah available for reservations only or are put on hold until
Business Avenue and Caira Plaza on Prince Saud market conditions and sentiment improves.
0 0
Al Faisal, Vision Tower on Prince Sultan street, and
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
Signature and Sara Square on Malik Road, in addition to Looking ahead, and assuming no further delays in
Corniche Centre on Corniche Road. construction, an additional 14,000 units are expected to
Current Supply Future Supply Current Supply Future Supply
enter the market between 2020-2021.
Source: JLL Source: JLL
Performance Performance
Commercial rents remained under downward pressure Vacancy Rate Performance in the residential market remained Residential rents and sale prices
across Jeddah in Q2 2019. As landlords continue to offer subdued in Q2 2019. Average rental rates declined
leasing incentives to attract new tenants, average Grade 22% 20% 10% for both apartments and villas on an annual Apartments - Sale Rent
A rents dropped 17% to reach SAR 1,030 per sq m per basis, while sale prices registered annual declines of
annum, while average Grade B rents dropped 12% to 6% for apartments and 7% for villas. However, the
average SAR 750 per sq m per annum. In turn, market rate of decline appears to have slowed down over the -2% -6% -1% -10%
wide office vacancies decreased 200 basis points to quarter as rents and sale prices dropped 1% and 2%
reach 20% Y-o-Y.
Q2 2018 Q2 2019 respectively. Q-o-Q Y-o-Y Q-o-Q Y-o-Y
12 month
In the short to medium term, we are likely to see As more supply is expected to handover in the next 12
rents dropping further as more supply enters the
outlook months, we expect sale prices and rental rates to drop 12 month 12 month
market. In the long run however, increased investment further, albeit at a slower rate. While housing initiatives outlook outlook
opportunities and the ease of travel stimulated by by the Ministry of Housing (MoH) had a positive effect
the new King Abdulaziz International Airport (KAIA) is Average Rents (SAR / sq m) on access to home financing, some households are Villas - Sale Rent
expected to reflect positively on the appetite for doing opting to hold back or pull out of buying a home as
business in Jeddah. In turn, this will reflect positively they anticipate further drops in residential prices. In the
on the performance of office buildings across the city, long run however, and as economic activity picks up on -2% -7% -1% -10%
particularly Grade A space. 1,055 Y-o-Y
901 the back of government efforts and housing initiatives,
Q-o-Q Y-o-Y Q-o-Q Y-o-Y
we expect ownership rates to increase, thus exerting
-15%
Q2 2018 Q2 2019 upward pressure on rents and prices.
12 month 12 month
* Changes to the methodology have impacted performance 12 month
outlook outlook
figures. Please refer to the ‘Definitions & Methodology’ outlook
section for more detail.
Source: JLL Source: Ministry of Justice (MoJ), JLL12 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 13
Retail Hotel
Supply Supply
There were no notable mall completions in Q2 2019, 2.0 The second quarter saw the opening of one budget 20
leaving the total retail supply in Jeddah relatively branded hotel, Ibis Jeddah Malik Road, adding 2
unchanged at approximately 1.43 million sq m. Looking 0.172 approximately 180 keys. This brings the total supply of
3
ahead, the market is expected to witness an additional 0.075 hotel keys in Jeddah to 11,900.
