PROPERTY MARKET REPORT
2019 SAUDI ARABIA PROPERTY MARKET REPORT
ABOUT CAVENDISH MAXWELL Established in 2008, Cavendish Maxwell is one of the largest and most respected property consultancies in the region. An influential partner and trusted advisor to key stakeholders in real estate markets throughout the Middle East and North Africa, we offer a comprehensive range of exceptional property services across a diverse mix of sectors and asset classes. Cavendish Maxwell is a fully certified member firm of the Royal Institution of Chartered Surveyors (RICS), bringing together a world-class team of handpicked property consultants and surveyors, unmatched elsewhere in the region. Our team of highly qualified professionals is trusted by real estate market stakeholders throughout the region, including international and domestic banks, property developers, governments, owners and investors, asset managers and professional services firms. We service a diverse mix of specialist property sectors including retail, offices, hospitality, healthcare, education, industrial and logistics. Cavendish Maxwell also publishes independent reports, prepared to globally accepted standards, for loan security, bank lending, audit, insurance reinstatement, dispute resolution, risk management, debt recovery, performance analysis, purchase and sale advice, and third-party reliance purposes.
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
FOREWORD The oil-price collapse of 2014 was a trigger for Saudi Arabia, the largest oil-exporting country in the world, to reduce its dependence on hydrocarbons and explore new revenue streams to achieve financial sustainability. As a result, in 2016, the kingdom launched an ambitious plan to diversify away from energy, by developing new sectors to attract investments and increase the share of non-oil revenues. At the heart of the 15-year strategy, called Vision 2030, is the privatisation of the state oil company Saudi Aramco, the proceeds of which would be used to create a sovereign wealth fund which would make diversified investments in global assets. Also part of the blueprint is the creation of mega cities to house a plethora of offerings in hospitality, entertainment, retail, education, healthcare and industry. Economic and social reforms including opening up the economy to outside investors, lifting bans on cinemas and allowing women to drive are all beginning to show tangible results. Against this backdrop, in our maiden report on Saudi Arabia, we explore the effects of these developments on the kingdom’s real estate sector, reviewing the performance of the residential, retail, office, industrial and hospitality segments in 2018, until H1 2019.
CONTENTS 04
Macroeconomic Overview
12 04
Industrial Market Overview
06
New Infrastructure Projects
14
Hospitality Market Overview
08 04
Residential Market Overview
15
Entertainment and Leisure Market Overview
10
Retail Market Overview
16
A Word from our Chief Economist
11 04
Office Market Overview
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
MACROECONOMIC OVERVIEW Whilst Saudi Arabia is pressing on with efforts to diversify its economy away from hydrocarbons, the biggest area of activity continues to be oil and gas, followed by government services, financial and business services, and trade and hospitality. Between 2010 and 2018, Saudi Arabia’s GDP (at constant prices) grew from SAR 1,981 billion to SAR 2,938 billion, registering a Compound Annual Growth Rate (CAGR) of 5%, according to World Bank data. After shrinking to 0.7% in 2017, Saudi Arabia’s economy returned to a path of growth in 2018, growing at a pace of 2.2%, helped by an improved oil sector as non-oil revenues increased. The GDP value of the kingdom represents 1.26% of the world economy. Saudi Arabia’s position also improved on the World Bank’s Ease of Doing Business ranking in 2019. The kingdom placed in the 92 nd spot out of 190 countries, improving its score by 1.62% from the previous ranking, as a result of increased efforts by the government to attract foreign investment and stimulate entrepreneurship.
TOTAL GDP 2010-2018
2,000
2,938
2,575
2,419
2,454
2,836
2,800
2,511
2,500 1,981
SAR Billion
3,000
2,760
3,500
1,500 1000 500 0 2010
2011
2012
2013
2014
2015
2016
2017
2018
Source: World Bank
GDP BY SECTOR IN Q1 2019 AT CURRENT PRICES 5% Others
27% Oil and Gas
6% Construction 6% Transport and Communications 13% Manufacturing 10% Trade, Restaurant and Hotels Source: Ministry of Finance, General Authority for Statistics
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20% Goverment Services
13% Finance, Real Estate and Business Services
2019 SAUDI ARABIA PROPERTY MARKET REPORT
GDP PER CAPITA
FOREIGN DIRECT INVESTMENT
In 2018, Saudi Arabia’s GDP per capita stood at SAR 87,089, equivalent to 165% of the world’s average. It increased 11.6% from SAR 78,027 in 2017, indicating an improved standard of living among residents.
