JLL Research Report

The Riyadh Real Estate Market

Q1 2019

Riyadh
Riyadh The Riyadh Real Estate Market Q1 2019

Market Summary

The performance of the real estate market in Riyadh continued to soften in

03

the first quarter of 2019. Subdued economic activity continued to weigh on

commercial activity, exerting pressure on both rents and vacancy rates in the
office sector. On a quarterly basis, marginal declines were recorded in sale
prices and rents in the residential sector, amid strong government initiatives to
boost demand and home ownership rates. In turn, the retail sector registered
mixed performance, with the better-quality retail centres in prime locations
and offering a variety of unique concepts recording increases in rent, while
the secondary and less-diverse malls registered declines. Hotel room rates
recorded significant declines in the year-to-February 2019. However, revenues
per available room (RevPar’s) in Riyadh where the highest in the Kingdom
over the same period.

Riyadh - Prime Rental Clock

Rental Rents Rental Rents

Growth Falling Growth Falling
Slowing Slowing
Retail

Rental Rents Rental Rents

Growth Bottoming Residential Growth Bottoming
Accelerating Out Accelerating Out
Office Office
Retail
Hotel* Hotel*
Residential

Q1 2018 Q1 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: JLL
04 The Riyadh Real Estate Market Q1 2019 The Riyadh Real Estate Market Q1 2019 05

Office Residential

Supply Supply
While demand for office space remained subdued over 5 A total of 7,500 residential units were delivered in Q1 1.5
104K 30K
the first quarter, this is expected to pick up in the long- 192K 2019, increasing the total stock to 1.3 million units. 22K
term on the back of government initiatives to encourage Over 50,000 units are expected to handover in the next
the private sector's participation in the economy, 4 two years (2019-2020), with the majority made up of

Number of units (million)

particularly through entrepreneurship and the growth apartment units and townhouses that cater to the

sq m of GLA (million)
of small-to-medium enterprises (SME's). This is likely younger demographics. This includes smaller units with 1.0
to promote demand for smaller, fitted out office units 3 a variety of layout plans, integrated within mixed-use
within mixed-use developments. developments that offer developed amenities and retail.

Earlier in January, the Kingdom unveiled its National 2

The first quarter of 2019 saw the announcement of a
Industrial Development and Logistics Program (NIDLP) USD 23 billion (SAR 86 billion) project to revamp public 0.5
aiming to attract SAR 1.6 trillion of foreign investment spaces in Riyadh, to improve the quality of life and
1
by 2030 into various industries. This is at the core of 3.47 3.75 4.07 4.26 4.26 4.45 promote urban development. The King Salman Park 1.19 1.24 1.26 1.29 1.30 1.32
the Kingdom's strategic shift from an oil led to an incorporates green spaces, and recreational and sports
investment driven economy and is expected to bode areas among other features. In the long-run, along with
0 0
well for the commercial sector in the long-run. efforts to boost home ownership, this is expected to
2015 2016 2017 2018 2019F 2020F 2015 2016 2017 2018 2019F 2020F
increase the demand for residential units in Riyadh.
On the supply side, no new office space was handed
Current Stock Future supply Current Stock Future supply
over in Q1 2019, leaving the total stock of office GLA
at 4.3 million sq m. Over 190,000 sq m are expected
to handover by the end of the year end. However we Source: JLL Source: JLL
remain cautious of the delivery of these projects on time.

Performance Performance
Performance of the office market remained relatively Vacancy Rate Residential sale prices and rental rates continued to Residential rents and sale prices
soft in the first quarter of the year. Vacancy rates register declines on an annual basis. Within apartment
remained relatively stable as corporate activity remains 9% 10% units, sale prices dropped 2% Y-o-Y while rents dropped Apartments
limited. This in turn exerted downward pressure on 3%. Meanwhile villa sale prices and rents dropped 5%
rents, which saw a 4% decline Y-o-Y in Q1 2019. As a and 2% respectively. However, on a quarterly basis the
result, landlords continued to offer incentives to retain rate of decline was marginal, signaling the market could Sales Sales Rent Rent
existing tenants. This is particularly the case in Grade B Q1 2018 Q1 2019 be headed towards the bottom of its cycle. -1% -2% 0% -3%
office buildings which suffer from poor quality, difficult Q-o-Q Y-o-Y Q-o-Q Y-o-Y
accessibility, and lack of amenities. 12 month Despite the increase in upcoming supply, we expect
outlook Riyadh’s residential market to stabilize over the 12 month 12 month
In the long-run, and as demand for office space picks next 12 months. Government efforts to activate the outlook outlook
up on the back of economic reforms and the expected supply of residential units and stimulate demand,
growth in private sector activity, rents are likely to through imposing the white land tax and introducing
increase particularly for key prime office spaces. Average Rents (SAR / sq m) housing schemes, are expected to drive growth in the Villas
This includes commercial offices within mixed use residential market and lead to a possible correction in
developments, that are easily accessible through public performance.
transport or that offer ample parking spaces for tenants. Sales Sales Rent Rent
1,300 Y-o-Y
1,250 The residential market is also likely to receive a boost
0% -5% 0% -2%
on the back of government initiatives to improve the Q-o-Q Y-o-Y Q-o-Q Y-o-Y
-4%
Q1 2018 Q1 2019 transparency of the sector. This comes as the Ministry
of Housing announced plans to launch a rental price
12 month 12 month
12 month index which will better regulate the market. Increased
outlook outlook
outlook transparency is expected to result in larger transaction
volumes.