75,000 and 172,000 sq m of retail GLA in 2019 and 2020 1.5 15
1
GLA (sq m million) A further 1,000 keys are expected to enter the market
Keys (thousand)
respectively, with the potential completion of the retail
component of Jeddah Park (Serafi Mall – 125,000 sq m) in 2019. These properties include Ibis Jeddah Alesayi
on Tahlia Street. The remaining pipeline comprises of 1.0 Plaza, the new Jeddah Marriott in Al Bawadi, Crowne 10
neighbourhood and community centres, with notable Plaza Jeddah, and Park Inn by Radisson Madinah Road,
projects including Atelier Lavie, Sunset Avenue, Obhur the first property for the brand. Further growth in the
Mall, Manuel Square, Al Hamra Square, and WOW. branded serviced apartment segment is expected, with
0.5 several properties due to hand over in 2019 including 5
While a number of commercial-driven cinema 1.25 1.35 1.39 1.42 1.43 1.51 1.68 Adagio Jeddah Malik Road and Adagio Alesayi Plaza. 8 10 11 11 12 13 16
multiplexes have emerged across the country, Q2 2019
saw the launch of the Kingdom’s first arthouse ‘Cinema Looking ahead, the recently-opened Neom Bay Airport,
0 0
El Housh’ in Jeddah’s historic district Al Balad. While this as part of the Neom Project, is expected to attract
2015 2016 2017 2018 Q2 2019 2020F 2021F 2015 2016 2017 2018 Q2 2019 2020F 2021F
was introduced as part of the Jeddah Season festival, more investments due to enhanced connectivity, thus
we can expect more initiatives to launch in the future boosting demand in the hospitality market. This is likely
Current Supply Future Supply Current Supply Future Supply
as the Kingdom aims to increase household spending to reflect positively on the branded hotel segment as the
on entertainment, and improve participation in cultural city prepares to cater to a more diverse tourist base.
activities in line with Vision 2030. Source: JLL Source: JLL
Performance Performance
Average retail rents in Jeddah saw mixed performance Vacancy Rate Hotel occupancy rates registered 53% in the YT May Occupancy
in Q2 2019. While rents in regional malls decreased 2019 compared to 54% in the YT May 2018. Meanwhile,
3% on an annual basis, rents in super regional centres 11% 10%* average daily room rates (ADR’s) declined 12% Y-o-Y to 54% 53%
remained stable over the same period. As landlords register USD 215 (SAR 806). In turn, revenue per available
continued to offer yearly leasing incentives to retain room (RevPar’s) dropped 13% to record USD 114 (SAR
tenants, market wide vacancies decreased marginally 428) over the same period. In the face of a strong supply
to reach 10% Y-o-Y. Q2 2018 Q2 2019 pipeline, hotel performance is expected to soften further YT May YT May
over the remainder of the year. 2018 2019
Looking ahead, retail rents and vacancies are likely to face 12 month 12 month
further pressure as more supply is expected to enter the outlook Our view of the hotel market remains positive in the long outlook
market over the next 12-24 months. This will give tenants run, given the government’s commitment to investing Y-o-Y
more choice and negotiating power. Pressure is also likely in giga-projects that not only promote tourism, but also -100 bp
to mount from the growth of e-commerce in Saudi Arabia. Average Rent diversify the Kingdom’s tourist base. Particularly for
Regional Super Regional Jeddah, which is dominated by religious tourism, these ADR (USD)
The retail market is supported by many initiatives such investments are likely to drive a mix of corporate, leisure,
as the introduction of e-tourism visas in time for the local and international visitors.
Jeddah Season 2019. Visitors buying online tickets for -1% -3% 0% 0%
the festival are able to secure an e-tourism visa at the Q-o-Q Y-o-Y Q-o-Q Y-o-Y 244 Y-o-Y
215
same time. We expect similar initiatives to be launched -12%
in order to promote both retail and tourism spend. YT May YT May
12 month 12 month 2018 2019
* Changes to the methodology have impacted performance outlook outlook 12 month
figures. Please refer to the ‘Definitions & Methodology’ outlook
section for more detail.
Source: JLL Source: STR GlobalMakkah
14 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019
Market Summary
In Makkah, the hotel sector witnessed some activity as a number of properties were
handed over. Occupancy rates and average daily room rates increased significantly
due to the rise in the number of visas issued during the Umrah season. This in
15
turn reflected positively on revenues per available rooms. In the retail sector, rents
declined in the Markazia area but increased elsewhere in the city. Residential
rents and sale prices continued to drop and are expected to face further downward
pressure as more supply enters the market. Meanwhile, performance of the office
market continued to soften as rents decreased. The sector is expected to remain
under pressure over the next 12 months.
