RIYADH REAL ESTATE MARKET OVERVIEW

Transcription

1 RIYADH REAL ESTATE MARKET OVERVIEW Q2 2016

2 RIYADH Vision 2030 is heavily focused on restructuring and diversifying the economy in the faceof lower oil prices which will have a positive impact on the real estate market. The current slowdown in performance in some of the sectors in the Riyadh market is expected to continue for the remainder of the year. Nevertheless, it is expected that the market will recover in the near future as the Saudi government takes new initiatives to stimulate the market. The residential market in Riyadh has witnessed a slight drop in rental rates this quarter in comparison to the previous quarter. Sale prices for villas and apartments have slightly improved over the previous quarter but the rate of growth has slowed in comparison to last year s performance. The office market has seen a marginal decrease in rentals ac ross the city. Rentals are expected to drop as new stock enters the market through KAFD and the delivery of additional spaceinitcc. Retail vacancy and rental rates have remained stable since the beginning of the year. Ho wever, the delivery of multiple malls inthe coming quarters is expected to exert downward pressure on occupancy and rental rates. The hotel sector is still experiencing weaker performance in comparison to previous years, driven by the slowdown in corporate demand and government spending triggered by the low oil prices. This have caused a decrease in both occupancy rates and ADR s which has negatively impacted RevPar. It is expected that the performance of hotels will face further pressure as new supply enters the market. RIYADH PRIME RENTAL CLOCK RENTAL GROWTH SLOWING RENTS FALLING RENTAL GROWTH SLOWING RENTS FALLING Q Q RENTAL GROWTH ACCELERATING RENTS BOTTOMING OUT RENTAL GROWTH ACCELERATING RENTS BOTTOMING OUT OFFICE RESIDENTIAL RETAIL HOTEL* * Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL

3 RIYADH OFFICE SUPPLY There were no major completions during the second quarter of However, ITCC is expected to delivery additional space in the remainder of the year, and will add around 160,000 sq m of GLA to the market. PERFORMANCE City wide vacancy rates have remained stable at 16% during the first half of However, these rates are expected to rise as new supply enters the market, in addition to a slowdown in the expansion plans of public sector tenants. Average rental rates across the city have decreased marginally on a like for like basis. The marginal increase (1% in comparison to the same quarter last year) shown in the graphic below is a reflection of a change in our methodology and is not indicative of an improvement in market conditions. HOT TOPIC New supply affects vacancy rates. Al Nakhla and Hamad towers are slowly being absorbed by the market, which has helped hold the vacancy rates of Grade A office buildings relatively stable. It is expected that the completion of KAFD and the new space in ITCC will have a significant impact on the vacancy rate, with large amounts of space remaining unoccupied. Saudi Vision The vision encourages economic diversification by allowing foreign companies to enterand invest in the Kingdom. Such encouragement will help increase the demand for office space as foreign investors show interest in the Saudi market. However, the impact of this change is expected to be gradual, as companies willneed time to setup their strategy to enter the Saudi market. Also, the demand of office space from these companies is not expected to be significant large until the economy stabilizes and new rules and regulations are set in place. CURRENT SUPPLY (2013 Q2 2016) OFFICE SUPPLY FUTURE SUPPLY (H ) 160K 304K 579K 2.1M 2.3M 2.4M 2.6M 2.6M 2.8M 3.1M Q H VACANCY RATE OFFICE PERFORMANCE AVERAGE RENTS (PER SQ M) 17% 16% Q Q ,248 SAR Q ,272* SAR 1% Q *The increase in average rental rates is a result of a new methodology of calculation using weighted average of price per sq m. OUTLOOK OUTLOOK / ANNUAL CHANGE

