Jones Lang LaSalle, the world's leading real estate investment and advisory firm and the largest in the Middle East and North Africa (MENA), expects to see a cyclical recovery in the Riyadh housing market, with prices capable of growing 5-10% p.a. over the next 2 years.
According to John Harris, Head of Jones Lang LaSalle Saudi Arabia "With Riyadh's growing population and changing demographics, the challenge for converting this potential into actual demand for housing units will be to sustain employment growth and improve affordability."
He continues "The residential market is experiencing moderate increases in prices and land values on the strength of recovering confidence and a return to economic growth. Small micro-builders are continuing to drive the residential sector but we expect to see an increase in the professionalisation of the industry. We are also watching the expatriate compound sector where, after almost ten years without new supply, developers and investors are starting to become active."
The office market in Riyadh is experiencing a surge in supply as completed new office space during 2010 reached 50,000 sq m and several new projects by pension agencies have already begun construction. Over the next 5 years, 1 million sq m of new office space is expected to enter the market.
The number of new buildings entering the market causing is vacancy rates to increase and tenants are enjoying increasing power vis-à-vis landlords. Large tenants in particular should be able to test the limits on rental rates.
John Harris notes "the office market should remain relatively stable in 2010-11, but this will be the calm before the storm when the King Abdullah Financial District, Olaya Towers and Granada Business Park come online."
On the retail front, the sector is expected to see improvements in both sales and rents over the remainder of 2010. With a large young population in Riyadh, food courts and play areas are key demand drivers for suburban malls. The current stock of retail space in Riyadh is estimated to be around 2.3 million sq m and is expected to increase to 2.9 million sq m by 2014 serving new suburban districts. This increase is expected to push average rents for showrooms to downwards rates.
Consumer confidence is improving and the growth of retail sales has resumed. The value of point of sale transactions started to increase from mid 2009 and was up by 22% in April 2010 in year on year terms. However, with limited capital for network expansions and some retail operations going through restructuring, leasing conditions remain competitive.
The hospitality market has remained relatively stable over the first half of 2010. International brands - Hilton Garden Inn and Coral Hotel in Sulemaniyah - opened their doors in early 2010. A substantial increase in the supply of branded hotels is expected in the next four years. Also, more than eight facilities are currently under construction for different furnished apartment chains in Riyadh.
There are almost 10,000 hotel rooms in the Riyadh region accounting for 8.7% of the total for Saudi Arabia. The scarcity of expatriate accommodation together with increasing international and domestic business should sustain healthy performance in the hospitality sector in 2010 and 2011.
"Business and government travellers drive the quality hotel sector in Riyadh. As government budgets increases and more foreign businesses identify Saudi Arabia as one of the long term growth opportunities, demand from these sectors should continue to drive occupancy levels" says Harris.