The KSA Real Estate Market

A Year in Review 2020

Hello
Despite the emergency response taking over the
better part of the year, Saudi Arabia’s priority remains
focused on balancing growth and stability, while
working towards long-term economic sustainability
through diversification, and ensuring a good quality
of life for citizens and residents. This is evident in
the SAR 990 billion (USD 264 billion) budget for 2021,
emphasizing health and social development, and
education spending.
From a real estate perspective, while commercial
activity remained muted, transactional activity in
the residential market was resilient. Developers have
responded to the increase in VAT by offering more
attractive payment plans to entice buyers, while The
Ministry of Housing (MOH) has agreed to absorb the
increased VAT for first-time buyers of unit’s worth
SAR 850K or less.
In retail, and while discretionary spending on dining
out and entertainment are likely to face pressure in
the short-term, the entertainment market is currently
in a nascent stage, with latent demand far exceeding
the available supply. As such, we expect the market
to recover in the medium-to-long term. Similarly,
while the tourism sector remains challenged as a
result of COVID-19, Saudi Arabia is looking beyond
the implications by continuing to support and invest
immensely in massive hospitality projects in efforts
to increase domestic and international tourism and
achieve its Vision 2030 goals.
Office
Riyadh DMA

Y-o-Y Y-o-Y
4.4m 430k 948k 48k
sq m GLA sq m GLA -1% sq m GLA sq m GLA -3%
Total stock 2021 Expected Average Total stock 2021 Expected Average
deliveries Grade A & B rents deliveries Grade A & B rents

Jeddah Makkah

Y-o-Y Y-o-Y
1.1m 77k Y-
300k 13k
sq m GLA
GLA
sq m GLA -4% sq m GLA
GLA
sq m GLA
Y-
-9%
Total stock 2021 Expected Average Total stock 2021 Expected Average
deliveries Grade A & B rents deliveries Grade A & B rents

Commercial activity across the four main cities in Saudi
Arabia remained muted in 2020, as corporate priorities
centered around operational resilience and business
continuity.
Similarly, construction activity on office developments
slowed down, with only 150,000 sq m of office GLA
completed, representing a 67% decline from the
average office GLA completed over the past three years.
Coming into 2021, Riyadh’s office market is expected
to witness a significant addition to its supply, with
the handover of almost 430,000 sq m of office GLA.
The majority of this stock is of Grade A quality space.
However, given historic materialization rates, we
can expect delays to the handover of these projects.
Elsewhere in the Kingdom, only a number of standalone
office towers are scheduled for completion in 2021, as
landlords delay the delivery of projects while others
put their developments on hold until market
conditions improve.
In the short term, and while uncertainty pertains,
corporates are expected to continue integrating
and optimizing a hybrid working model to ensure
their employees’ safety. This includes a combination
of remote and office working.
However, in the medium-to-long term with employment
figures expected to bounce back, corporates are likely to
re-emphasize the value-add of office spaces. We expect
this will have a positive impact on quality offices spaces,
leading to a polarization in the market.
With secondary Grade B stock under pressure, there will
be opportunities for the repurposing and conversion of
space. One direction expected to take off, particularly
as employees are now used to less commuting hours,
and large corporate occupiers look to limit their CAPEX,
is the creation of flexible and co-working spaces in
developments scattered around the city and with
proximity to densely populated areas. This might
give the first push to landlords to increase their
flex operational exposure.
From a performance perspective, asking rents in Riyadh
recorded only marginal declines, while those in Makkah
recorded the largest drop of 9% across both Grade A & B
office spaces.
Looking ahead, and while we do not expect significant
drops in rental rates, particularly in Riyadh, the additional
new supply expected to enter the market is likely to exert
further pressure on rents, particularly for the lesser-quality
Grade B spaces. This would mean the market will remain
tenant-friendly, with corporates pursuing more flexible
lease agreements.
Residential
Riyadh DMA

2% -1%
1.3m 44k 363k 14k 2% -1%
Y-o-Y Y-o-Y Y-o-Y Y-o-Y
units units units units

Average Average Average Average

Total stock 2021 Expected sale prices rental rates Total stock 2021 Expected sale prices rental rates
deliveries deliveries
Source: MOJ Source: MOJ