Saudi Arabia was once the largest recipient of FDI in the Middle East. However, there has been a general trend of decline in FDI flows into the kingdom post the financial crisis of 2008. According to the United Nations Conference on Trade and Development, FDI inflows to Saudi Arabia shrank by 80% between 2016 and 2017. Key sources of foreign investment included UAE, USA, France, Singapore, Japan, Kuwait and Malaysia, individually contributing between 4.6% and 22% of total FDI in 2017.
GDP PER CAPITA IN 2018 200,000
SAR
150,000 100,000 50,000 0 161,301
128,441
90,209
87,089
61,583
UAE
Kuwait
Bahrain
Saudi Arabia
Oman
Source: World Bank
POPULATION According to the General Authority for Statistics, Saudi Arabia’s population in 2018 was 33.4 million, rising at a CAGR of 2.5% since 2016. Local citizens comprised 62% of the population with expatriates making up the remaining 38%.
This drop was largely attributed to the divestment by Shell of its 50% stake in Saudi Arabia Petrochemical Company (SADAF) to its partner Saudi Basic Industries Corporation (SABIC) for SAR 3.07 billion, and negative intracompany loans by multinationals. In addition, political and social unrest, reduced access to credit, and the policy of ‘Saudisation’, which came into effect in 2011 and favours development of a domestic working population, all hampered FDI inflows into the region. However, the government’s diversification efforts have been largely centered on attracting FDI, for which it has undertaken measures such as opening up the retail and wholesale sectors to 100% foreign ownership, simplifying licensing procedures, and easing restrictions on foreign investments.
POPULATION OVERVIEW
FDI IN SAUDI ARABIA
2018 Female
SAR Million
27,963
2015
20,000 15,000 10,000
12,033
2017
25,000
5,331
19,240,956
2016 Source: General Authority for Statistics
30,544
18,745,846
5,000,000
18,259,719
15,000,000 10,000,000
2014
30,000 14,172,704
13,866,795
20,000,000
13,527,861
25,000,000
33,257
32,612,641
35,000
CAGR 2.5%
35,000,000 30,000,000
CAGR -6%
40,000 30,056
40,000,000
33,413,660
These initiatives combined with other factors such as a regulated banking system, low energy costs and stable inflation will prove to be helpful in making the kingdom an attractive investment destination.
31,787,580
Between 2016 and 2018, male population registered a CAGR of 2.7% whilst female population grew at a slightly lower CAGR of 2.4%.
0
2013
Male
2016
2017
2018
Source: World Bank
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
NEW INFRASTRUCTURE PROJECTS
Riyadh Rapid Bus Transit System
Saudi Aramco’s Berri and Marjan oil fields
A 22-line network spanning 1,200 km across 6,765 stations in the Saudi capital.
The increment programmes will see production capacity increase by 550,000 barrels per day of Arabian Crude Oil and 2.5 billion standard cubic feet a day of gas.
Solar projects backed by China, Japan, and Saudi Arabia
Pepsi’s Chinese bottle-maker comes to Saudi Arabia
The kingdom will generate up to 60 gigawatts (GW) of renewable energy by 2030 and solar energy will account for 40 GW of the total renewable capacity.
Pan-Asia Pet Resin, a Chinese bottling company which supplies products to Pepsi and Coca-Cola will set up a SAR 4 billion plant in Saudi Arabia.
King Salman Energy Park (Phase 1)
Makkah Grand Mosque
A three-phase 50 sq km energy and industrialisation centre with key focus on technology.
