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Saudi Arabia Real Estate Report Q4 2010
Business Monitor International, Sep 2010, Pages: 69
Business Monitor International's Saudi Arabia Real Estate Report provides industry professionals and strategists, corporate analysts, real estate associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Saudi Arabia's Real Estate industry.
The global financial crisis appears to have had a greater impact on Saudi Arabia’s commercial real estate sector – and the Riyadh office market in particular – than the economy as a whole. In the interviews that we conducted in mid-2010, our in-country sources indicated that there have been sharp adjustments to rental rates, yields and capital values in that sub-sector. At the beginning of 2010, a major issue had been a contraction in lending by the country’s banks to the private sector. It has also become apparent that the views of bond investors towards the large developers have become more cautious.
Nevertheless, it seems that the sector’s fortunes are improving. Our sources in Saudi Arabia indicate that rental rates, in Riyadh if not Jeddah, are firming up again. Notwithstanding that some commercial tenants are awaiting the completion of brand new projects prior to moving from their current accommodation, there is little evidence that tenants have the upper hand in lease negotiations with their landlords.
The government-led development and diversification of the Saudi Arabian economy remains central to the prospects of the commercial real estate sector. The government has the need (in terms of promoting social stability) and the ability to sustain double-digit growth in spending. As a matter of policy, it is promoting the diversification of the economy away from oil. The result is the development of new industries, new cities and need for new office and retail space.
In spite of the challenges of the last year or so, vacancy rates remain at levels that are significant, but not indicative of past speculative excesses. At this stage, we remain confident that demand and supply for new space will grow at about the same pace. The implication of this is that Saudi Arabia is a relatively unusual country, given that rental yields should stay broadly unchanged over the 2011-2014 forecast period. The main exception is the office sub-sector in Riyadh, where yields should fall gradually towards normal levels over the next four years.
Key Features Of This Report
This is the latest edition of a new series of industry reports published by BMI that seeks to identify the key dynamics of the real estate sectors of 44 countries around the world, some of which are developed and some of which are, in every sense, emerging markets. Once again, the questions that we seek to answer for each country remain as follows: What are the main issues that will matter to actors in and around real estate development in the country concerned, both over the long and the short term? What are the main constraints that they face? What are the key insights that one garners when one compares the real estate sector of the country concerned with its peers in other countries?
In Q310 we introduced a substantial improvement to the reports. We incorporated data and qualitative observations provided to us by commercial real estate agents operating in the countries we survey. As a result we have gained a much clearer picture of the balance between demand and supply in each of three main subsectors – office, retail and industrial. We have also introduced a new approach to the forecasting of rental yields, which is discussed in the methodology sector of this report.
In Q410, we have incorporated a lot of new data in relation to rents and yields in 2010. We gained this data by way of a new round of interviews with our in-country sources in mid-2010. In some cases, the latest information from our sources has caused us to make significant revisions to our forecasts for 2011-2014. We asked our sources to indicate what growth in rents is likely for 2011. We explain their answers in the Forecast Scenarios.
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