Makkah - Prime Rental Clock
Rental Rents Rental Rents
Growth Falling Growth Falling
Slowing Slowing
Rental Rents Rental Rents
Growth Bottoming Growth Bottoming
Accelerating Out Accelerating Out
Residential
Retail Residential
Retail
Hotel* Office
Hotel*
Office
H1 2018 H1 2019
* Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate)
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of
investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets
will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL16 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 17
Office Residential
Supply Supply
Despite delays in the handover of some office projects, 450 Approximately 2,000 stand-alone residential units were 450
16 4
H1 2019 saw the completion of one corporate office, 80
delivered during the first half of 2019 in Makkah, bringing 3 7 7
Mashareq 1 – Southeast Asia Foundation, adding the total supply to around 389,500 units. A further
6,900 sq m of office GLA to the market. This brings the 3,000 units are expected to handover in the remainder
total supply of office GLA to approximately 312,000 sq m. of the year.
GLA (sq m million) 300 300
Units (thousand)
Naseem Offices, an 80,000 sq m of Grade A office GLA Notable upcoming deliveries include apartments in
within Tilal Al Naseem Complex, is expected to be U-Shaped, a residential building within Tilal Al Naseem
delivered within the next 6 months. However other Complex, in addition to a number of villas in phase 1 of
projects in the pipeline that were scheduled for delivery Sumou District within Bawabat Makkah.
in 2019 are being delayed into 2020. The majority of this 150 150
delayed office space (approximately 16,500 sq m of GLA) These developments target the upper end of the market
is dominated by Grade B office space. 219 256 297 305 312 392 408 and do not alleviate the shortage of affordable housing 367 376 383 387 389 392 399
in the market. Nonetheless, we expect the Makkah
In the long term, demand for office space in Makkah is residential market to pick up in the long run with the
0 0
expected to pick up on the back of major government completion of all major mega-projects such as King
2015 2016 2017 2018 H1 2019 2020F 2021F 2015 2016 2017 2018 H1 2019 2020F 2021F
initiatives such as improving the connectivity of Abdulaziz Road, Jabal Omar, Thakher, and Rua’a Al
the city. This is supported by large-scale mixed-use Haram Al Makki developments.
Current Supply Future Supply Current Supply Future Supply
developments such as King Abdulaziz Road Project,
which will significantly improve the quality of office
space in Makkah. Source: JLL Source: JLL
Performance Performance
Despite the limited current supply, average office rents Vacancy Rate Performance of the residential market in Makkah Residential rents and sale prices
in Makkah continued to soften, registering annual remained subdued in H1 2019. Residential sale prices
declines of 8% to reach SAR 559 per sq m per annum. 34% 30%* registered annual declines of 10% for both apartments Apartments - Sale Rent
Meanwhile, market wide vacancy rates recorded 30% in and villas. On a 6-months basis, sale prices declined by
H1 2019 as corporate activity remained limited. 8% and 4% for apartments and villas respectively.
-8% -10% -6% -12%
With the new supply expected to enter the market Average apartment rents softened 12% Y-o-Y while
over the next 12 months, we expect office rents and
H1 2018 H1 2019 decreasing at a slower rate of 6% over the past 6 months Y-o-Y 6 months Y-o-Y
vacancies to remain under further pressure, particularly 6 months. In turn, villas rents declined 2% and 3%
12 month
for the lower quality offices. This will result in landlords on a 6-months and annual basis respectively. As more
offering leasing incentives to retain their tenants and
outlook supply is expected to enter the market, rents and sale 12 month 12 month
keep them from moving to newer locations which prices are likely to remain under further pressure over outlook outlook
offer better quality and connectivity. Looking ahead, the next 12 months.
the operational Al Haramain Railway, which runs from Average Rents (SAR / sq m) Villas - Sale Rent
Jeddah to Makkah, is likely to boost demand for office
space.
-4% -10% -2% -3%
608 Y-o-Y
559 6 months Y-o-Y 6 months Y-o-Y
-8%
H1 2018 H1 2019
12 month 12 month
* Changes to the methodology have impacted performance 12 month
outlook outlook
figures. Please refer to the ‘Definitions & Methodology’ outlook
section for more detail.
