Robust demand ensures Jeddah real-estate market remains strong

15 November 2011

Residential prices continue to grow while office rates remain stable for third quarter

Jeddah’s real-estate market is continuing to flourish as rental and sale prices showed an increase for the third quarter of 2011. The robust demand for housing is expected to ensure the residential market remains strong into 2012, while the office market will remain stable due to new supply.

In the residential sector, average villa sale prices across the north and eastern districts of Jeddah increased, while prices of villas in the western area remained stable for the third quarter, according to real-estate consultant Jones Lang Lasalle in its Jeddah Real Estate Overview report for the third quarter. The average sale price for a three-bedroom villa in Jeddah was recorded at SR4,100 ($1,093) a square metre for the third quarter of 2011.

Jeddah residential supply
(Thousand units)
e=Estimate; f=Forecast. Source: Jones Lang Lasalle

The sale prices of apartments increased across all districts in Jeddah during the third quarter, with the average sale price for apartments at SR2,800 a sq m.

The increase in villa prices can be partly attributed to rising land and steel prices in the western region.

In the third quarter, rental prices for villas increased by 10 per cent year-on-year. Villa rents in Rowda, Shatea and Basteen areas were higher than other areas, according to data from Jones Lang Lasalle. The average rental price for a three-bedroom villa in Jeddah for the third quarter of 2011 was SR123,000 a year.

Jeddah office supply
(Thousand sqaure metres)
e=Estimate; f=Forecast. Source: Jones Lang Lasalle

Rental rates of apartments in Jeddah have recorded an even larger growth, with average rates rising by 14 per cent year-on-year. Rental rates may increase further if prospective plans for housing allowances for government sector employees are implemented. The average rental rate for a two-bedroom apartment in Jeddah was SR32,800 a year.

As with many other parts of Saudi Arabia, Jeddah is facing a shortage of affordable housing for lower-income families. Jones Lang Lasalle estimated in the first quarter that Jeddah was suffering from a shortage of between 100,000-150,000 homes that are affordable to 50 per cent of the city’s population that earn less than SR5,000 a month.

The problem of a shortage of low-priced housing has been worsened by flooding that has damaged large parts of Jeddah in recent years.

To help solve the problem, Jeddah has been chosen as one of the first 11 sites for the Housing Ministry’s low-cost housing programme. In March, King Abdullah announced plans to spend $67bn on building 500,000 new homes for low-income families. The ministry recently signed a contract with US-based Parsons to design and masterplan the first phase of the programme, which will include a development in Jeddah.

In the office sector, prices and rental rates have remained stable as new supply continues to enter the market. About 60,000 sq m of new office space in Jeddah’s Central Business District (CBD) is expected to be completed over the last quarter of 2011, which will bring the total stock in the CBD to about 505,000 sq m. This is almost 30 per cent more than the 357,000 sq m available by the end of 2010.

With an extra 159,000 sq m of office space scheduled to enter the market in 2012, and demand not expected to offset new supply, the office rental market is expected to become more favourable for tenants in 2012. The average price for office space rental in the CBD for the third quarter of this year was SR810 a sq m.

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