Jeddah Makkah

-2% -4% -2% -12%

835k 12k 400k 8.5k
Y-o-Y Y-o-Y Y-o-Y Y-o-Y
units units units units

Average Average Average Average

Total stock 2021 Expected sale prices rental rates Total stock 2021 Expected sale prices rental rates
deliveries deliveries
Source: MOJ Source: MOJ

Despite the various lockdown measures across the
Kingdom, construction activity in the residential market
remained active, with around 60,000 units handed over in
2020. This brings the total residential supply to 1.3 million
and 835,000 units in Riyadh and Jeddah, respectively.
While the total stock for Makkah and DMA stands at
400,000 and 363,000, respectively.
As the Kingdom continues its drive towards increasing
home ownership rates, further investment into
the housing sector can be expected. With most of
the upcoming supply situated within masterplan
developments rather than standalone projects, huge
emphasis is being placed on delivering best-in-class
customer experience through amenities, health & safety,
convenience stores, and communal spaces.
Unsurprisingly, and given the strong government support
to the sector, demand for residential properties remained
active in 2020. According to Saudi Arabia Monetary
Agency (SAMA), this was reflected in the mortgage growth
rate figures for the YT September 2020, which saw an 84%
growth in the number of loans and a 90% growth in loan
values over the same period last year.
In 2020, according to the Ministry of Housing, over 390,000
Saudi families have benefited from the various residential
options and solutions offered. This demand is expected
to remain strong as residential transactions are exempted pushed people towards renting properties, hence a 3%
from the increased 15% VAT. This was replaced with a 5% increase in rental rates in those locations was recorded.
tax levied on new transactions.
In turn, residential sale prices and rental rates in Jeddah
In terms of performance, active levels of demand resulted registered annual declines of 2% and 4% respectively for
in annual growth levels of 2% in Riyadh’s residential sale both villas and apartments.
prices in Q4 2020 versus Q4 2019. By contrast, rental rates
registered marginal declines of 1% for apartments and Looking ahead, as more supply is expected to materialize,
villas. vacancy rates are expected to increase, placing downward
pressure on both rental rates and sale prices.
While we noted a 5% decline in rents in the South and
Center of Riyadh where more of the expat population
resides, the temporary suspension of building licenses in
the North and North-West of the capital, limiting supply,
Retail
Riyadh DMA

2.9m 261k -6% -4%

1.2m 188k -5% -1%
Y-o-Y Y-o-Y Y-o-Y Y-o-Y
sq m GLA sq m GLA sq m GLA sq m GLA

Average rental Average rental Average rental Average rental

Total stock 2021 Expected rates in super rates in regional Total stock 2021 Expected rates in super rates in regional
deliveries regional malls malls deliveries regional malls malls

Jeddah Makkah

1.5m 243k -9% -10%

1.3m 117k -9% -10%
Y-o-Y Y-o-Y Y-o-Y Y-o-Y
sq m GLA sq m GLA sq m GLA sq m GLA

Average rental Average rental Average rental Average rental

Total stock 2021 Expected rates in super rates in regional Total stock 2021 Expected rates in super rates in regional
deliveries regional malls malls deliveries regional malls malls

Undoubtedly the retail sector saw an immediate impact
from the outspread of COVID, with the lockdown measures
imposed limiting retail center visitation. In addition,
the increase in VAT levels imposed and suspension of
public sector allowances, placed downward pressure
on household incomes, leading to a prioritization of
spending. This resulted in lower footfalls and in-store
revenues.
In Riyadh, the overall vacancy rates rose to 20% in Q4
2020, up from 17% in the same period last year, the
highest vacancy rate recorded. Meanwhile, in Jeddah
market-wide vacancy rates increased to 11%, compared
to 9% in the previous year.
In the short-to-medium term, the level of additional
supply coupled with uncertain market conditions, is
expected to continue exerting downward pressure on
retail centers’ performance in the Kingdom. Similarly,
with the rise of online retailing and changing market
dynamics, we can expect retailers to continue
demanding more flexible leases.
In the long-term, introducing varying non-conventional
retail and entertainment concepts, in addition to
adopting digital technologies, are expected to boost the
sector further, particularly super-regional and regional
centers. Meanwhile, the smaller neighborhood and
convenience centers are likely to benefit from the growth
in the grocery segment, as investors eye the sector given
its resilience.