The third expansion of the mosque will add 32 hectares (ha) of space for 300,000 worshippers, as well as new eletromechanical systems, fire safety networks, hygiene and water treatment facilities, and sound systems.
Riyadh Metro project
King Abdullah Bin Abdulaziz Medical Complexes
The metro public transit will have six lines spanning 176 km with 85 metro stations.
The 1,300 sq km healthcare megaproject’s scope involves building a medical city each in Jeddah and Riyadh.
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2020
2021
2019 SAUDI ARABIA PROPERTY MARKET REPORT
Saudi Arabia’s first wind power plant The 400-megawatt facility in Dumat Al Jandal in Al Jouf will be the biggest wind power plant in the Middle East.
Saudi Arabia’s first polyisobutylene (PIB) plant The Jubail plant will produce over 70,000 tonnes of PIB which will be exported to the Middle East, Asia, and Europe for the manufacturing of adhesives, lubricants, and fuel additives.
In 2016, Crown Prince Mohammed bin Salman launched an ambitious economic and social reform plan to diversify the Gulf’s largest economy away from energy. To achieve this, the kingdom is opening up the country’s economy, boosting the private sector including small and medium enterprises (SMEs), easing rules to set up and conduct business to attract foreign investors, and taking measures to lower unemployment. Central to the plan is increasing the share of non-oil revenues, transforming the kingdom’s sovereign wealth fund, the Public Investment Fund, privatising state oil company Saudi Aramco, and developing public service sectors such as health, education, infrastructure, recreation and tourism.
2022
2023
2024
2030
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
RESIDENTIAL MARKET OVERVIEW The residential market in Saudi Arabia has been on a decline in recent months. An increasing number of expats exiting the kingdom following the imposition of expat and dependent taxes; and the white land tax, introduced to ensure that plots are developed and not left idle, are together exerting downward pressure on sale prices and rents. However, in line with the Vision 2030, the government aims to double real estate’s contribution to the country’s GDP to 10% by 2020, from 5% in 2016 and is undertaking a slew of measures to achieve this. With younger Saudi nationals and expats displaying a preference for apartments and more affordable properties, in general, the government is taking steps such as incentivising developers to build such projects and encouraging banks to introduce more home financing options. To fulfil its ambition of increasing home ownership by Saudi nationals to 60% by 2020 and 70% by 2030, Saudi Arabia’s housing ministry announced a plan to build approximately 19,500 residential units for its nationals under the ‘Sakani’ housing development programme. The kingdom has even introduced a rental price index to boost transparency and regulation in the sector. Whilst Riyadh is the largest city and the capital of Saudi Arabia housing 4.2 million people, Jeddah is the second largest and is home to 2.9 million people.
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
RIYADH RESIDENTIAL MARKET ANNUAL RENT FOR VILLAS
ANNUAL RENT FOR APARTMENTS Annual Rent (SAR)
Size
Annual Rent (SAR)
Size
min
max
min
max
Studio
9,000
36,000
3BR
40,000
100,000
1BR
10,000
75,000
4BR
60,000
130,000
2BR
12,000
95,000
5BR
70,000
150,000
3BR
14.000
100,000
SALES PRICE FOR VILLAS
SALES PRICE FOR APARTMENTS Size
Sales Price (SAR) min
max
500,000
3BR
620,000
8,500,000
350,000
600,000
4BR
700,000
9,000,000
400,000
1,000,000
5BR
770,000
10,000,000
Size
Sales Price (SAR) min
max
1BR
300,000
2BR 3BR
Source: Cavendish Maxwell
UPCOMING PROJECTS IN RIYADH AND JEDDAH
RIYADH
JEDDAH
Al Widyan
Al Rawdah Complex
Al Dhahia Compound
Jeddah Gate
Ajmakan
Jeddah Tower
Rafal Sky Garden
Ministry of Housing’s Sakani homes
Ishraq Living Information Technology & Communication Complex
TABUK
MECCA Jabal Omar (Mecca)
Neom
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
RETAIL MARKET OVERVIEW In Saudi Arabia, regional and super regional malls attract higher footfall than community malls, and therefore command higher rental rates. However, rentals within the retail sector declined during 2018 on the back of lower consumer spending as a result of the introduction of VAT. The trend is expected to continue over 2019 as new retail space is added to the market. Over the longer term, the outlook for the physical and online retail sector in the kingdom remains positive owing to rapid digitalisation, favourable demographics and supportive initiatives by the government. In terms of upcoming supply, Arabian Centres, which boasts 19 shopping centres across densely-populated cities across the kingdom, plans to expand its operations to 27 malls within four years. After launching its newest hypermarket in Riyadh, LuLu Group is expected to add another 11 hypermarkets in the capital before the end of 2020.
