Mr Jamil Ghaznawi, National Director and Country Head of JLL KSA, commented: "In the first quarter, the Jeddah real estate market experienced upward growth, but most asset classes are currently near their peak and are expected to remain stable or slow down over the next six months. With a proposed tax on undeveloped land in urban areas representing one of the first major economic policy initiatives since King Salman took the throne in January, we anticipate this policy could help ease the current shortage of affordable homes and spur economic growth. Presently in the residential sector, apartments have generally performed better than villas, due to their affordability, and rentals are poised for continued growth, as a result of the new mortgage regulations."
He added: "With substantial new office and hotel space expected to enter the market, these sectors are expected to reach their peak later in 2015. The retail market will see less new supply this year and could therefore witness further growth before topping out in 2016."
Sector summary highlights – Jeddah:
Office: Office vacancy rates have remained stable at 6% over the last quarter. This is most likely due to the limited office space entering the market in Q1 2015 which includes M Sas tower (10,500 sq m) and MITCO tower (4,800 sq m). Average market rents have remained unchanged in Q1 but have increased by 6.5% over the past year to SAR990 sq m. Prime rents have continued their upward trend and have increased to SAR 1,900 per sq m, largely due to the high rentals commanded by the Headquarters Tower. A further 108,000 square meters (sq m) of office space is expected to enter the market over 2015. This new supply is likely to slow down the growth of office rents, with average rents expected to stabilize during 2015.
- Residential: The residential stock in Jeddah currently stands at around 775,000 units, with around 6,000 units completed during Q1 2015. Sale prices have continued to increase but at a lower rate during Q1, with this trend most evident in terms of villa prices that have edged up by just 2.5% over the past year. Transactions of villas have decreased by 59% since the mortgage regulations came into effect in November 2014, while transactions for apartments have decreased by 27% during the same period.
- Retail: Vacancy rates have decreased marginally (to 6.8%) and are expected to decrease over the rest of 2015 before stabilizing. This is likely due to the limited new supply expected to enter the market over 2015, giving excess supply a chance to be absorbed. A substantial supply of retail space is expected to enter the market in 2016, including Sairafi Mall 2, although some of this supply is expected to be delayed.
- Hotel: No new additions have entered the market over the last quarter and a number of developments have been delayed, increasing the upcoming supply for 2015 to 2,700 keys. In reality, it is likely that some of this supply will be delayed into 2016. Hotel performance in Jeddah remains healthy with occupancies remaining relatively stable year-on-year standing at 73%. Demand for hotel rooms in Jeddah remains high, which has kept occupancies and ADRs stable despite the new supply which entered the market over the last year.
Jeddah prime rental clock
This diagram illustrates where JLL estimates each prime market is within its individual rental cycle as at the end of the relevant quarter.
*Hotel clock reflects the movement of RevPAR.