Source: JLL Source: Ministry of Justice (MoJ), JLL18 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 19
Retail Hotel
Supply Supply
Delays to retail projects currently under construction 1.5 0.06 Approximately 1,300 keys entered the market over the 80
left the total stock of retail space unchanged at 0.08 first half of 2019, with two internationally branded hotels
0.05 5
1.24 million sq m over the first half of 2019. A further within Tilal Al Naseem Complex, Millennium Makkah Al
17
47,300 and 75,700 sq m of GLA is expected to enter the Naseem (821 keys) and Copthorne Makkah Al Naseem
market in 2019 and 2020 respectively. (486 keys). This brings the total supply of quality hotel 60
1.0
GLA (sq m million) keys to 39,100 as of H1 2019.
Keys (thousand)
7
The bulk of future retail supply comprises of community
and neighborhood centres. Scheduled completions 2019 and 2020 are expected to witness the delivery of 40
include Naseem Souq and Naseem Line Shops within an additional 6,500 and 17,400 keys respectively.
Tilal Al Naseem, in addition to the third phase of Jabal Upcoming hotels include the first phase of Maad
Omar. These properties are expected to deliver better 0.5 Hospitality Towers (4,400 keys), Copthorne Makkah Al
shopping and entertainment experiences to target Adl (1,485 keys), Park Inn by Radisson Al Hajla (1,600 20
pilgrims from various countries. While strip retail does 1.15 1.18 1.20 1.24 1.24 1.29 1.37 keys), the Double Tree by Hilton (680 keys), the Address 29 33 36 38 39 46 63
not typically count towards quality supply, a number Makkah JODC (1,500 keys), and the recently announced
of retail plazas contribute to the total GLA given its Crowne Plaza Makkah Beban (1,200 Keys). Budget hotels
0.0 0
significance and popularity in Makkah. also have a significant share in the new supply to cater
2015 2016 2017 2018 H1 2019 2020F 2021F 2015 2016 2017 2018 H1 2019 2020F 2021F
for the changing visitor demographics.
The expected increase in visitors during the 2019 Hajj
Current Supply Future Supply Current Supply Future Supply
season is set to benefit retailers who typically enjoy The strength of the future supply pipeline cements
above average sales during the season, particularly in Makkah’s position as a strategic tourism hub, as the
areas close to the Holy Mosque. Source: JLL government aspires to attract over 30 million Umrah Source: JLL
pilgrims and 6.7 million Hajj pilgrims by 2030.
Performance Performance
The retail sector in Makkah continued to soften in H1 Vacancy Rate Hotel performance in Makkah improved in the YT May Occupancy
2019. While average retail rents in the Markazia area and 2019. On an annual basis, occupancy rates increased to
community centres outside of the Markazia dropped 4% 5% 5% 70% while average daily room rates (ADR’s) increased 61% 70%
and 5% respectively, rents in regional centres increased 20% to reach USD 161 (SAR 604). In turn, revenue per
slightly by 1% due to limited stock. Meanwhile, rents available rooms (RevPAR’s) increased significantly to USD
remained unchanged in neighbourhood centres. 113 (SAR 424); a 38% increase from YT May 2018 figures.
H1 2018 H1 2019 YT May YT May
With limited retail supply entering the market, vacancies This improvement can be largely attributed to the rising 2018 2019
remained unchanged at 5% Y-o-Y. In the short to 12 month number of Umrah pilgrims. Despite ongoing work on the 12 month
medium term, we expect rents to drop further and outlook Mosque expansion and delays in major infrastructure outlook
vacancies to increase as more supply enters the market, works, data from the Ministry of Hajj and Umrah Y-o-Y
particularly for community and neighbourhood centres. highlighted a boost in the number of Umrah pilgrims this 900 bp
It is likely that retailers will adjust rents to reflect more Change in Average Rents (H1 2018 – H1 2019) year, reaching 7.2 million as of May 2019. The number of
reasonable rates and offer flexible leasing terms to visas issued also increased to 7.5 million compared to ADR (USD)
Regional Community Neighbourhood Markazia
attract new tenants. last year’s Umrah season.
