The subdued performance of the Saudi real estate market in 2019 had a negative impact on the performance of REITs, Itqan Capital said in a research note.
The report further explained that the subdued performance in 2019 pressured rental rates, which ultimately affected the REIT sector, adding that the relationship between the real estate market and REITs market is not to be ignored.
It also noted that the clear lack of liquidity in the capital market coupled with the recent initial public offering (IPO) of Saudi Aramco, had a negative impact on REITs in a more technical sense.
Itqan Capital expects the REIT market to continue to underperform in the short and medium terms, due to the transformational phase the Kingdom’s economy is currently undergoing.
However, the report highlighted that the outlook for the REIT sector is promising as the government reforms, National Transformation Plan (NTP), and Vision 2030 come to effect.
This is contingent upon the inclusion of Riyad REIT and SEDCO Capital REIT in the FTSE EPRA Nareit Global Emerging Index, as well as the plan to add AlAhli REIT (1) and Musharaka REIT as per their recent announcement on December 18, the report maintained.
It added that REITs like Taleem and Masha’ar are more on the stable end of the market due to their thematic portfolio and relatively long tenancy contracts.
As the economy picks up, Itqan Capital expected that the more diversified REITs (Jadwa Saudi REIT, Riyad REIT, SEDCO REIT and Derayah REIT) will be able to capitalize on the improvement of all sectors at once.
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