riyadh real estate market overview - q1 2013 - jll · dubai real estate market overview q1 2013...

Dubai Real Estate Market Overview

Q1 2013

Riyadh

Macroeconomic overview

2

Indicator 2012 2013 (f) 2014 (f)

Saudi Arabia

Population (millions) 29.3 30.2 31.1

Real GDP Growth (Y-o-Y) 6.8% 4.2% 3.6%

Inflation (% Change) 4.5% 4.3% 3.8%

Budget Surplus (USD billions) 103 47 35

Riyadh

Population (millions) 5.6 5.8 6.0

Cost of Living Index (% change) 4.0% 3.8% 3.5%

Sources: Sama, Jadwa, IHS Global Insights April 2013, CDS , 2012

f:forecasted

Economic highlights – Q1 2013

3

Real GDP in KSA grew by 6.8% in 2012. High oil production and expansionary fiscal policy have kept the Kingdom’s growth at a high level.

Retail sales continued to increase, growing by 25% in Q1 2013 compared to the same quarter last year.

Bank lending to building and construction has increased by 27% in Q1 2013 from the same period last year. This reflects greater participation in infrastructure and housing projects.

To facilitate housing construction program, King Abdullah has approved the creation of a new USD 67 billion housing fund.

At 3.9% Y-o-Y, inflation increased for the third consecutive month in March. This was almost entirely due to higher rental inflation and increasing food prices.

Saudi banks increased their lending to real estate end users (mostly mortgages) by 30% in 2012, the largest increase during the last five years.

Property & project news – Q1 2013

4

• The Ministry of Housing has appointed a contractor to build 7,000 new

residential units on Othman bin Affan Road, north west of King Khalid

International Airport. The project will also include 24 mosques, schools

and other supporting facilities.

• The Shoura Council is considering taxing unused, large land plots, in a

move designed to bring forward development and ease the current

housing shortage in the Kingdom.

• Al Oula has taken full control of Thabat Real Estate Development

Company through the purchase of all shares of former partners,

including Egypt’s Tala’at Mustafa Holding Group.

• The Riyadh Development Authority (ADA), has approved a massive SAR

278 billion development plan including major new housing projects and

additional metro and railway lines. Designs were revealed for the new

stations from leading architects including Zaha Hadid, Gerber, and

Snohetta.

• Starwood debuts it Four Points by Sheraton brand in Riyadh, located in

the Khaldia Towers complex., it contains 376 rooms including 138

suites.

• Jabal Ali Industrial Company has announced a new industrial city south

of Riyadh on Al Kharj Road. The new city will offer serviced plots,

zoned for light or heavy industrial, commercial and hotel uses.

• Mizat Development Company has lunched two residential projects

(Hada 1 and 2) west of Riyadh, with a total of 86 units.

5

Riyadh prime rental clock

*Hotel clock reflects the movement of RevPAR.

Note: The property clock illustrates where Jones Lang LaSalle estimate each prime market is within its individual rental cycle as at end of relevant quarter.

Source: Jones Lang LaSalle

5

Riyadh office market overview

Office supply and demand

• Total stock of Grade A and B office space in locations monitored by Jones

Lang LaSalle has increased by around 61,000 sq m in Q1 2013 to stand

just short of 2 million sq m.

• Five new buildings were completed during Q1 2013, adding more than

61,000 of office GLA. The largest completion was Blue Tower (20,000

sq m) on King Fahd road.

• Several new Grade ‘B’ buildings have been completed on King Fahd Road

and Olaya Street over the last three years. The combination of vacant

space in these buildings and space being marketed in buildings currently

under construction provides tenants with a wide range of choice and is

resulting in more competition between owners to attract new tenants.

• Take up in Q1 2013 was led by the government sector, with the largest

deal being for around 10,700 sq m of space in Sultan Tower.

• New supply will increase substantially in 2013, with the completion of the

initial phases of the King Abdullah Financial District (KAFD), the IT and

Communications Complex (ITCC) and GOSI’s Olaya Towers at the

intersection of Tahlia and Olaya. These projects could add over 500,000

sq m of efficient high quality space within the CBD.

• More than 1 million sq m of new space is currently scheduled to be

delivered over 2013-14, but some of this space is likely to be delayed as

the market becomes oversupplied.