1% -5% 0% -4% Looking ahead, the peak Hajj season later this year
Y-o-Y Y-o-Y Y-o-Y Y-o-Y is expected to have a significant impact on the 134 Y-o-Y
161
performance of the hotel market. This is backed by 20%
the substantial infrastructure investments to increase YT May YT May
capacity in the coming years. 2018
12 month 2019 12 month
* Changes to the methodology have impacted performance
figures. Please refer to the ‘Definitions & Methodology’ outlook outlook
section for more detail.
Source: JLL Source: STR GlobalDMA
20 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019
Market Summary
The performance of the real estate market in DMA remained weak in the first half
of 2019. In the office sector, rental rates declined 10% from H1 2018 levels, while
vacancy rates remained unchanged. Similarly, sale prices and rental rates in the
21
residential sector recorded declines over the same period. In the retail sector, retail
malls registered mixed performance as the better quality centers offering a mix of
entertainment, retail and F&B performed better, reflecting changing consumer tastes.
The hotel sector in DMA saw occupancy rates improve to 54% in the YT May 2019
versus YT May 2018. Average daily room rates and revenues per available room
however remained under pressure, with further declines registered over the period.
DMA - Prime Rental Clock
Residential
Rental Rents Rental Rents
Growth Falling Retail Growth Falling
Slowing Slowing
Residential
Retail
Rental Rents Rental Rents
Growth Bottoming Growth Bottoming
Office
Accelerating Out Accelerating Out Office
Hotel*
Hotel*
H1 2018 H1 2019
* Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate)
Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of
investment or development market prospects. It is important to recognize that markets move at different speeds depending on their maturity, size and economic conditions. Markets
will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL22 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 23
Office Residential
Supply Supply
The first half of 2019 saw an additional 19,450 sq m GLA 1000 26 The first half of 2019 witnessed a slowdown in the 400
43
of office space enter the market, bringing the total office number of units completed, as only 100 units were 6 6
inventory in DMA to approximately 890,000 sq m GLA handed over in the city of Khobar. Projects delivered
as of H1 2019. Among the deliveries were the Al Juaib include Al Fahad Towers, Al Khobar Garden Phase 2, Al
Administrative building on Dhahran-Jubail Highway, as 750 Khobar Views, and Shrafiya Towers. This brings the total 300
well as Al Khafra Tower located in the central area on GLA (sq m thousands) residential supply to approximately 351,000 units by the
Units (thousand)
King Fahd Highway in Dammam. end of H1 2019.
500 200
An additional 43,000 sq m GLA is expected to be delivery H2 2019 is expected to witness the delivery of an
over the remainder of the year, however we expect additional 6,000 units. However, given materialisation
delays in the handover of some projects given subdued rates to date, we expect some delays in the delivery
market conditions. Expected completions include Ta’ziz 250 of these projects. Among the projects expected in the 100
Tower, Al Hajiri Tower, Al Khalidiya Tower and Biato 635 703 819 871 890 933 959 second half of 2019 are Al Khobar Marina (1,400 units), 331 338 345 351 351 357 363
Project. 2020 is expected to witness the handover of an Laguna project Phase 1 (32 residential villas), and Al
additional 26,000 sq m of office space, including Abdul Morouj residential project (37 villas). Construction
0 0
Hadi Al Hukait project located on the Corniche road. activity is set to remain strong, with an additional
2015 2016 2017 2018 H1 2019 2020F 2021F 2015 2016 2017 2018 H1 2019 2020F 2021F
6,000 units anticipated in 2020.
