The recent move by Saudi Arabia’s government to exempt property deals from a tripled value-added tax (VAT) to 15%, and instead impose a new 5% tax on transactions, is expected to maintain momentum in the residential mortgage market, consultancy firm JLL said in a recent report.
Residential sector showed strong construction activity in Q3 2020 with around 10,000 units handed over in Riyadh and Jeddah. This brings the total residential supply to 1.3 million and 834,000 in Riyadh and Jeddah respectively.
Residential sales registered a 2% year-on-year (YoY) rise in Riyadh but declined 6% YoY in Jeddah. Meanwhile, rentals in Riyadh decreased 1% YoY and 5% YoY in Jeddah.
“Looking ahead, residential rental rates in the Kingdom are expected to remain under pressure in the short-to-medium term, namely on the back of wider macroeconomic factors such as the growth in unemployment rates, and consequent contraction in household incomes,” JLL said.
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Overall Performance of Residential Units in Q3 2020 |
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|
Type |
Rentals |
Sales |
|
Riyadh |
(1%) |
+2% |
|
Jeddah |
(5%) |
(6%) |
Q3 2020 saw the highest number of office space deliveries in the year, with four projects added to the office stock in Riyadh, bringing the total supply of gross leasable area (GLA) to 4.4 million square meters (sqm).
Meanwhile, the total office stock in Jeddah currently stands at 1.1 million sqm, with only 750 sqm of GLA entering the market.
An additional 27,000 sqm and 25,000 sqm of GLA is scheduled to be delivered over the last quarter in Riyadh and Jeddah respectively.
“Office performance remains under downward pressure across the two cities, with Riyadh, being the commercial hub, continuing to perform better, recording average rent declines of 1% across both Grade A&B space to record SAR 1,230 per sqm,” the consultancy firm said.
In turn, office lease rates in Jeddah declined 5% to register SAR 830 per sqm, mainly due to the price-sensitive nature of the city’s tenants, coupled with the source of demand, predominantly being local family offices.
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Overall Performance of Office Sector in Q3 2020 |
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|
Type |
Rentals |
Offered administrative area (mln sqm) |
|
Riyadh |
(1%) |
4.4 |
|
Jeddah |
(5%) |
1.1 |
Riyadh’s total retail stock increased to 2.6 million sqm in Q3 2020, with the addition of 70,000 sqm of GLA. Meanwhile, the total retail stock in Jeddah stood at 1.4 million sqm as there were no new deliveries.
In terms of future supply, an additional 44,000 sqm in Riyadh and 101,000 sqm in Jeddah are due to be delivered in Q4 2020.
“Despite retail rents continuing to decrease on an annual level, mall operators and owners continue to retain their tenants and maintain their quarterly average rental rates through offering explicit incentives, including rent-free periods and temporary discounts,” the report noted.
In the short-term, retail performance in both cities is expected to remain under pressure as more supply enters the market, thus intensifying competition.
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Overall Performance of Retail Sector in Q3 2020 |
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|
Type |
Rental Rates in Regional Malls (YoY) |
Rental Rates in Super Regional Malls (YoY) |
Supply (mln sqm) |
|
Riyadh |
(5%) |
(5%) |
2.6 |
|
Jeddah |
(10%) |
(9%) |
1.4 |
Riyadh performance levels traded higher than any of the other Saudi cities. The city saw the delivery of 400 keys in Q3 2020, bringing the total stock to 16,000.
Meanwhile, only 84 keys were added to Jeddah’s hotel stock in Q3 2020, which increased the total slightly to 14,000.
Around 700 and 200 keys are expected to be delivered over Q4 in Riyadh and Jeddah respectively.
Riyadh’s occupancy rates in August decreased 51% YoY in the first eight months of 2020, while the average daily room rates (ADR) dropped marginally to hit $153 (SAR 573). Revenue per available room (RevPar) declined 7% to reach $78 (SAR 293).
Meanwhile, Jeddah saw more significant annual declines. Occupancy rates dropped to reach.
38% in the first eight months of 2020, while ADR and RevPar declined 33% and 62% to register $181 (SAR 679) and $61 (SAR 229) respectively.
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Overall Performance of Hotels in Q3 2020 |
|||
|
Type |
Occupancy rate |
ADR ($) |
RevPar ($) |
|
Riyadh |
51% |
153 |
78 |
|
Jeddah |
38% |
181 |
61 |
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