Source: JLL Source: JLL

06 The Riyadh Real Estate Market Q1 2019 The Riyadh Real Estate Market Q1 2019 07

Retail Hotel

Supply Supply
A total of 34,300 sq m of retail GLA was delivered to 3 The total number of hotel rooms in Riyadh increased 20,000
the market in Q1 2019, keeping the total retail stock at 449K 21K to 14,150 rooms by the end of Q1 2019, with the main 1,550
2.2 million sq m. An additional 449,100 sq m of retail additions of the Radisson Blu Hotel (66 rooms) and 1,900
space is currently under construction and expected to Marriott Hotel (80 rooms). These hotels are in the
handover in 2019. Diplomatic Quarter, one of the most sought-after 15,000

sq m of GLA (million)
2

Number of rooms
areas in Riyadh, with access to embassies and many
In the face of a strong supply pipeline, developers corporate headquarters, and of proximity to King Khalid
are diversifying their offerings by bringing in more International Airport. Cristal Amaken Hotel (268 rooms) 10,000
entertainment outlets, local fashion and unique home- was also added to the supply in Q1 2019.
grown F&B concepts. Also, we can expect some will offer
1
a more digital experience to their customers. An additional 3,450 keys are expected to enter the
market over the next two years (2019-2020). As Saudi 5,000
This comes as e-commerce continues to challenge 1.69 1.84 2.05 2.15 2.19 2.64 continues to present hoteliers with opportunities 10,400 11,300 12,000 13,700 14,150 16,050
the retail landscape. According to data from Saudi to grow and enhance their presence, on the back of
Arabia’s Communications and Information Technology continuous mega-project announcements, we expect
0 0
Commission (CITC), the percentage of online users who more operators to enter the market and expand their
2015 2016 2017 2018 2019F 2020F 2015 2016 2017 2018 2019F 2020F
engaged in online shopping in 2018 increased to 50%, portfolios to attract tourists at various price points.
up from 37% in 2016. Looking ahead, more retailers
Current Stock Future supply Current Stock Future supply
are expected to embrace the shift in shopping habits
brought about by technology and expand their reach
beyond brick-and-mortar to omni-channel retailing Source: JLL Source: JLL
(mobile browsing, online marketplaces, social media).

Performance Performance
Retail rents continued to soften in Q1 2019, particularly Vacancy Rate Hotel occupancy rates in Riyadh registered 59% in Occupancy Rate
in the lower quality retail centres where vacancy rates the year-to-February 2019 versus 62% in the year-to-
increased. This has led mall owners to offer flexible lease 10% 12% February 2018. Meanwhile, average daily rates (ADR’s) 62% 59%
structures to retain tenants. In the better quality centres recorded substantial declines of 17% to register USD
located in prime locations, and where mall owners 162 over the same period. In turn revenues per available
have successfully managed to revitalise their spaces room (RevPar’s) dropped 20% to USD 96. Despite the
and introduce new concepts, rents remained relatively Q1 2018 Q1 2019 slowdown, hotel RevPar’s in Riyadh where the highest in YT February YT February
stable and, in some instances, increased. the Kingdom over the same period. 2018 2019
12 month 12 month
Despite the current slowdown in the retail market, outlook In the short term, the performance of the hotel market in outlook
favorable demographics and an expected growth in Riyadh is expected to remain under pressure particularly Y-o-Y
tourism are likely to drive the market in the long-run. in the face of a strong supply pipeline. However, in 4bp
This is supported by the government's initiatives to Change in Average Rents the long run, and as the Kingdom invests heavily in
boost spending through instating allowances to public the tourism industry and supporting infrastructure we ADR (USD)
sector employees (41% of the total 2019 expenditure) Super Regional Regional Community expect tourist demand to increase, particularly domestic
and increasing subsidies (from SAR 12 bn in 2018 to SAR tourism, which in turn would reflect positively on the
32 bn in 2019) under the 2019 budget. This is expected 0% -3% -1% -5% -1% -8% performance of hotels in Riyadh.
to fuel retail spending, reflecting positively on the Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y 195 162
performance of retail centres. Y-o-Y
17%
YT February YT February
12 month 12 month 12 month 2018 2019
outlook outlook outlook 12 month
outlook