Source: Jones Lang LaSalle, Q1 2013

7

1,897 1,959

2,526 3,066

3,361

568

539 296

265

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2012 2013 2014 2015 2016

Tot

al S

tock

(sq

m G

LA in

000

's)

Riyadh Office Stock (2012 – 2016)

Completed Stock Future Supply

8

Major Existing & Future Office Projects

8

Major existing & future offices projects

1

2 3

1

2

1 Faisaliyah Center

2 Kingdom Center

3 Tatweer Tower

1 KAFD

2 ITCC

Existing

Future

3 Olaya Towers

3

4

4 Tamkeen Tower

5

5 Granada Business Park

6

6 The Business Gate

4

4 MIG Tower

Office rental performance

• The average quoted rents for completed Grade A & B buildings in

Riyadh has declined marginally (less than 1%) in Q1 to SAR 1,054

per sq m pa due to higher vacancies, particularly in B grade buildings

in the CBD and to the South of Riyadh.

• Quoted prime rents (for the best quality buildings) have reduced for the

first time in two years, falling by 2.6% over Q1 to SAR 1,850 per sq m

p.a. The average for Grade A and Grade B buildings currently stands

at SAR 1,291 and SAR 880 respectively.

• Vacancy rates have increased in Q1, with city-wide and CBD

vacancies both increasing to 18% and 19% respectively. There will be

further upward pressure on vacancy rates over the next 12 months

given the expected new supply entering the market.

• We expect that increased vacancy rates and the greater choice

available to tenants will maintain downward pressure on rental levels

during 2013, especially for Grade B properties.


9

Rental Performance (Q1 2012 – Q1 2013)

-

200

400

600

800

1,000

1,200

1,400

1,600

Average Grade A Average Grade B Average (completedGrade A and Grade B

buildings)

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

SA

R p

er s

q m

p.a

.

Office market summary

10

Indicator Level Comment / Outlook

Current Office Stock 2.0 million sq m

Includes Grade A, B & C space within major precincts (see

definitions for further details). Total city-wide stock is estimated to

be above 3 million sq m GLA.

Future Supply (2013 – 2016) 1.7 million sq m

The Riyadh market will face a major supply shock over the next

two years with the release of space in projects such as ITCC,

KAFD and Olaya Towers.

City-wide Vacancy

CBD Vacancy

18%

19%

Average – Grade A Rental

Average – Grade B Rental

SAR 1,291 per sq m p.a.

SAR 880 per sq m p.a.

Riyadh residential market overview

Residential supply and demand

• Approximately 8,000 residential units were completed in Riyadh in

Q1. This brings the total residential stock in Riyadh to just over

917,000 units. The majority of the recent supply has been delivered

in small projects comprising less than 20 units.

• The major new announcement in Q1 was Al-Tahaluf’s residential

project Bayt Al- Hurr located in the west of Riyadh and expected to

deliver more than 200 units over the coming three years.

• An additional 129,000 units are due to enter the market from 2013 to

2016, with an annual supply of around 32,000 units.

• One of the more active developers is Al-Habib group, which is

currently building two residential projects. The first of these, Reem

Residences, is expected to deliver 500 units by the end of 2013.

• We are seeing an increase in the registration of off-plan sales

programmes with the Ministry of Commerce.

• The Ministry of Housing is planning to build 7,000 units in Riyadh that

will be delivered over the coming four years.

• Approximately 6,000 residential units are expected to be delivered in

expatriate residential compounds over the next five years. This new

supply is likely to reduce the current upward pressure on compound

rents.

• Data released by SAMA shows the Real Estate Development Fund

disbursed more than SAR 11 billion in loans during the first half of the

2012. These loans were to Saudi citizens to facilitate the building or

purchase of new homes.


12

909 917 940

971 1,008

23

32

37

37

800

850

900

950

1,000

1,050

1,100

2012 2013 2014 2015 2016T

otal

Sto

ck (

Num

ber

of u

nits

in 0

00's

)

Riyadh Residential Stock (2012 – 2016)

Completed Stock Future Supply

13

Major existing & future residential projects

1 Al Qasr Project

2 Balencya Project

3 Al Argan Project

1 Al Rabiah Project

2 Al Shams Arriyadh Project

3 Al Ghroub Project

4 Maskan Arabiah

4 Rafal Tower Project

1

1

2

3

2

3

4

4

Existing

Future

5 Akaria Village

6 Durrat Al Riyadh

5 6

Residential prices

14


Villa - Average Sales Price

3,600

3,700

3,800

3,900

4,000

4,100

4,200

4,300

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

SA

R p

er s

q m

• Average villa prices have increased across most districts of Riyadh by

an average of 2% in Q1 to SAR 4,250 per sq m due to significant

increases in the West of the city.