Current Supply Future Supply Current Supply Future Supply
Source: JLL Source: JLL
Performance Performance
The average rents in office spaces in DMA dropped 10% Vacancy Rate Residential sale prices and rental rates continued to Residential rents and sale prices
in H1 2019. However, Grade A spaces characterized by register declines in H1 2019. Apartment and villa sale
high-quality finishing with ease of access and ample 30% 30% prices dropped 4% and 5% respectively on a 12-month Apartments - Sale Rent
amenities continue to perform better than Grade B basis in H1 2019. Meanwhile, apartment rents and villa
spaces which recorded larger declines in average rents. rents declined 5% and 1% over the same period
Meanwhile, there was no real improvement in the rate of (H1 2019 versus H1 2018). -3% -4% -5% -5%
office take-up during the first half of 2019 and as such,
the vacancy rate remained stable at 30% over the same
H1 2018 H1 2019 Looking ahead, we expect rents and sale prices to 6 months Y-o-Y 6 months Y-o-Y
period. continue their downward trajectory over the next
12 month
12 months considering the additional supply expected
With the delivery of over 60,000 sq m of office GLA over
outlook to handover. In the long-run, initiatives launched by the 12 month 12 month
the next two years, we expect rents to remain under Ministry of Housing are likely to promote demand for outlook outlook
pressure. This is particularly true as the DMA continues residential units. This will contribute to achieving the
to rely on the hydrocarbon sector. However in the long Average Rents (SAR / sq m) target of raising home ownership rates to 70% by 2030. Villas - Sale Rent
run, and on the back of initiatives and announcements
aimed at diversifying the DMA’s economy, such as the
King Salman Energy Park (SPARK), we expect corporate -4% -5% -1% -1%
demand to pick up, reflecting positively on office rents. 997 Y-o-Y
901 6 months Y-o-Y 6 months Y-o-Y
-10%
H1 2018 H1 2019
12 month 12 month
12 month
outlook outlook
outlook
Source: JLL Source: Ministry of Justice (MoJ), JLL24 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 25
Retail Hotel
Supply Supply
0.30 0.56
The first half of 2019 witnessed the completion of a 1.5 No new hotel keys were delivered over the first half of 10.0
0.80
small number of retail projects, adding approximately the year in the DMA, keeping supply levels stable at
0.75
20,000 sq m GLA to the supply pipeline. These projects 7,800 keys as of H1 2019. Assuming construction activity
0.12
include Villaggio, Al Sadeen Commercial Center Phase 1, proceeds in a timely manner, the market is expected to
and Al-Falak. These additions kept the total retail supply witness the delivery of an additional 750 keys in H2 2019. 7.5
1.0
in DMA at 1.1 million sq m at the end of H1 2019. GLA (sq m million) This represents a decline from the previously estimated
Keys (thousand)
number of keys, indicating developers are delaying the
An additional 120,000 sq m of retail GLA is scheduled handover of projects. 5.0
to handover in the remainder of the year. Expected
completions include Al Nakheel Mall, Patio, Pavilion 2020 and 2021 are expected to witness the delivery of
Al Khobar, Matal Eatery Complex, Ajdan Walk and 0.5 an additional 800 and 560 keys respectively. Upcoming
Lyzawan Walk. While no new projects are scheduled for hotels include King Fahd International Airport Hotel 2.5
completion in 2020, we can expect some delays to the 0.93 0.97 1.0 1.1 1.1 1.2 1.2 (120 keys), Centro Al Khobar Hotel by Rotana (250 keys), 6 7 7 8 8 9 9
projects currently under construction, thus adding to Swiss-Bel Hotel Khobar (99 keys), Dana Rayhaan by
the future supply in 2020. The majority of the upcoming Rotana (285 keys), Hilton Garden Inn (159 keys),
0.0 0
stock is situated within community malls. Marriott Dammam (280 keys), Ascott Corniche Al Khobar
2015 2016 2017 2018 H1 2019 2020F 2021F 2015 2016 2017 2018 H1 2019 2020F 2021F
(172 keys), and Hilton Al Khobar King Fahd Causeway
(341 keys).