Consequently, average rental rates in super regional and

regional malls declined by 5% and 10% in Riyadh and
Jeddah respectively in Q4 2020 versus Q4 2019. Similarly,
rental rates in Makkah and DMA decreased by 10% and
3%, respectively.
Hospitality
Riyadh YT Nov 2020 DMA YT Nov 2020
Occupancy Occupancy
Rate 48% Rate 53%

18k 3.2k 9.5k 2k

keys ADR’s ADR’s
keys USD145 keys keys USD114

Total stock 2021 Expected RevPar’s Total stock 2021 Expected RevPar’s
deliveries USD70 deliveries USD61

Source: STR Source: STR

Jeddah YT Nov 2020

Makkah YT Nov 2020
Occupancy Occupancy
Rate 32% Rate 26%

14k 3k 42k 15k

ADR’s keys ADR’s
keys keys USD163 keys USD86

Total stock 2021 Expected RevPar’s Total stock 2021 Expected RevPar’s
deliveries USD53 deliveries USD23

Source: STR Source: STR

Like global markets, the hospitality industry in Saudi
Arabia saw the brunt of COVID, with travel restrictions
impacting business, leisure and religious tourism.
Unsurprisingly, hotels in the cities of Jeddah and
Makkah registered the lowest occupancy levels in the YT
November 2020, given their reliance on religious tourism.
This placed downward pressure on performance metrics
with Average Daily Rates (ADR’s) dropping 63% and 49%
Y-o-Y in Jeddah and Makkah, respectively.
We expect performance to remain muted in 2021, as
travel and capacity restrictions impact pilgrim arrivals.
This is further intensified by the number of hotel keys
expected to deliver in Makkah in 2021, which is the
largest across the main cities.
Elsewhere in the Kingdom, Riyadh saw occupancy levels
drop to 48% in the YT November 2020, compared to 59%
in the YT November 2019. Consequently, ADR’s declined
by 8% to reach USD 145 over the same period.
Hotels in the Dammam Metropolitan Area (DMA) saw
the highest occupancy rates given the area’s status as
a popular destination for domestic tourism. As such,
Revenues per Available Room (RevPar’s) only dropped 5%
in the YT November 2020 over the same period last year.
From a supply perspective, around 4,000 keys were added
across the main cities; 23% less than the average keys
delivered over the past three years.
With business tourism yet to pick-up, and the MICE
industry expected to be the slowest to recover, we
anticipate a greater need for flexibility in the hotel
industry. The redesigning of under-utilized spaces,
including converting meeting and event spaces into
co-working spaces is one example.
Co-working spaces within hotels are also expected to
gain momentum as large corporate occupiers utilize
these spaces as touch-down points for their employees
to cut on long-commuting hours.
As the Kingdom remains committed to driving and
expanding both domestic and international leisure
tourism, we remain optimistic in our long-term view for
the sector. Regulatory reforms, combined with significant
investments in tourism infrastructure and hosting various
sports and entertainment events, will reflect positively on
the industry.
Definitions and methodology
Future Supply
JLL estimates of future supply is updated on a quarterly basis and is based on primary research (physical
inspections) and secondary research (discussions with developers). The future supply is reflective of projects
actively under construction. It excludes projects that have been announced, where ground works have not started.
We remain cautious of the ability of some projects to meet their stated completion deadlines, with significant
delays in project delivery leading to a low materialization rate.
Office
Supply
The current supply of completed office GLA is based on a comprehensive list of office buildings that have been
handed over for immediate occupation. This includes standalone office buildings and office space within mixed-use
buildings:
• In Riyadh, the areas covered include: CBD, North and East Ring Roads, Khurais, Mazer, and
Sitteen Streets.
• In Jeddah, the areas covered include: Prince Sultan, Tahlia, King Road, Ibrahim Al Jaffali,
Amanah Street, Madinah, King Abdullah and Rawdah Streets.
Performance
The weighted average rent (WAR) is based on estimates from the JLL Offices and Business Space team. It reflects
the WAR across a basket of Grade A buildings in theCBD.
