Market Trends of Saudi Arabia Commercial Real Estate Industry
Rise in the retail sector in Riyadh driving the market
The retail real estate market in Saudi Arabia, particularly in cities like Riyadh, is witnessing developments that have transformed the retail market, which consists of various outlets ranging from high-end dining to fast-food restaurants, in addition to luxury brands that were once absent from Riyadh's retail scene.
Retail destinations recorded an increase in footfall as the Saudi government began to ease restrictions on restaurants, cafes, and cinemas. With the growth of e-commerce, shopping centers have to shift their focus to enhance customer experiences. Developments are positioning their assets among other strategies to improve their entertainment and F&B offerings. If executed properly, such changes can add value by attracting greater levels of footfall.
Retail Gross Leasable Area (GLA) in Riyadh was at 3.3 million sq.m. in Q3 2022, with Lumiere Centre being a key development. Over the same period, Jeddah's total retail stock reached 1.8 million sq. m. with the completion of approximately 2,000 sq.m, according to industry associate's data.
Although there may be some delays in the handover of the retail spaces, most of this stock was expected to be of high-quality shopping centers with strong entertainment and food and beverage elements. These include retail centers such as Qurtoba Boulevard, River Walk Center, and Shorofat Al Nada Park, which come as developers in the Kingdom and look to differentiate their products to secure a large consumer base.
Demand for office spaces is likely to increase across key cities in Saudi Arabia
The occupancy rate for Grade A office space, which stands out for its coveted location and top-notch infrastructure, is 98 percent, while the occupancy rate for Grade B office space is 75 percent, which is the highest level in five years.
Additionally, the average rent for premier office space increased by 18% in the previous 12 months to USD 472 per square meter. The average rent for Grade A office space in Jeddah increased by 6.5 percent over the previous year to USD 283 per square meter, indicating that the city's leasing market is also on the rise. In the second city of Saudi Arabia, Grade A offices are currently 92 percent filled, while Grade B occupancy is 80 percent.
In Jeddah, in upcoming years, a large amount of potential office space could be released to the market, the majority of which is Grade A (60%-70%), while an additional 30% of the stock is set to come online in smaller projects along major arterial routes. A prime scheme in the pipeline is Jeddah Gate, which is a master plan developed by Emaar. The development will offer nearly 230,000 sq. m. of high-quality office space within a mixed-use environment.
In the longer term, it is anticipated that the demand for office space will pick up from the current levels as economic reforms under the National Transformation Plan (NTP) and Vision 2030 start getting implemented and benefit the economy.
Moreover, various urban regeneration initiatives, including mixed-use communities and large-scale infrastructure projects, are also expected to act as a catalyst for the commercial real estate market. Furthermore, it is expected that the planned wave of privatization will boost investment and foster growth in the business environment, creating favorable conditions for the office sector.