Current Supply Future Supply Current Supply Future Supply
Source: JLL Source: JLL
Performance Performance
DMA’s retail sector experienced further rental declines Vacancy Rate The hotel market in DMA saw an improvement in Occupancy
across the regional and community centers. Meanwhile, occupancy rates during the first half of the year,
rents in super regional malls saw an increase of 8% in H1 6% 7% registering 54% in the YT May 2019 compared to 52% in 52% 54%
2019 versus H1 2018, as mall owners were able to offer the YT May 2018. Meanwhile, average daily room rates
differentiated retail concepts and experiences to attract (ADR’s) and revenues per available rooms (RevPar’s)
and retain tenants. Overall vacancy rates continued to continued to decline to register USD 117 (SAR 439) and
increase over the past 12 months. H1 2018 H1 2019 USD 64 (SAR 240) respectively over the same period. YT May YT May
2018 2019
While we expect further declines in rental rates on the 12 month The market witnessed an uptick in occupancy rates on 12 month
back of additional supply, we remain positive in our outlook the back of initiatives and events to promote the Eastern outlook
long-term view for DMA’s retail market. The sector is set Region’s tourism and entertainment sector. These events Y-o-Y
to benefit from the government initiatives to boost the aim to transform the Kingdom into one of the most 200 bp
population’s spending, particularly on entertainment. Change in Average Rents important tourist destinations in the world, while also
enhancing the quality of life of the local population in ADR (USD)
Super Regional Regional Community line with Vision 2030. Looking ahead, this is expected to
reflect positively on the number of tourists arriving to the
8% 8% 0% -1% 0% -3% Kingdom in general, and the DMA specifically, which is
6 months Y-o-Y 6 months Y-o-Y 6 months Y-o-Y expected to boost hotel performance levels. 142 Y-o-Y
117
-18%
YT May YT May
12 month 12 month 12 month 2018 2019
outlook outlook outlook 12 month
outlook
Source: JLL Source: STR Global26 The KSA Real Estate Market Mid-Year Review 2019 The KSA Real Estate Market Mid-Year Review 2019 27
Property Clock Definitions
12 O’clock Office Residential Performance. Weighted average rents (WAR) are
based on lease transactions from the JLL Retail
Supply. The current supply of completed office Supply. The current supply of completed team. It reflects the rents across a basket of super
12 o’clock indicates a turning point towards regional, regional, and community retail centres.
GLA is based on a comprehensive list of office residential buildings is based on the National
a market consolidation / slowdown. At this Retail performance in Makkah also includes the
buildings within certain areas in Jeddah that have Housing Census (2010) and reflects residential
position, the market has no further rental been handed over for immediate occupation. units that have been handed over for immediate Markazia retail centers.
growth potential left in the current cycle, This includes Grade A and B stand-alone office occupation.
with the next move likely to be downward. buildings and office space within mixed-use WAR represents the top open market net rent
buildings. Our project list excludes owner- Our definition of residential units includes expected for a standard line shop of 100 sq m in
occupied and government office buildings. apartments, villas, and townhouses. a basket of centres. Given the variation in rentals,
we quote percentage change for retail rents rather
• The certain areas within Riyadh we cover The future supply of residential units is updated than actual figures.
include: Commercial Business District on a quarterly basis and is based on primary
(CBD), North and East Ring Roads, Khurais, research (physical inspections) and secondary Vacancy rate is based on estimates from the JLL
Mazer, and Sitteen Streets. Our future supply research (discussions with developers) of major Retail team. It reflects the weighted average rate
9 O’clock 3 O’clock of office GLA in Riyadh excludes the space projects and stand-alone developments. across a basket of super regional, regional, and
within the King Abduallah Financial District community centres.
9 o’clock indicates the market has reached 3 o’clock indicates the market has reached (KAFD). The future supply of residential units is reflective
the rental growth peak. While rents may its point of fastest decline. While rents may • The certain areas within Jeddah we cover of projects actively under construction. It Hotels
continue to increase over coming quarters continue to decline for some time, the include: Prince Sultan, Tahlia, Al-Malek, excludes projects that have been announced,
the market is heading towards a period of rate of decrease is expected to slow as the Ibrahim Al Jaffali, Amanah Street, Madinah, where ground works have not started. Supply. The current supply of hotel rooms is
King Abdullah and Rawdah Streets. based on data from the Saudi Commission for
rental stabilisation. market moves towards a period of rental
• The certain areas within Makkah we cover Performance. Data on residential performance Tourism and Antiquities (SCTA). It reflects hotel
stabilisation. include: Al Nuzha Road, Old Makkah-Jeddah is based on the prices and rents of a basket of rooms that have been handed over for immediate
Road, Umm Alqura Street, Al Diyafa Street, selected residential units within selected areas. occupation. Our project list includes 3, 4, and
and the 3rd and 4th Ring Roads. Our analysis is complemented with data from the 5-star hotels and serviced apartments.
