Activity in Saudi Arabia’s real estate sector is expected to record a marked rebound in 2022, according to CBRE, a major commercial real estate services and investment firm.
Looking at Saudi Arabia’s office sector figures, visitation to the workplace has since late September 2021 remained above its pre-pandemic baseline and now sits 15.3% above the baseline, with the majority of occupier activity continuing to be centred towards capital Riyadh, stated CBRE in its 'Saudi Arabia Q4 Market Review & 2022 Outlook.'
"As a result, we have seen average rents in Riyadh’s Grade A segment increase by 9.8% in the year to December 2021, and Grade B rents also rose marginally by 1.3%. While institutional occupier activity remains limited in Jeddah, Grade A rents rose by 12.2% in 2021, whereas Grade B rents fell by 1.8%," it stated.
According to CBRE, the activity in the Eastern Province continues to be relatively subdued and resultantly rental market performance has followed suit, with Grade A rents in Dammam and Khobar seeing only marginal improvements of 0.2% and 2.1% in the year to Q4 2021.
"In 2022, we forecast that office supply in the Eastern Province and Jeddah will increase by 0.8% and 1.5% respectively. In these two markets, we expect that market trends are likely to continue to prevail, it stated.
In Riyadh, CBRE expects total supply to increase by 20.7% to reach 4.39 million sq m. With almost all of this additional space being Grade A quality, the headline rates are likely to remain relatively stable, while incentives are likely to be more abundant, the expert said.
Secondly with a material portion of this demand likely to stem from existing occupiers looking to upgrade the quality of their space, rents in entry level Grade A and Grade B buildings will soften over the course of the year, it added.
On the residential sector, CBRE said the transaction volumes fell by 5.3% in 2021, compared to a year earlier. Over the same period, the number of mortgage contracts increased by 11.7%, with the total value of new mortgages issued by banks decreasing by 1.2%.
Single-family residences, apartments and land accounted for 78.3%, 18.4% and 3.2% of total lending, respectively, it stated.
In Riyadh, the total number of transactions in 2021 increased by 12.7%, up from the 20.9% decline seen a year earlier. Jeddah has also seen its total number of residential transactions increase by 6.7%, whereas in Dammam we have seen transactions fall by 14.9%. Average apartment prices in Saudi Arabia have increased by 12.0% in the year to Q4 2021.
CBRE pointed out that apartment prices in Riyadh, Jeddah, Dammam and Khobar over this period increased by 12.1%, 13.0%, 7.7% and 15.3% respectively.
"This increase in prices has largely been driven by the delivery of new stock, where the average price per square metre has tended to be higher compared to historic stock," it noted.
In 2021, total residential supply in Riyadh, Jeddah and the Dammam Metropolitan Area increased by 0.7%, 2.5% and 3.9% respectively. This year, for the same cities, we forecast total supply to increase by 0.7%, 2.8% and 2.7% respectively.
Given affordability constraints and changes in demand fundamentals, new stock is likely to have lower capital values and higher prices per square metre and attract a larger portion of demand. Demand for older stock is likely to be more limited in comparison, which may put pressure on average prices for this segment of the market.
Looking at Saudi Arabia’s hospitality sector, CBRE said the average occupancy rate in 2021 increased by 2.3 percentage points compared to the year earlier.
While this rate still sits 18.2 percentage points below its 2019 level, this is largely underpinned by subdued occupancy levels in Makkah and Madinah. Al Khobar, Dammam, Riyadh and Jeddah have recorded marked outperformance compared to the average.
Domestic leisure and corporate visitation, alongside entertainment initiatives such as the Saudi Arabian Grand Prix and Saudi Seasons Initiative have underpinned this outperformance. Saudi Arabia’s ADR increased by 7.5% in 2021 and its RevPAR, as a result, has increased by 13.7% over this period.
Restrictions on visitation for parts of the year have meant that RevPARs remain a material level below 2019 levels. Al Khobar has once again bucked the trend in comparison to all other cities, with average ADRs and RevPARs sitting 9.5% and 11.9% above 2019 levels respectively.
Taimur Khan, CBRE Head of Research (Mena) said: "Looking ahead, with travel and length of stay restrictions easing, we expect that KPIs will start to see a more sustained recovery ensue over the course of 2022."
"These changes will particularly benefit the Holy Cities as restrictions on pilgrimages are materially reduced. Secondly, the return of conferences and exhibitions is expected to underpin visitation to Riyadh and to an extent Jeddah. Locations such as Al Khobar, which have benefitted from domestic leisure visitation, may see a deterioration in performance as other global destinations re-open," he added.-TradeArabia News Service
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