The Saudi government initiatives are increasing the number of pilgrims visiting Makkah, which in turn is having a positive impact on the real estate sector, consultancy firm CBRE said in its recent report.
Makkah has reported growth in the residential subdivision developments, with smaller size units witnessing rising demand. Furthermore, unplanned settlements are now being redeveloped to improve quality of life as well as stimulate demand in this particular sector.
International operators are increasing their contribution to large masterplans, including Jabal Omar Development and King Abdul-Aziz Road Development, the report said.
Meanwhile, hotel operators are continuing to provide promotions and special packages to Hajj and Umrah companies, in line with government plans to increase the number of religious tourists visiting the Kingdom to 30 million a year by 2025.
According to CBRE, there has been a notable shift towards higher quality hotel developments and serviced apartments.
“Investors are continuing to develop their properties in order to attract international operators. Strong co-operation between the public and private sectors has played a major role in stimulating the city’s hospitality sector, with a trickling down effect on segments including retail and leisure,” the report said.
Higher occupancy rates
With increasing visitor numbers, Makkah’s hotels are expected to see higher occupancy rates, after increasing 15 percent year-to-date. Currently, over 21,485 keys are under construction.
According to the report, Makkah’s retail demand remains heavily oriented towards higher quality retail destinations, with strip malls continuing to report high occupancy figures.
“There is a healthy supply of retail developments due to enter the market, with 0.1 million GLA expected to be delivered by 2022 – although these mainly consist of neighborhood and community developments, they are expected to cater to pilgrims, as well as the city’s residents,” it noted.
Rental rates within the retail sector have fallen with super regional and regional mall rental rates down one percent year-on-year t. However, the launch of a number of museums and heritage sites is expected to not only improve quality of life but further stimulate the city’s growing retail sector.
Makkah’s commercial retail sector is dominated by government entities and companies that specialize in Hajj. Upcoming supply in the market is likely to be in the form of Grade B commercial developments.
Total office stock currently stands at 284,000 square meters of gross leasable area (GLA) as of H1 2019, with an additional 44,160 square meters of GLA expected to be delivered by 2022.
Despite the positive long-term outlook, rental performances have continued to record pressures within both the primary and secondary office locations with rental rates down 10 percent and 11 percent year-on-year respectively, the report said.
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