Riyadh Real Estate Market Overview Report – Q1 2018
The performance of the retail and residential sectors in Riyadh’s real estate market continued to soften in Q1 2018, while office rents remained unchanged. The hospitality sector improved slightly but could experience further downward pressure over the rest of the year.
The office sector remained relatively stable, with rents unchanged and vacancies improving. Total office space in Riyadh reached 3.9 million sq m in Q1 2018, with no major completions tracked. A number of smaller, mixed-use developments (less than 10,000 sq m) were however completed, including Ammar Tower (4,000 sq m), the Maather Project (3,475 sq m), and the Bani Sulaimaniah Mixed-use Project (2,000 sq m)
The residential sector saw further declines in both sale prices and rentals, primarily because of the continued departure of expatriates in the face of additional levies on dependents. The affordable sector of the market remained active in Q1 with ongoing efforts by the Ministry of Housing to increase home ownership from 47% to 52% by 2020, in line with the National Transformation Program. Q1 2018 saw the delivery of nearly 7,500 scattered units, bringing the total residential stock to 1.3 million units.
The retail sector experienced little effect from the introduction of VAT in Q1 2018. However, rents and occupancies both softened because of lower consumer purchasing power and the departure of some expatriates. The value of retail sales in Riyadh’s real estate market increased by 5% YT Feb 2018 compared to the same period in 2017, indicating continued strength in this sector. ‘Shoppertainment’ continues to be a hot topic in the retail industry, with the opening of the first cinema in Riyadh (within the KAFD) scheduled for late April.
The hotel sector is expanding its current stock of almost 12,300 keys (as of Q1 2018), with 1,900 keys scheduled to complete by the end of the year. The main indicators recorded a small improvement over the first two months of the year, with occupancies increasing by 6% and ADRs by 3% compared to the same period in 2017. The hotel market could, however, experience further downward pressure over the remainder of 2018. With the increased use of virtual meetings impacting the currently dominant corporate sector, growing the demand for leisure tourism is critical to the sector’s long term success.