Saudi real estate market undergoing ‘healthy’ correction: Interview

If you think the anticipated slump in real estate valuations and returns in Saudi Arabia over the coming months is bad news, think again.

Mr. Abdullah Al-Mugbel, CEO of Wabel Alarabia for Investment Co., who is developing a slew of shopping malls around Saudi Arabia, believes the market is undergoing a healthy correction that will unlock a wealth of opportunities.

His company owns Tadawul-listed Swicorp Wabel REIT— a closed-end, Shariah-compliant fund with a total size of SAR 1.18 billion. The company is gearing up to develop and operate several shopping malls across Saudi cities to enrich its portfolio of listed assets and tap market opportunity.

"We plan to add new shopping mall developments to our portfolio at very competitive rates… to help make the REIT the largest shopping-mall-based REIT in the Middle East," says Al-Mugbel.

Argaam posed the below questions to Al-Mugbel:

Q- Would you give a brief on Wabel Alarabia for Investment Co. and its key projects?

The company was established by seasoned retail and real estate investors, and has become a leading Saudi real estate developer, specializing in developing family shopping malls.

Along with our strategic partners, we are developing 23 shopping centers across the Kingdom, built over 1.5 million square meters. Some of our developments started their operations, and some are under development.

Q- What is the competitive edge your company has over others?

Our competitive advantage emerges mainly from the focus on smaller, underserved towns where we build malls in strategic locations to enjoy a first mover advantage. Besides, we seek also to develop community malls in major cities.

Q- How do you perceive the retail, real estate sector in the coming period? How will the sector fare under an anticipated slowdown in business activity and economy at large?

We have focused on underserved cities. Our shopping malls are almost the only entertainment and shopping option for the residents there.

Al Makan Malls, newly built, boast higher occupancy rates compared to competitors, taking into account that rent prices are lower in B-Cities, that gives us more resilience  to withstand pressure.

Our malls will also be main hosts of movie theaters, which would increase the number of visitors and time spend per visitor.

At Wabel, we aspire to become pioneers in the movie theater business. We found a high demand from would-be movie operators to lease spaces in our venues.

Q- How may the decline in real estate valuation impact on returns in your selected areas of specialty?

We must differentiate between main cities and B-cities, and between commercial and residential sectors. Real estate prices have significantly increased across main cities in recent years, surpassing average purchasing power into the residential sector, and cutting into the profitability of commercial developers.

But, the market is undergoing a healthy correction now, where firms with adequate solvency can take advantage of opportunities that were not available otherwise.

Q- Would you give an overview on your company’s expansion plans?

We currently have several projects under development in cities like Khamis Mushait, Mahael Aseer, Al-Jouf, Arar, Khafji and Al Zulfi.

Some of these projects are at final phases of development, including a project at Khamis Mushait and Mahayel Aseer.

We plan to add these developments to Swicorp Wabel REIT’s portfolio at very competitive rates. By so doing, we serve our goal of making the REIT the largest shopping-mall-based REIT in the Middle East within a few years.