• Average prices in the Center of Riyadh have remained unchanged in

Q1 as most sales have been of older / refurbished projects due to the

lack of new product available for sale.

• Malaqa, Yasmeen, and Sahfa in the North, Al-Hada and Khuzama in

the West and Qurtaba and Ishbiliyah in the East are perceived as the

most attractive locations for villas.

• The new concept of mixing apartments with villas through a separate

access is becoming more popular in low end districts to the South and

West of Riyadh.

• The average price of apartments has also increased in districts to the

East, South, and West of Riyadh during Q1 2013.

• The average asking price for new apartments increased 4% during Q1

to SAR 2,915 per sq m (excluding branded apartments). Average

prices in the east increased by 7% as Al-Argan started selling

apartments.

• Al-Reem Residences and Phase 2 of Manazel Al-Qurtaba, currently

under construction are expected to deliver around 1,300 apartment

units. Once complete these projects will provide quality apartments for

end users.

• Currently, most apartments available for sale are located in the low

income areas of Qurtaba, Yarmouk, in the East and Shifa,, Badr, and

Suwaidi in the South.

2,000

2,100

2,200

2,300

2,400

2,500

2,600

2,700

2,800

2,900

3,000

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

Apartment – Average Sales Price

SA

R p

er s

q m


Residential rentals - villas

• Villa rents have increased by 8% compared to the same quarter last

year. High income villas in the West and Centre have experienced

greater increases than other districts.

• Rents in residential areas such as Olaya, Sulemania in the center

and Hiteen and Nakheel in the west and Shumaisi in the south are

higher than those in surrounding neighborhoods..

• Due to more demand for apartments in the South, villa rents in this

area have not increased much during the last year

• Villas in expatriate compounds have shown a larger increase in rents,

reflecting the long waiting lists for access to this kind of

accommodation.

• The availability of new villas for lease is greatest in areas such as

Qurtaba and Monisia in the East , Malaqa, Sahfa and Yasmin in the

North.

• Villa occupancy in districts between the North Ring Road and Prince

Salman street is increasing rapidly and this area is expected to attract

more attention from Saudi families when government offices move

towards the north of Riyadh.


0

20,000

40,000

60,000

80,000

100,000

120,000

140,000

160,000

180,000

North South East West Center

Villa - Average Annual Rent

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

15

SA

R p

er a

nnum

Residential rentals - apartments

• Apartment rents have increased at a lower rate than villas, growing

by 6% in the year to Q1 2013 and now stand at approximately SAR

31,000 p.a. for an average 2 bed unit.

• Apartment rents in areas such as Wazarat and Malaz in the South

Olaya in the Center, Diplomatic Quarter in the West and Yarmuk and

Qurtaba in the East are higher than those in other districts.

• Due to high occupancy rates, and the concentration of private

schools and hospitals, rents in areas such as Warooud, Malaz, Olaya

and Sulaimania continue to grow at higher levels.

• Given the lack of labour accommodation within the industrial cities,

districts like Batha, Manfoua, Khalediyah and Amal have a high

concentration of apartment buildings used as labor accommodation.

• The government is planning to move many government of its offices

towards the north of Riyadh and large expat schools are also

moving in this direction. This is likely to result in stronger future

rental growth in the North and Centre than in other areas.


0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

North South East West Center

Apartment - Average Annual Rent

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013

16

SA

R p

er a

nnum

Residential market summary

17


Current Residential Stock 917,000 units Based on the National Housing Census (2010) and units completed

since in areas monitored by JLL.

Future Supply (2013 – 2016) 129,000 additional units in

all projects Includes all of types of housing.

Average 2 Bed Apartment Rent SAR 30,900 p.a. Apartment rents expected to increase further during

2013, especially in North and Central areas.

Average 2 Bed

Apartment Sale Price SAR 2,915 per sq m

Apartment prices has witnessed major increase during

the last four quarters.

Average 4 Bed Villa Rent SAR 118,700 p.a. Villa rents are expected to increase further in 2013.

Average 3 Bed Villa Sale Price SAR 4,250 per sq m Villa prices are expected to increase further, especially in

the East and North districts.