EXISTING AND UPCOMING MALLS Obhur Mall
JEDDAH
Mall of Arabia Red Sea Mall
Jeddah Central Park Mall
King Avenue Mall Al Rawdah Mall
Al Salaam Mall
Granada Center (Riyadh)
Major Malls
10 10
Upcoming Malls
Al Rashid Mall (Al Khobar)
2019 SAUDI ARABIA PROPERTY MARKET REPORT
OFFICE MARKET OVERVIEW The capital city of Riyadh continues to be the preferred destination for businesses, accommodating the highest share of the country’s total workforce at 38%. New office space is set to enter the market with the upcoming opening of King Abdullah Financial District (KAFD) in October 2020 and Information Technology & Communication Complex, ITCC. Jeddah is also set to see the entry of high-grade office spaces with the delivery of major projects including King Avenue, Al-Rawdah Complex, and Jeddah Gate. In the long term, supply of office space catering to large-scale companies and SMEs is expected to increase as the government encourages private industries to ramp up operations in the kingdom. Under Vision 2030, the Saudi government is working to increase the private sector’s share of contribution to the economy to 65% of GDP by 2030, from the current 40%.
LABOUR FORCE DISTRIBUTION BY PROVINCE 2018 Riyadh
Others
38%
20%
Eastern Province 20%
Makkah 22%
Source: General Authority for Statistics
RIYADH AND JEDDAH OFFICE MARKET
Riyadh
14 – 700 | Size (sq m)
Jeddah
50 - 470 | Size (sq m)
Source: Cavendish Maxwell
12,000 – 500,000 | Annual Rent (SAR)
21,000 - 800,000 | Annual Rent (SAR) Rents depend on location and grade
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
INDUSTRIAL MARKET OVERVIEW Building on its diversification agenda and to attract foreign entities to set up industrial operations in the kingdom, Saudi Arabia offers two types of free zones - industrial cities and economic cities. Both zones allow companies established here to be 100% foreignowned. The industrial cities are mainly developed by the Saudi Authority for Industrial Cities and Technology Zones (Modon) currently overseeing 35 cities, which are operational or under construction. On the other hand, the Saudi Arabian General Investment Authority acts as the regulator, facilitator and promoter of the economic cities. The kingdom has also announced the launch of a special economic zone focused on integrated logistics to be located at Riyadh’s King Khalid International Airport. The Integrated Logistics Bonded Zone, or ILBZ, is part of a larger plan to establish special economic zones in competitive locations, attracting foreign investment into sectors including information and communications technology, tourism and financial services.
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
EXISTING ECONOMIC CITIES King Abdullah Economic City Located on the west coast of Saudi Arabia, along the Red Sea Corridor, King Abdullah Economic City has a total area of 181 sq km, of which, one-third (63 sq km) is designated for an industrial hub, called Industrial Valley. Prince Abdulaziz Bin Mousaed Economic City The second economic city launched in 2009 and is expected to be completed by 2025. Knowledge Economic City Launched in Madinah in June 2006, it aims to attract and develop talent from around the world. Jazan Economic City Launched as the fourth economic city in November 2006, Jazan Economic City (JEC) is located 60 km northwest of Jazan city. JEC will be divided into industrial and nonindustrial areas made up of four zones. Its industrial area will represent two-thirds of the city and will comprise zones for primary and heavy industry, secondary industry, and human resources and work development.