Source: JLL Source: STR Global

08
Property Clock
12 O’clock
indicates a turning point towards a market
consolidation / slowdown. At this position,
the market has no further rental growth
potential left in the current cycle, with the
next move likely to be downward.
9 O’clock
indicates the market has reached the rental
growth peak. While rents may continue to
increase over coming quarters the market
is heading towards a period of rental
stabilisation.
6 O’clock
indicates a turning point towards rental
growth. At this position, we believe the
market has reached its lowest point and the
next movement in rents is likely to
be upwards.
Definitions
The Riyadh Real Estate Market Q1 2019 The Riyadh Real Estate Market Q1 2019
Definitions
Future Supply
• JLL estimates of future supply are
updated quarterly, based on physical
inspections and discussions with
developers. We remain cautious of the
ability of some projects to meet their
stated completion deadlines, with
significant delays in project delivery
leading to a low materialization rate.
Residential
3 O’clock
• The supply data is based on the
National Housing Census (2010) and
indicates the market has reached its point of
fastest decline. While rents may continue to our quarterly survey of major projects
and stand-alone developments in
decline for some time, the rate of decrease
is expected to slow as the market moves selected areas in Riyadh.
• ‘Completed’ supply refers to projects
towards a period of rental stabilisation.
/ buildings that are handed over for
immediate occupation.
• Residential performance is based on
two separate baskets, one for rental
rates and the other for sale prices of
villas and apartments. The two baskets
cover properties in selected locations
across the cities.
Office
• The supply data is based on our quarterly
survey of Grade A and B office space
located in certain areas of each city.
• In Riyadh, the areas covered include:
CBD, North and East Ring Roads,
Khurais, Mazer, and Sitteen Streets.
• ‘Completed’ supply refers to projects
/ buildings that are handed over for
immediate occupation.
• Office projects under construction
exclude the King Abdullah Financial
District (KAFD).
• Office performance is based on the
average of Prime, Grade A, and Upper
Grade B office space within a basket
tracked by JLL.
• Office vacancy rates are based on the
average of estimates for a basket of
buildings tracked by the JLL Agency
team.
09
Retail
• Classification of Retail Centers is based
upon the ULI definition and based on
their Gross Leasable Area (GLA):
• Super Regional Malls have a GLA
of above 90,000 sq m
• Regional Malls have a GLA of
30,000 -90,000 sq m
• Community Malls have a GLA of
10,000 -30,000 sq m
• Neighborhood Malls have a GLA
of 3,000 -10,000 sq m
• Convenience Malls have a GLA of
less than 3,000 sq m
• Retail supply relates to the Gross
Lettable Area (GLA) within retail malls
tracked by JLL.
• Retail performance is based on the
quoted average rents for line shops for
the major shopping malls in Riyadh.
• Retail vacancy rates are based on the
average of estimates for a basket of line
shops in retail centers, tracked by the
JLL Retail team.
Hotels
• Hotel room supply is based on
existing supply figures provided by
the Saudi Commission for Tourism
and Antiquities as well as future hotel
development data tracked by JLL the
Hotels team.
• Room supply includes 3, 4 and 5-star
hotel rooms, but excludes serviced
apartments.
• Performance data is based on a
monthly survey of hotels conducted by
STR Global.
Riyadh
South Tower, 17th Floor
Tawuniya Towers
King Fahd Road
PO Box 13547
Riyadh 11414
Saudi Arabia
Tel: +966 11 2180 303
Fax: +966 11 2180 308

For questions and inquiries about the KSA real estate market, please contact:

Dana Salbak Shahd AlMehdar

Associate, Research Senior Analyst, Research
MENA KSA
dana.salbak@eu.jll.com shahd.almehdar@eu.jll.com

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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
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