Riyadh retail market overview

Retail supply and demand

• There was one medium size addition to mall based retail space in Q1

2013, with Ethra Mall (36,000 sq m) opening in the Southern Riyadh

suburb of Sweiidi.

• This completion has increased the stock in major retail malls (those

over 10,000 sq m in size) across Riyadh, to approximately 1.25 million

sq m.

• Outside of the mall sector, Sheta and Saif (electronic retailer) was the

major completion in Q1 (approximately 2,000 sq m of GLA).

• Fawaz Al-Hokair is planning an aggressive expansion in Riyadh. In

addition to Nakheel Mall, two other centers have been announced,

which will add approximately 174,000 sq m of GLA to their retail

portfolio.

• Total mall based retail supply is expected to reach around 1.8 million

sq m by the end of 2016. This includes around 188,000 sq m of retail

space in mixed use projects such as KAFD and ITCC.

• The repositioning of non performing retail centers also continues.

Bustan Centre has been taken over by the Maqrin Group and will be

positioned as male only retail space. Al-Harm Plaza has been closed

after a recent fire.


19

1,200 1,250 1,370

1,550 1,700

118 177

158 71

-

500

1,000

1,500

2,000

2012 2013 2014 2015 2016

Tot

al S

tock

('0

00 s

q m

)

Riyadh Retail Stock (2012 – 2016)

Future Supply Completed Stock

20

Major existing & future retail malls

1 Riyadh Gallery

2 Sahara Mall

3 Hayat Mall

4 Khurais Plaza

5 Al Otheim MAll 2

1

3

6

4 5

7 8 6 Granada Mall

7 Rimal Center

8 Panorama Mall

Existing

Future

1 KAFD Retail

1

9

9 Al-Qasr Mall

2

2 Nakheel Mall

Rental performance

• Average retail rents have remained stable across all categories

(super regional, regional and community malls) during Q1 2013. This

has kept the average rent across all types of centers unchanged at

SAR 2,562 per sq m p.a.

• Most of the super regional malls have high occupancy rates and rents

are expected to increase during 2013.

• However, we anticipate limited increases in rents in regional and

community shopping malls given the availability of space and

continued downward pressure on rentals in poorer performing malls.

• There remains demand for retail space outside of organized malls.

Standalone centers remain a popular option, with the opening of

Sheta and Saif new electronics store on Anas Bin Malik street in the

north of Riyadh (their 7th store in Riyadh) during Q1.

21

-

500

1,000

1,500

2,000

2,500

3,000

Super Regional Regional Community

SA

R /

sq m

Average Retail Rentals (Q1 2012 - Q1 2013)

Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013


Retail sector summary

22


Current Retail Space* (GLA) 1.25 million sq m Existing stock within organised retail malls over 10,000 sq m GLA.

Ethra Mall was the major completion in Q1 2013.

Future Supply (2013 – 2016) 525,000 sq m KAFD and Nakheel Mall are the next major quality retail projects

expected to be delivered in 2013 and 2014 respectively.

Average Estimated Rental

Value SAR 2,562 per sq m p.a.

Average rentals for speciality stores in major malls

have remained stable in Q1 2013.

Average Regional Mall Vacancy 10%

Vacancies remained largely unchanged, ranging

from 0-30% in major malls.

Riyadh hotel market overview

Hotel supply

• The total room supply in Riyadh as at end of Q1 2013 was around

8,500 hotel rooms.

• While there have been no new projects completed in Q1, the

existing Mena Grand Hotel in Khaldia Tower has been converted

into the first Four Points by Sheraton in Riyadh. This has

introduced another major player in the branded midscale segment.

• Other hotels scheduled to open towards the end of 2012 such as

the Hilton Garden Inn and the Holiday Inn Meydan Olaya have

now been shifted towards the end of 2013.

• Among the other projects scheduled for completion in 2013 are

the Hyatt Regency, Crowne Plaza and the iconic Kempinski Burj

Rafal. Upon completion this will be one of the highest towers in

Riyadh and a landmark in the city.

• In reality, it is likely that a number of the projects currently

scheduled for completion this year may not open until 2014,

adding to the already significant level of proposed completions in

2014.

• Recently announced projects include the Grand Melia (which will

be the first Melia hotel in KSA. There are also Indigo and

InterContinental hotels proposed within the King Abdullah

Financial District (KAFD).


