RIYADH: Jones Lang LaSalle, a major international real estate investment and advisory firm, on Tuesday released its latest "Riyadh Real Estate Market Overview - Q1, 2011" covering the Riyadh office, residential, retail and hospitality market segments. According to the report, the Riyadh real estate market is expected to experience strong demand on the back of improving economic indicators like oil prices and real GDP growth now projected at 5.7 percent. This positive outlook is further strengthened by the government's recently announced stimulus package that aims to invest significant public capital into a broad range of public sector developments and infrastructure projects.
Considering all real estate asset classes in Riyadh, the residential sector appears most promising because of strong national population growth combined with increasing number of expatriates entering the country to work in 'hot' sectors like construction, health care and education. Consequently, rental growth is rising faster than inflation. In terms of development, more than half of the stimulus package is allocated to housing in order to build 500,000 additional housing units for Saudi families. Market sentiment has been encouraged by the Shoura Council's mortgage law reforms, which will stimulate demand and ultimately result in prices appreciation.
John Harris, co-head of Jones Lang LaSalle Saudi Arabia, said: "Saudi Arabia stands out in the region for its stable environment and large, growing economy. The government stimulus package has helped push the real GDP forecast up to 5.7 percent. The wealth is changing the face of Riyadh, with new road systems, business parks, universities, public parks and communities appearing to the north and east of the city. We are concerned that a lot of investment capital is pushing up peripheral land prices, which will complicate the process of delivering affordable housing. Fortunately, recent announcements indicate the government is taking proactive steps to encourage affordable development, including free land grants."
Even though public and private sector employment is experiencing healthy growth and absorbing new office space, the market continues to move in favor of tenants. The steady stream of new office buildings along King Fahd Road and Olaya Street is now outpacing Riyadh's growing demand for new office space. Since investors and lenders are now aware of vacancy risks, the pipeline of new projects should be turned off, but supply expansion will continue due to a handful of very large previously launched projects with long construction timelines will hit the market in 2013-14. At this time, the options available to tenants will multiply and we expect a “flight to quality” in the office sector, leaving 10+ year old office buildings with an uncertain future.
In 2011, conditions in Riyadh's retail sector stabilized after a period of market saturation in 2009-10. There is very little new supply coming on-stream while increased spending is being driven by employment growth, salary hikes and stimulus-linked bonuses in the public sector. With urban expansion, new opportunities are emerging for good quality, family-oriented retail environments and community focused retail centers that serve local catchments. Since rents having bottomed out and new retail development is limited, management teams are reviewing strategies to enhance existing supply through improving key factors like accessibility, parking and tenant mix of retailers and restaurants.
Source : Arab News, Jun 8, 2011 00:23