Jeddah real estate market remains buoyant

06 August 2015

More growth expected for office and residential units

  • Market for commercial and residential real estate in Jeddah remains buoyant, says JLL
  • Some sectors are approaching a peak
  • More growth expected for office and residential units

The market for commercial and residential real estate in Jeddah, Saudi Arabia’s second city, continues to be buoyant, although there is evidence it is approaching a peak in some sectors, according to US real estate consultancy JLL.

“In the second quarter, the Jeddah real estate market remained in the upturn stage of its cycle,” says Jamil Ghaznawi, national director and head of JLL Saudi Arabia. “The hotel and retail sectors appear closer to the peak than office and residential, where further rental growth may be experienced over the rest of the year.”

“The performance of the residential market remains mixed, with apartments seeing continued rental growth while villa rents have declined,” Ghaznawi says. “Given there was limited new supply of office space entering the market, occupancy and rental rates have remained healthy and are likely to continue to grow with limited levels of future supply. However, we have seen retail rentals stagnate ahead of significant levels of new supply entering the market”.

Ghaznawi says JLL expects an easing of the shortage of affordable homes as a result of the Housing Ministry’s building programme.

  • JLL says office vacancies remained stable in the second quarter of 2015, at about 6 per cent of the total stock. This was 2 per cent below the levels experienced in the second quarter last year. Average rents for high quality offices increased by 6 per cent annually and by 3 per cent in the quarter. The supply of office space in Jeddah has been growing at a consistent level of between 90,000 and 120,000 square metres a year. “This trend looks likely to continue with relatively limited levels of future supply,” says JLL.
  • JLL says 12,000 residential units have been completed across Jeddah so far this year. A similar level of new supply is expected over the rest of 2015. Villa prices have increased by an average of 4.5 per cent, due mainly to prices increasing in the western districts, which are characterised as high-end and are less affected by changes to the mortgage laws that have restricted the amounts banks can lend. “The apartment market has generally performed better than the villa sector, with sale prices and rents increasing by 11 per cent and 14 per cent respectively over the past year,” JLL says.
  • Retail rents remained relatively stable in Jeddah. Rents in super regional malls increased by 2 per cent and those in regional malls by less than 1 per cent over the past year. Vacancy rates have also been stable. They increased from 6.8 per cent in the first quarter to 7.2 per cent in the second. “A substantial amount of new supply is expected in 2016 and 2017, which could increase the total supply of retail space in Jeddah by more than 35 per cent over the next two years,” JLL says. It expects competition to increase, negatively affecting the performance of dated shopping centers and those located away from the growth corridor of the city.
  • The hotel occupancy rate in the year to May was 75 per cent. This was slightly lower than the same period last year. Average room and revenue per average room fell slightly. “Overall, Jeddah remains a very strong hospitality market with healthy occupancy levels and  the third-highest room rate in the region after Dubai and Riyadh, which indicates the hospitality market in Jeddah is geared towards high-end hotels,” JLL says.

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