Riyadh Hotel Supply (2012 – 2015)

24

8,400 8,400 9,950

13,250

1,500

3,300

2,700

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

2012 2013F 2014F 2015F

No.

of R

oom

s

Current Supply Future Additions

Hotel performance

• The Riyadh hotel market is showing signs of stability, following a

period of declining performance as arrivals failed to keep pace

with the significant increase in supply recorded in 2011 and 2012.

• Occupancy levels have declined significantly from their peak of

72% in 2008 to 57% in 2012. The market is now showing signs of

stability, with average occupancies remaining largely unchanged

over the first quarter, down from 64% in Q1 2012 to 63% in Q1

this year.

• Average room rates (ADR’s) have decreased by 2.2% since 2008.

Rates have also now stabilised, with a marginal (0.7%) increase

being recorded on a YTD basis with Average Daily Rates of

USD 273 in Q1 2013.

• The same trend is true of RevPAR, which declined by 11.8% in

2012 but has now stabilised, remaining largely unchanged at

USD 173 in the year to March 2013.

Riyadh Hotel Performance (2008 – YT March 2013)

25

266 266 255 272 260 271 273

72%

62% 60% 62%

57%

64% 63%

30%

40%

50%

60%

70%

80%

90%

0

50

100

150

200

250

300

2008 2009 2010 2011 2012 YTD2012

YTD2013

Occ

upan

cy(

%)

AD

R (

in U

SD

)

Average Daily Rate Occupancy Rate


Hotel market summary

26


Current Hotel Supply 8,450 rooms After the addition of about 1,200 rooms in 2011, the only internationally

branded hotel to enter the market in 2012 was Ibis Olaya.

Future Supply (2013 – 2015) 7,500 rooms Some of the new supply scheduled to enter the market in 2012 have now

been shifted into 2013.

2013 (YT Mar) Occupancy 63% Slightly decline in YTD levels of occupancy as compared

to same period 2012.

2013 (YT Mar) ADR USD 273

Slight ADR increase of 0.7% in comparison to YT March

2012, however a reducing occupancy has declined the

RevPAR (by -0.5%) in YT March 2013 compared to YT

March 2012.

Definitions and methodology

27

Residential: • The supply data is based on the National Housing Census

(2010) and our quarterly survey of major projects and stand

alone developments in selected areas of Riyadh.

• Completed building refers to a building that is handed over for

immediate occupation.

• Residential performance data is based on two separate

baskets one for rentals in villas and apartments and another

basket for sales performance for both villas and apartments in

selected locations across Riyadh.

Retail: • Retail supply data covers the GLA (Gross Leasable Are)

within organized malls over 10,000 sq m.

• Classification of Retail Centres is based upon the ULI

definition as published in Retail Development, 4th Edition

published by ULI.

• Rent represents the average quoted average rent for line

stores in the major shopping malls in Riyadh.

Office:

• The supply data is based on our quarterly survey of the Grade

A and B office space located in CBD, North and East Ring

roads, Khurais, Mazer, and Sitteen Streets.

• Completed building refers to a building that is handed over for

immediate occupation.

• Prime Office Rent represents the top open-market rent that

could be expected for a notional office unit of the highest

quality and specification in the best location in a market, as at

the survey date (normally at the end of each quarter period).

The Prime Rent reflects an occupational lease that is standard

for the local market. It is a face rent that does not reflect the

financial impact of tenant incentives, and excludes service

charges and local taxes.

Hotels:

• Hotel room supply is based on existing supply figures

provided by Saudi Commission for Tourism and Antiques as

well as future hotel development data tracked by Jones Lang

LaSalle Hotels. Room supply includes all graded supply and

excludes serviced apartments.

• STR performance data is based on monthly survey conducted

by STR Global.

www.jll–mena.com

COPYRIGHT © JONES LANG LASALLE IP, INC. 2013

This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior

written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is

made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept

any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.

Contacts:

@JLLNews youtube.com/joneslanglasalle linkedin.com/company/jones-lang-lasalle joneslanglasalleblog.com/EMEAResearch

John Harris

Co-Head

Riyadh

[email protected]

Craig Plumb

Head of Research

MENA

[email protected]

Peter Bibby

Co-Head

Jeddah

[email protected]

Fayyaz Ahmad

Associate Director, Advisory

Saudi Arabia

[email protected]

Andrew Williamson

Head of Retail

MENA

[email protected]

Diyaa Ayoub

Senior Analyst

Saudi Arabia

[email protected]

Gabriel Matar

Director, MEA

Hotels & Hospitality Group

[email protected]

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