Grade A buildings are defined as high quality office spaces, well located, with good access to infrastructure (metro)
and amenities including F&B and retail.
The WAR of Grade A buildings represents the top open-market, net rent (exclusive of service charge and incentives)
for a new lease that could be expected for a notional office unit.
Vacancy rate is based on estimates from the JLL Offices and Business Space team. It reflects the weighted average
rate across a basket of buildings.
Residential
Supply
The current supply of completed residential buildings is based on the National Housing Census 2010, and quarterly
surveys of major projects and standalone developments in Riyadh and Jeddah. It is reflecting residential units that
have been handed over for immediate occupation. Our definition of residential units includes apartments and villas
Performance
Residential performance is based on two separate baskets, one for rental rates and the other for sale prices of villas
and apartments. The two baskets cover properties in selected locations across the cities.
Retail
Supply
The classification of retail centres is based on the Urban Land Institute (ULI) definition and based on
their Gross Leasable Area (GLA):
Super Regional Malls have a GLA of above 90,000 sq m
Regional Malls have a GLA of 30,000 - 90,000 sq m
Community Malls have a GLA of 10,000 - 30,000 sq m
Neighborhood Malls have a GLA of 3,000 - 10,000 sq m
Convenience Malls have a GLA of less than 3,000 sq m
The current supply of completed retail GLA is based on a comprehensive list of mall-based retail that have been
handed over for immediate occupation. Our project list excludes street retail and retail within mixed-use buildings.
Performance
Average rents are based on estimates from the JLL Retail team. It reflects the rents across a basket of primary and
secondary retail centres. Primary and secondary retail centres are identified based on their turnover levels. Primary
Malls are the best performing malls with highest levels of turnover. Secondary Malls are the average performing
malls with lower levels of turnover. Average rents represent the top open market net rent expected for a standard in
line unit shop of 100 sq m in a basket of regional and super regional centres. Given the variation in rentals, we quote
percentage change for retail rents rather than actual figures. Vacancy rate is based on estimates from the JLL Retail
team. It reflects the average rate across a basket of super regional and regional centres.
Hotels
Supply
The current supply of hotel rooms is based on data from our quarterly surveys, reflecting hotel rooms that have been
handed over for immediate occupation. Our project list includes all graded supply and includes serviced apartments
Performance
STR performance data is based on a monthly survey conducted by STR Global on a sample of international standard
midscale and upscale hotels. Average Daily Rates (ADR) and Revenue Per Available Room (Rev Par) are the key
performance metrics.
Jeddah Riyadh Al Khobar

Jameel Square, 17th Floor, South Level 21, Al Khobar

Level 2, Suite 209 Tower, Abraj Gate Tower
Tahliya & Andalus Attawuniya King Fahed Road
Streets Junction King Fahd Road

PO Box 2091 PO Box 13547 PO Box 32348

Jeddah, Riyadh, Al Khobar,
Saudi Arabia 8909 - 23326 Saudi Arabia 11414 Saudi Arabia 31952

Tel: +966 12 660 2555 Tel: +966 11 2180 303 Tel: +966 1 3 3308 401
Fax: +966 12 669 40 30 Fax: +966 11 2180 308

With other MEA offices in:

Dubai, Abu Dhabi, Cairo, Johannesburg and Casablanca

For questions and enquiries about the KSA real estate market, please contact:

Dana Salbak Abdullah Al Shabanat Rana Mira

Head of Research, MENA Research Manager, KSA Research Analyst, KSA
dana.salbak@eu.jll.com abdullah.shabanat@eu.jll.com Rana.Mira@eu.jll.com

www.jll-mena.com

COPYRIGHT © JONES LANG LASALLE IP, INC. 2021.

This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been
based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views
expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that
may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed
in this report. No investment or other business decisions should be made based solely on the views expressed in this report.