UPCOMING ECONOMIC CITIES Tabuk Economic City 151 projects worth over SAR 11 billion in areas of housing, municipal affairs, environment, energy and education, among others. Eastern Province Economic City Saudi Aramco to set up two companies that will develop and operate the new Industrial Energy City on over 500 ha of land.
Tabuk Economic City
Eastern Province Economic City
Knowledge Economic City Prince Abdulaziz Bin Mousaed Economic City King Abdullah Economic City
Jazan Economic City
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
HOSPITALITY MARKET OVERVIEW Business, pilgrimage and leisure travel are the primary drivers of tourism in Saudi Arabia. With increasingly more options for entertainment, leisure and relaxation, domestic tourism is also proving to be a significant revenue stream for the government. All the three drivers of growth are set to receive a boost as the government’s Vision 2030 economic diversification plan, which focusses on increasing the contribution by tourism, gathers steam. The introduction of luxury properties, entertainment venues and business destinations is set to attract a huge influx of domestic and international visitors. The government also aims to attract 30 million Umrah pilgrims to the kingdom by 2030. According to the World Travel and Tourism Council, international arrivals to the kingdom are set to grow 4% per annum to touch 22.1 million by 2025. The country is expected to begin issuing tourist visas this year, possibly as early as the end of September. Anticipating the growth in demand, the hospitality sector is accordingly gearing to provide a range of accommodation options. According to data from STR, Saudi Arabia has over 64,000 rooms across the three phases of the hotel development pipeline— Planning, Final Planning and In Construction. The number represents 76% of the over 84,500 existing hotel rooms in the kingdom.
UPCOMING PROJECTS
Swissôtel Al Khobar Hotel
Park Inn by Radisson Jeddah Madinah Road Aqua Raffles Hotel Jeddah Grand Hyatt Hyatt Regency Hyatt House
14 14
Rove Hotel Bay La Sun District
Citymax Hotel Riyadh Hyatt Place
Jabal Omar Address Makkah Jabal Omar Jumeirah Makkah Hotel Hyatt Centric
2019 SAUDI ARABIA PROPERTY MARKET REPORT
ENTERTAINMENT AND LEISURE MARKET OVERVIEW Numerous upcoming options in entertainment and leisure including amusement parks, wellness, arts and culture, cinemas and retail, are anticipated to drive up demand in related sectors such as hospitality and food and beverage. Giga-projects, complete with hotels, have been conceptualised by the Public Investment Fund to offer visitors unprecedented facilities in various pockets of the kingdom. Some of the initial projects announced include The Red Sea Project – an island and inland complex which will be renowned for its ecological value; entertainment-city Qiddiya, which will house a Six Flags-branded theme park, and “uber-luxury” wellness tourism destination, Amaala. Apart from these large-scale projects, changes in policies such as the lifting of the 35-yearban on cinemas has also helped the kingdom attract large investment from cinema operators around the world. Over the next five years, Saudi Arabia is set to witness the opening of 2,500 more cinema screens by companies such as Majid Al Futtaim subsidiary Vox Cinemas, and India-based Carnival Cinemas.
UPCOMING GIGA-PROJECTS The Red Sea Project •
Phase 1 of the scheme is due to be complete in 2022. It includes 14 luxury and hyper-luxury hotels that will comprise 3,000 rooms, all across five islands and two inland resorts.
Amaala •
Wellness tourism destination including an airport, 2,500 luxury hotel rooms, 200 retail establishments, art galleries, marinas and 700 villas.
Neom •
Independent international zone spanning three countries based on principles of renewable energy, technology, community, diversity, and modern architecture.
•
Investment of SAR 1.88 trillion over the coming years by Public Investment Fund.
Qiddiya •
Entertainment, sports and cultural destination.
•
300 recreational and educational facilities designed around five cornerstones of development.
