Riyadh real estate market continues to ‘soften’ in Q2
Riyadh real estate market continued to ‘soften’ in the second quarter of 2017, with further declines in performance across all sectors, according to real estate investment and advisory firm JLL.
“The market overall experienced a general slowdown in Q2, with the government looking to boost the hospitality and retail sectors through promising policies,” said Jamil Ghaznawi, National Director and Country Head, JLL, KSA.
“With these crucial changes in the government, and foreign investment through trade deals signed during Trump’s historic visit, the market sentiment is likely to improve as we move into the second half of the year.”
Remarkably, in the retail sector, shopping centre owners remain positive and continued with expansion plans, with a sharp focus on ‘shoppertainment’. While some owners are looking to encourage their tenants to operate cinemas for children, others are enhancing common areas within malls as a way of attracting greater footfall.
The office sector witnessed completions including Elegance tower and Ghirnata Square, bringing the total office space up to 3.8 million sq m. With demand being limited, the office sector experienced increasing vacancies and a slight decline in rentals.
The residential sector experienced slight declines in both rentals and sale prices in Q2. However, the Ministry of Housing has collaborated with six private developers to increase the supply in order to address the growing demand for affordable housing.
There were no major openings in the hotel sector in Riyadh in Q2, but the pipeline for the second half of the year remains strong with major scheduled openings inclusive of the Crowne Plaza ITCC, Centro Waha and the Fraser Suites.
Generally, all sectors of the real estate market are now in the downturn stage of their market cycle, with rents and prices decreasing.
US President Trump’s historic visit to Riyadh in May 2017 resulted in the signing of more than 40 agreements in sectors ranging from technology, industrial manufacturing and aerospace as well as defence. It is estimated that these deals could be worth as much as $350 billion and create as many as 250,000 jobs both in Saudi and the U.S.
The total office stock currently stands at nearly 3.8 million sq m. Elegance tower completed in Q2 2017, adding 24,000 sq m near the intersection of the Northern Ring Road and King Fahad Road. Smaller completions included the office component of Ghirnata Square, adding around 3,000 sq m.
Al Rajhi Tower and the Administrative Palaces by Ajlan are expected to complete next quarter, adding 30,000 sq m and 32,000 sq m respectively. CMC tower (12,000 sq m) is scheduled to complete in Q4 2017, along with Majdould Tower (70,000 sqm) and the remaining 26,000 sq m of office space in phase 1 of the ITCC. While there are other small-scale completions scattered around the commercial roads, these smaller projects, have a minimal effect on overall rents and vacancies.
Between 2013 and 2016, almost 479,000 sq m of office space was completed in Riyadh (average of 160,000 sq m pa). Future supply will clearly be at a higher rate over the next three years, with a potential of 237,000 sq m pa. The probability of project delays does however remain high, with these delays shielding existing properties from potential downward pressure on rentals.
The Riyadh office sector witnessed a marginal decline in performance in Q2. Vacancies have increased 3 per cent to 16 per cent compared to Q2 2016 while rents have decreased 3 per cent from 1,272 to 1,240. The 12-month outlook remains soft with the market expected to move further in the favour of tenants. In response to the rising competition a number of landlords have launched redevelopment initiatives. Al Khozama Management Company has appointed Salini Ipregilo to undertake the SAR1.1 billion redevelopment of the Faisaliah complex in central Riyadh.
The Ministry of Housing has collaborated with six private developers to develop more supply to address the growing demand for affordable housing. One such agreement is with Dawaween Al Jazeerah to construct around 4,500 units in southern Riyadh. In addition, the Saudi Arabian Real Estate Company is expected to begin the off-plan sales of the Dhahiah Project, (a gated community comprising more than 500 villas, under the Wafi program) in H2 2017.
On the other hand, lower demand for high-end projects has caused some developers to hold back on construction, while others have reduced the scale of projects by selling vacant parcels they initially planned to develop themselves.
The total stock of residential units in Riyadh stands at nearly 1,170,000 units. Between 2013 and 2016, almost 80,000 units completed (at an average of 27,000 units pa). The rate of supply is expected to remain stable over the next 3 years with a potential 77,000 units (averaging 26,000 pa).
AlArgan delivered 50 of the 156 villas situated in its Al Qamrah project in Q2, with the remaining 106 villas expected to complete by the end of the year. The same developer also completed 40 of the 140 villas in its Manazil Ash Shurouq project, they are aiming to complete the remaining 100 villas in this project by year end, along with 498 villas and 732 apartments in the Green Oasis project in 2018.
Other proposed completions by the end of 2017 include Damac Esclusiva and Damac Tower by Paramount, adding 189 and 252 high end apartments respectively. Al Tahaluf Real Estate are scheduled to deliver 139 villas in Bayt Al-Hurr 1, and Malathek, (85 apartments on King Fahed Road in the An Namudhajiyah district) are also due to complete in 2017. Tabarak Holding’s Aali Ar Riyadh (129 apartments) is one of the major completions scheduled for Q1 2018.
The residential sector experienced slight declines in Q2. The number of transacted apartments and villas fell by 19 per cent and 41 per cent respectively in Q2 2017 compared to the same period in 2016. Y-o-Y. Marginal falls were recorded in both rents and sale prices in both the villa and apartment markets in Q2. The 12-month outlook remains unfavourable, with further declines in both prices and rentals expected.