Saudi Arabia Real Estate Report Q1 2013
Business Monitor International, October 2012, Pages: 73
The 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 Saudi Arabia Real Estate report examines the commercial office, retail, industrial and construction segments throughout the kingdom in the context of a bullish outlook for the economy, its buoyant construction sector and the fledgling weakness in the commercial real estate rental market.
With a focus on the two principal cities of Riyadh and Jeddah, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the government-fed construction boom on a market already characterised by oversupply. The key growth areas driven by increasing activity on the part of international investors and the potential of the domestic consumer market are also explored, with corporate growth strategies looking to the kingdom for expansionary opportunities.
Nevertheless, Saudi Arabia’s various real estate sectors are developing in different directions and at varying rates. The commercial market in general suffers from oversupply and is forecast to undergo limited growth in the short term; recently collected data from July 2012 does not contradict this long-held view in light of the dynamic supply pipeline. Of the three sub-sectors that we survey there are pockets of growth opportunity, particularly in the retail segment.
Key Points:
- Newly collected data in July 2012 covering the first six months of the year have not been encouraging, with demand failing to keep pace with new supply. With no sign of a slowing in the construction pipeline, we anticipate the imbalance to continue to place downwards pressure on the majority of rental rates.
- Saudi Arabia's growth outlook remains broadly positive. Leading indicator data show that the economy is firing on all cylinders, with high oil prices, heavy government spending and buoyant consumer confidence driving robust economic growth. With oil prices continuing to trade at historically high levels in the first half of the year, we see few risks to the country's positive near-term outlook.
- Important developments in Saudi Arabia are supporting our positive outlook for the country's residential housing market. Two moves in particular suggest that the construction industry will meet our forecast of 9.3% real growth over 2012. Firstly, the kingdom has embarked upon the first stage of its mass low-cost housing plan and, secondly, mortgage lending for Q212 was at its highest historical level on the back of indicators that a new mortgage law will be put in place over October. As such, risks to our optimistic five-year forecasts are now weighed to the upside.
- We expect H212 to witness the intensification of a long construction boom, as Saudi Arabia moves to remedy years of chronic underinvestment in the kingdom. Heading into H212, a robust outlook premised on ambitious spending plans has been significantly galvanised by a raft of new projects, improvements in infrastructure, an increase in cement output capacity and a strengthening credit environment. As such, we posit 9.3% year-on-year real growth for the construction industry as a whole in 2012, with residential and non-residential construction to account for a large percentage of the sum for the foreseeable future.
Executive Summary 5
SWOT Analysis 7
Saudi Arabia Real Estate/Construction SWOT 7
Saudi Arabia Political SWOT 8
Saudi Arabia Economic SWOT 9
Saudi Arabia Business Environment SWOT 9
Real Estate Market Overview 10
Market Analysis – Office 20
Supply And Demand 20
Rents And Yields 20
Table: Historic Rents – 2011-H112 (SAR per m2/month) 21
Table: Net Yield, 2011-2013 (%) 21
Table: Terms Of Rental Contract/Lease – H112 22
Industry Forecast Scenario 22
Table: Forecast Rents (SAR per m2/month) 22
Table: Forecast Net Yield, 2008-2017 (%) 22
Market Analysis – Retail 23
Supply And Demand 23
Rents And Yields 25
Table: Historic Rents – 2011-H112 (SAR per m2/month) 25
Table: Net Yield, 2011-2013 (%) 25
Table: Terms Of Rental Contract/Lease – H112 25
Industry Forecast Scenario 26
Table: Forecast Rents (SAR per m2/month) 26
Table: Forecast Net Yield, 2008-2017 (%) 26
Table: Retail Sales Indicators, 2008-2016 27
Market Analysis – Industrial 28
Supply And Demand 28
Rents And Yields 30
Table: Historic Rents – 2011-H112 (SAR per m2/month) 30
Table: Net Yield, 2011-2012 (%) 30
Table: Terms Of Rental Contract/Lease – H112 30
Industry Forecast Scenario 31
Table: Forecast Rents (SAR per m2/month) 31
Table: Forecast Net Yield, 2008-2017 (%) 31
Forecast Scenarios 32
Infrastructure Report 32
Table: Saudi Arabia Construction And Infrastructure Industry Data, 2008-2016 32
Table: Saudi Arabia Construction And Infrastructure Long Term Forecast, 2013-2021 33
Construction And Infrastructure Outlook 33
Macroeconomic Outlook 36
Table: Saudi Arabia – Economic Activity 38
Saudi Arabia Real Estate Report Q1 2013
© Business Monitor International Ltd
Page 4
Real Estate Risk/Reward Ratings 39
Real Estate/Construction Risk/Reward Ratings 39
Table: Middle East And North Africa Risk/Reward Ratings 39
Saudi Arabia’s Business Environment 39
Table: BMI Business And Operation Risk Ratings 40
Institutions 40
Table: BMI Legal Framework Rating 41
Infrastructure 43
Table: Labour Force Quality 45
Market Orientation 45
Table: MENA – Annual FDI Inflows 46
Table: Trade And Investment Ratings 48
Table: Top Export Destinations 49
Operational Risk 49
Competitive Landscape 51
Company Profiles 54
Al-Khodari Group 54
Almabani General Contractors 56
Arriyadh Development Company (ADCO) 58
DAMAC 59
Dar al-Arkan Real Estate Development Company 60
Makkah Construction And Development Company 62
Table: Saudi Arabia's Population By Age Group, 1990-2020 ('000) 64
Table: Saudi Arabia's Population By Age Group, 1990-2020 (% of total) 65
Table: Saudi Arabia's Key Population Ratios, 1990-2020 66
Table: Saudi Arabia's Rural And Urban Population, 1990-2020 66
BMI Methodology 67
How We Generate Our Industry Forecasts 67
Construction Industry 68
Bank Lending 69
Real Estate/Construction Business Environment Rating 69
Table: Weighting Of Indicators 70
Sources 72
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