By Ali Fahed , CO-Founder , VALUE SA
Saudi Arabia’s real estate market is undergoing a transformative phase, driven by the Kingdom’s ambitious Vision 2030 agenda and a robust economic recovery. The KSA Real Estate Report for H1 2024 highlights key trends, challenges, and opportunities across various sectors, including residential, commercial, industrial, retail, and hospitality. This essay provides an in-depth analysis of the current state of the real estate market in Saudi Arabia, supported by macroeconomic indicators, sector-specific performance, and future outlooks.
Macroeconomic Backdrop: A Foundation for Growth
Saudi Arabia’s economy is poised for recovery in 2024, with real GDP growth forecasted at 2.6%, a significant improvement from the -0.8% contraction in 2023. This growth is driven by a combination of oil and non-oil activities, with the latter expected to contribute significantly to the Kingdom’s economic diversification efforts.
- Oil Sector: Despite voluntary production cuts by OPEC+, oil prices are expected to average USD 87.8 per barrel in 2024, providing stability to government revenues.
- Non-Oil Sector: The non-oil sector, supported by government spending and private investments, is projected to grow at 3.9% in 2024, driven by sectors such as tourism, logistics, and entertainment.
Inflation remains subdued at 1.6% in April 2024, with housing and utilities being the primary drivers. The government’s efforts to control inflation through subsidies and regulatory reforms have been effective, ensuring a stable economic environment for real estate investments.
Residential Sector: A Strong Recovery
The residential real estate market in Saudi Arabia has shown remarkable resilience, with a 0.6% year-on-year (y/y) increase in the Real Estate Price Index in Q1 2024. Key highlights include:
- Riyadh: Sales transactions surged by 77% y/y, with average villa prices increasing by 3.6% and apartment prices by 8.4%.
- Jeddah: Sales transactions grew by 93% y/y, driven by demand for upper-middle to high-end residential units.
- Dammam: Sales transactions increased by 28% y/y, with a focus on midscale residential villas and low-rise apartments.
The government’s initiatives to accelerate homeownership among Saudi nationals, coupled with rising demand for affordable housing, are expected to sustain the positive momentum in the residential sector.
Commercial and Office Sector: Rising Demand
The office sector is experiencing strong growth, particularly in Riyadh, which is emerging as a commercial hub under Vision 2030. Key trends include:
- Grade A Office Rents: Increased by 8% y/y in Riyadh, with occupancy rates reaching 98%.
- Grade B Office Rents: Rose by 26% y/y in Riyadh, reflecting growing demand from multinational corporations establishing Regional Headquarters (RHQs).
The RHQ initiative, effective from January 1, 2024, has been a significant driver of demand for office spaces, with companies benefiting from tax exemptions and streamlined business processes.
Industrial and Logistics Sector: Structural Reforms Drive Growth
The industrial and logistics sector is set to benefit from the National Industrial Development and Logistics Program (NIDLP), which aims to create industrial clusters in major cities. Key developments include:
- Riyadh: Average industrial and logistics rents increased by 8.1% y/y in Q1 2024.
- Jeddah: Rents rose by 3.1% y/y, driven by demand in the northern region.
- Dammam: Rents increased by 4.6% y/y, supported by infrastructure improvements.
The government’s focus on enhancing the logistical ecosystem, including the launch of the LOGISTI 2 platform and the Port Cluster System (PCS), is expected to further boost the sector’s performance.
Retail Sector: Experiential Retail on the Rise
The retail sector has shown stability, with regional mall rents increasing by 3% y/y in 2023. Key drivers include:
- Domestic Tourism: Government initiatives to promote domestic tourism and entertainment events have increased footfall in retail spaces.
- Digitalization: The shift towards omnichannel retailing and data analytics is transforming the sector, offering new opportunities for retailers.
Hospitality Sector: A Bright Future
The hospitality sector is poised for strong growth in 2024, driven by business travel, Hajj and Umrah pilgrims, and international events. Key highlights include:
- Riyadh: Average Daily Rates (ADR) increased by 26.8% y/y, with Revenue per Available Room (RevPAR) rising by 19%.
- Jeddah: ADR grew by 3.2% y/y, supported by infrastructure developments such as the Jeddah Corniche redevelopment.
- Makkah and Madinah: ADR increased by 9.1% and 20.5% y/y, respectively, driven by religious tourism.
The government’s efforts to boost tourism infrastructure, including the development of new entertainment venues and the hosting of global events, are expected to further enhance the sector’s performance.
Vision 2030: A Catalyst for Real Estate Growth
Vision 2030 continues to be a driving force behind Saudi Arabia’s real estate market, with several megaprojects underway:
- Neom: Despite scaling back some projects, Neom remains a key focus, with developments such as the Gidori residential golf community.
- Diriyah Gate: A SAR 2 billion infrastructure development project, including Ritz Carlton residences and an opera house.
- Jeddah’s Grand Square: A mixed-use development project valued at SAR 1 billion, featuring commercial, residential, and hotel spaces.
These projects, along with legislative reforms such as the Real Estate Registry (RER) platform and the Civil Transactions Law (CTL), are expected to drive long-term growth in the real estate sector.
Conclusion: A Market in Acceleration
The Saudi Arabian real estate market is in an accelerating phase, supported by economic recovery, government spending, and private sector activity. While challenges such as higher interest rates and global economic slowdown persist, the overall outlook remains positive.
Key takeaways for investors and stakeholders include:
- Residential Sector: Strong demand for affordable and high-end housing.
- Commercial Sector: Rising demand for office spaces, driven by the RHQ initiative.
- Industrial and Logistics Sector: Growth supported by NIDLP and infrastructure improvements.
- Retail Sector: Stability and growth in experiential retail.
- Hospitality Sector: Strong performance driven by tourism and international events.
As Saudi Arabia continues to progress towards Vision 2030, the real estate market is expected to play a pivotal role in the Kingdom’s economic transformation, offering lucrative opportunities for investors and developers alike.
Keywords
Saudi Arabia Real Estate, Vision 2030, Residential Real Estate, Commercial Real Estate, Industrial and Logistics Sector, Retail Sector, Hospitality Sector, Riyadh Real Estate, Jeddah Real Estate, Dammam Real Estate, Neom, Diriyah Gate, RHQ Initiative, Real Estate Price Index, GDP Growth, Inflation, Oil Prices, Non-Oil Sector, NIDLP, LOGISTI 2, Port Cluster System, Civil Transactions Law, Real Estate Registry, Saudi Arabia Economy, Real Estate Market Outlook 2024.