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RIYADH – bright year for retail and hospitality

Saudi Arabia

1 December 2014

2014 was a largely positive year for the Riyadh real estate market, with the hospitality and retail sectors performing well, whilst prices in the office sector remained flat and the residential sector still suffered from undersupply.

“The performance of the hospitality and retail sectors has been very well during 2013,” commented Catesby Langer-Paget, Associate Director, Head of Agency, Cluttons Bahrain.

“Demand [in those sectors] is high, there has been a steady/slight increase in prices and hotel occupancy rates have increased significantly,” Langer-Paget added.

The office stock in the Kingdom’s capital witnessed a growth in 2014, through the “introduction of large projects such as King Abdullah Financial District in the north of Riyadh, which has been putting some downward pressure on rents but prices were almost flat during most of the year,” the Cluttons expert explained.

In the residential sector, stock remains insufficient due to the fact that the demand is extremely high compared to low supply in the market, Langer-Paget said. As more than 60 percent of Saudi citizens do not currently own their own home, the Saudi Arabian government has developed its ESKAN housing aid program, a recent JLL report says. This program has been created to address the shortage of housing for low income Saudi families. ESKAN has been designed to accelerate progress in housing development and create a transparent system for allocating aid. More than 690,000 families have been found eligible to apply to the program. Despite this and other measures, there is likely to remain a shortage of affordable housing in Riyadh for some time to come, JLL research says.


According to Catesby Langer-Paget from Cluttons, the retail and hospitality sectors have been the best performing sectors in Riyadh during 2014. “Expansion plans of retailers into new areas and the high occupancy rate of current and future supply lead to an increase in rental rates. Hospitality witnessed a huge growth of which the hotel stock increased significantly, followed by an increase in occupancy rates and a slight decrease in ADR,” he commented.

According to JLL, confidence in the retail market is reflected in the announcement of various new shopping centres around the capital. One of the largest malls to be announced is Salboukh Mall, which will add around 275,000 sqm to the market upon completion in 2016. Another major announcement is Al Dirriyah Festival City which will add 250,000 sqm (including another IKEA store), but this project is not expected to be completed until 2018, says the JLL Riyadh Q3 Market Overview.


Cluttons expect the Riyadh market to perform well in 2015, with the residential sector expected to remain significantly undersupplied.

“The main challenge continues to be the ability to develop additional residential stock to satisfy the market needs. The retail and office sectors are expected to maintain a good position with the risk of a potential impact to be caused by an increase in vacancy rates in the office buildings,” Langer-Paget concluded.

Riyadh 2014 highlights

  • Residential sales and rental prices rise due to continued shortage of housing units
  • Office rentals remain largely unchanged as new supply enters the market
  • Confidence in the retail market rises while new malls are being announced
  • The completion of multiple hotels in 2015 will increase pressure on ADRs which in turn will cause a further decrease in RevPar

JEDDAH – growth in all market sectors

Looking back at the overall performance of the Jeddah market in 2014, Catesby Langer-Paget, Associate Director, Head of Agency, Cluttons Bahrain, commented:

“The performance of the real estate market in Jeddah continues to be positive with significant growth in all market sectors despite the drop in rents of some sectors.

“Occupancy rates have increased for both commercial and residential properties due to the high demand for retail, offices and residential units.”

The expert noted that while the market has witnessed significant additional stock of commercial units, there remains a continued shortage of residential stock in Saudi Arabia’s Red Sea city.

In an effort to tackle the shortage of affordable housing, the Ministry of Housing has announced six large residential projects across Jeddah expected to deliver almost 29,000 residential units. According to a recent report from JLL, three of these projects are currently being implemented, which will deliver almost 14,900 residential units, while the others are at the design and approval stage.

Changes to Saudi’s mortgage regulations in 2013 have resulted in a growth of mortgage loans, which is expected to fuel further demand for residential units and add upward pressure on asking prices for residential units for sale.

“The mortgage law in Saudi has impacted the residential market positively, represented by the increase of demand on purchasing residential units which in turn is expected to increase the selling prices of residential units. The residential stock has also increased and the sector is considered to be on the right direction towards a healthy [state],” Cluttons’ Langer-Paget said.

Looking at the development of rental rates throughout the year, Cluttons observed that rents of office units have slightly increased compared to 2013; however, rents of retail units, apartments and villas showed some steadiness with a slight drop.


According to Cluttons, the hospitality sector continues to be the best performing sector in Jeddah. Langer-Paget said occupancy rates have increased throughout 2014 in addition to a slight increase in ADR.

Meanwhile the retail sector, despite witnessing significant additional stock, also continues to perform well. La Prestige mall opened during Q3 2014 adding over 17,000 sqm of luxury retail space to the market. Mandarin Avenue has also opened during this quarter adding approximately 15,000 sqm of retail space while Jamaah Plaza is currently undergoing expansion. Furthermore, according to JLL research, a substantial amount of retail space (331,000 sqm) is expected to enter the market during 2015.


Cluttons expect the Jeddah market to maintain a healthy growth through all property sectors with new quality stock being introduced to the retail and office market, which in turn is expected to be absorbed by the high demand.

“The residential stock is expected to continue to grow into a healthy position subject to the new rules and regulations currently being discussed by the Ministry of Housing and the Shoura Council. The new regulations could be the main challenge during 2015,” Langer-Paget concluded.

Jeddah 2014 highlights

  • Continuous growth across most sectors
  • Despite additional office supply entering the market, vacancy rates decrease
  • The Ministry of Housing has announced six large residential projects across Jeddah, expected to deliver almost 29,000 residential units
  • A substantial amount of retail space (331,000 sqm) is expected to enter the market during 2015