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
A WORD FROM OUR CHIEF ECONOMIST The economy of Saudi Arabia looks set to exceed expectations in 2019, both in respect of higher non-oil growth driven by infrastructure spending, and a fiscal deficit below forecasts. Saudi policymakers know better than to rest on these laurels: they recognise that Vision 2030, or something similar, is crucial for the country’s future. Both the World Bank1 and the International Monetary Fund (IMF)2 agree with them that the macroeconomic dynamics of the kingdom in the medium term will depend on the three policy streams that underpin Vision 2030. First, the successful combination of economic reform, including utility pricing and wage policy. Second, transformation from state towards private investment. Third, diversification away from carbon-based primary production towards production and services, including banking, healthcare, education and tourism, all supported by the real estate industry. No doubt this is true. Saudi Arabia’s greatest asset is its people, not oil, and the economic reforms that are currently under way are the best chance for that asset to be properly unleashed. Longer term therefore, there is every reason to be optimistic for the future of the Saudi economy, and with that, the real estate market, especially as the IMF also supported the government’s determination to continue with the USD peg over the next economic cycle, largely removing the currency risk for many international investors in the medium term. In the short term, macroeconomic improvements in growth, FDI and the budget are likely to be slow to feed through into immediate real estate returns. At this point in any market cycle, liquidity is likely to be restricted, and so what has already been seen of increased turnover filtering through as evidence that the market has turned must be treated with caution. Investors must be absolutely scrupulous with their due diligence to ensure value for money. Accurate sectoral and geographical placement will remain essential across all sectors, including those hitherto regarded as secure such as malls, in what remains a challenging real estate market confronted by oversupply in some areas and high levels of leverage in others. For those investors who intend to stay the course, there are four factors that demand attention apart from the macroeconomic environment. First, demographics. The Saudi population grew by over 800,000 in 2018 and the rate of growth has been remarkably consistent over the past few years. The residential real estate deficit will therefore not be eroded in the coming decade, even with the ambitious construction plans already announced. Second, the detail of regulations, for example in the established free zones and the new Special Economic Zones, will be especially important as the kingdom moves gradually to implement international standards of taxation and regulation. Third, as construction will move to renew and replace the first wave of the country’s development and extend urban centres beyond their current boundaries to encompass the impact of the metro and ring roads, especially in Riyadh and Jeddah. This will mean the emergence of an entirely new market – suburban Saudi Arabia, with a network of regional towns and interconnections by road, and even rail, that will all become a separate focus of future real estate investment. And finally, the wider geopolitical environment – moves towards greater regional security will undoubtedly further help the Saudi real estate market along with those of its neighbours.
JULIAN ROCHE CHIEF ECONOMIST
1 https://www.worldbank.org/en/country/gcc/publication/saudi-arabia-economic-update-april-2019 2 https://www.imf.org/en/News/Articles/2019/07/18/pr19287-saudi-arabia-imf-executive-board-concludes-2019-article-iv-consultation-with-saudi-arabia
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2019 SAUDI ARABIA PROPERTY MARKET REPORT
STRATEGIC CONSULTING AND RESEARCH This report was compiled by Cavendish Maxwell’s Strategic Consulting and Research team, which has some of the region’s most highly qualified data analysts with a wealth of international real estate advisory experience. We work closely with a broad portfolio of banks, property developers, government entities and private clients, providing authoritative, industry-specific research and advice to maximise portfolio performance. Our strategic consulting and research expertise spans a variety of sectors including residential, office, hospitality, education and mixed-use developments, and our team draws on reliable proprietary data to allow for thorough and accurate analysis of trends and market fluctuations.
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Disclaimer: The information and analysis contained in this report is based on information from a variety of sources generally regarded to be reliable, and assumptions which are considered reasonable, and which was current at the time of undertaking market research, but no representation is made as to their accuracy or completeness. We reserve the right to vary our methodology and to edit or discontinue the indices at any time, for regulatory or other reasons. The report and analysis do not purport to represent a formal valuation of any property interest and must not be construed as such. Such analyses, including forward-looking statements are opinions and estimates only, and are based on a wide range of variables which may not be capable of being determined with accuracy. Variation in any one of these indicators can have a material impact on the analysis and we draw your attention to this. Cavendish Maxwell and Property Monitor do not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this report.