• The certain areas within DMA we cover Ministry of Justice (MoJ) on transactions.
include: Dammam – Al Khobar Highway, The future supply of hotel rooms is updated on a
Prince Sultan Street, and Prince Turki Road.
Retail quarterly basis and is based on primary research
(physical inspections) and secondary research
The future supply of office GLA is updated on a
6 O’clock quarterly basis and is based on primary research
Supply. The classification of retail centers is (discussions with developers).
based on the Urban Land Institute (ULI) definition
(physical inspections) and secondary research The future supply of hotel rooms is reflective of
6 o’clock indicates a turning point towards and based on their Gross Leasable Area (GLA):
(discussions with developers). projects actively under construction. It excludes
rental growth. At this position, we believe projects that have been announced, where
• Super Regional Malls have a GLA of
the market has reached its lowest point and The future supply of office GLA is reflective of
above 90,000 sq m ground works have not started.
the next movement in rents is likely to be projects actively under construction. It excludes
• Regional Malls have a GLA of
upwards. projects that have been announced, where Performance. STR performance data is based on
30,000 - 90,000 sq m
ground works have not started. a monthly survey conducted by STR Global on a
• Community Malls have a GLA of
10,000 - 30,000 sq m sample of international standard midscale and
Performance. The weighted average rent (WAR) upscale hotels. Average Daily Rates (ADR) and
• Neighbourhood Malls have a GLA of
is based on lease transactions from the JLL Revenue Per Available Room (Rev Par) are the key
3,000 - 10,000 sq m
Offices and Business Space team. It reflects the performance metrics.
• Convenience Malls have a GLA of
average rates across a basket of Grade A and B
less than 3,000 sq m
buildings.
The current supply of completed retail GLA is
Grade A buildings are defined as high quality
based on a comprehensive list of mall-based
Definitions
office spaces, well located, with good access to
retail in each of the 4 cities, that have been
infrastructure and amenities including F&B and
handed over for immediate occupation. Our
retail.
project list excludes street retail and retail within
mixed-use buildings.
The WAR of Grade A buildings represents the top
open-market, net rent (exclusive of service charge
The future supply of retail GLA is updated on a
and incentives) for a new lease that could be
quarterly basis and is based on primary research
expected for a notional office unit.
(physical inspections) and secondary research
(discussions with developers).
Vacancy rate is based on estimates from the
JLL Offices and Business Space team. It reflects
The future supply of retail GLA is reflective of
the weighted average rate across a basket of
projects actively under construction. It excludes
buildings.
projects that have been announced, where
ground works have not started.Jeddah Riyadh Al Khobar Jameel Square South Tower, 17th Floor Level 21, Al Khobar Gate Tower Level 2, Suite 209 Tawuniya Towers King Fahed Road Tahliya & Andalus Streets Junction King Fahd Road Al Khobar 31952 PO Box 2091 PO Box 13547 PO Box 32348 Jeddah 8909 – 23326 Riyadh 11414 Saudi Arabia Saudi Arabia Saudi Arabia Tel: +966 13 330 8401 Tel: +966 12 660 2555 Tel: +966 11 2180 303 Tel: +966 13 330 8402 Fax: +966 12 669 4030 Fax: +966 11 2180 308 Tel: +966 13 330 8403 For questions and inquiries about the KSA real estate market, please contact: Craig Plumb Dana Salbak Head of Research, MENA Research Associate, MENA craig.plumb@eu.jll.com dana.salbak@eu.jll.com Abdullah Alshabanat Shahd AlMehdar Research Manager, Riyadh Senior Research Analyst, Jeddah Abdullah.alshabanat@eu.jll.com shahd.almehdar@eu.jll.com With MEA offices in: Dubai, Abu Dhabi, Cairo, Johannesburg and Casablanca COPYRIGHT © JONES LANG LASALLE IP, INC. 2019. This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward- looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.
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