4 RIYADH RESIDENTIAL HOT TOPIC Ministry of Housing constructs 7,000 villas for private sector. SUPPLY Around 11,000 units have entered the market during the first half of 2016, bringing the total stock of residential units to over 1 million units. Most of the completions are associated with individual Saudi families build ing their own houses, and small developers building 20 units or less. There were a few notable completions during the first half of the year, with ITCC completing its compound, while Rafal completed a residential tower in the north of Riyadh and Basateen completing the first phase of their residential villas. PERFORMANCE Sale prices for villas and apartments have marginally improved on Q-o-Qbasis by 2% and 1% respectively. However, Y-o-Y figures still show a decrease of 5% for villas while apartments figures have slowly recovered and the decrease is only around 1%. Rental rates for villas and apartments have decreased by 1% and3% respectively on Q-o- Q basis. Y-o-Y figures show a decrease of around 1% for both villas and apartments. The Ministry has started implementing the first project to co n stru ct 7,000 villas on a 6.5 million square meters land in the eastern part of Riyadh. The East Gate project is being undertaken in collaboration with the private sector. It comprises villas of 250 sq m built up area on land parcels of 316 square meters. The villas will be differentiated by internal and external designs depending on the buyer s financial capability. Each villa will cost around SAR 640,000 which could be borrowed from the Real Estate Development Fund. CURRENT SUPPLY (2013 Q2 2016) RESIDENTIAL SUPPLY FUTURE SUPPLY (H ) 25K UNITS 15K UNITS 30K UNITS 940K 971K 989K 1M 1M 1.01M 1.05M UNITS UNITS UNITS UNITS UNITS UNITS UNITS Q H RESIDENTIAL PERFORMANCE RENT AND SALE PRICES APARTMENTS SALES 2% RENTALS -3% VILLAS SALES 1% RENTALS -1% SALES -1% RENTALS -1% SALES -5% RENTALS -1% SOURCE: JLL SOURCE: JLL

5 RIYADH RETAIL SUPPLY No major retail malls entered the market during the first half of 2016, with supply of retail space in Riyadh increasing by only around 40,000 sq m of GLA. The addition comes from small convenience and neighborhood centres around Riyadh. Around 168,000 sq m of GLA is expected to be completed over the re ma in d e r of the year with the majority of supply coming from Al Hamra Mall and Al Khaleej Mall. PERFORMANCE Rentalrates have remained relatively flat on Q- o-q and Y-o-Y basis in the super regional malls, while community centers registeried a marginal improvement of around 1% on both Y- o-y basis and Q-o-Q basis. Vacancy rates have remained stable at 7% this quarter. However, vacancy rates are expected to rise over the remainder of 2016 as larger malls are completed. HOT TOPIC Demand for neighborhood centres is still strong. Vacancy rates within plazas remain low due to their attractiveness for the food & beverage, convenience and especially supermarket sectors. The demand from these categories remains strong as many tenants are looking to expand to new locations within the capital. The Kingdom is attracting retailers. The new regulations associated with foreign ownership have made the Kingdom more appealing to retailers. The strong pipeline of quality super regional malls bring developed by leading regional will improve the quality of stock and further attract international retailers. According to SAMA, in the first quarter of 2016, retail sales decreased by 7% on Q-o-Q basis and more than 12% when compared with the same period last year. However, these numbers are expected to grow in the short term as sp e nd in g levels are usually higher during the holy month of Ramadan. CURRENT SUPPLY (2013 Q2 2016) RETAIL SUPPLY FUTURE SUPPLY (H ) 304K 168K 309K 1.27M 1.37M 1.41M 1.45M 1.45M 1.62M 1.93M Q H VACANCY RATE RETAIL PERFORMANCE CHANGE IN AVERAGE RENTS 8% 7% 0% -0.5% 1% 1% Q Q SUPER REGIONAL COMMUNITY CENTERS OUTLOOK OUTLOOK

6 RIYADH HOTEL SUPPLY The total supply of room keys has increased to around 11,000 keys following the delivery of two new hotels; the Rosh Rayhan Hotel and the Riyadh Copthorne Hotel during Q There are also multiple hotels nearing completion (such as Aloft, Ascott, Courtyad by Marriott and Hilton Hotel and Residence). While currently scheduled to complete in 2016, previous experience suggests that some of these projects will be delayed into 2017 or beyond. PERFORMANCE The hotel market continued to experience a slowdown in performance levels YT May. ADR s have declined by around 7% Y-o-Y to May to reach USD 220 while occupancy rates have dropped by almost 6%. The decrease in performance has resulted in a 15% decrease in RevPar in Year to May Figures. The decrease in business travel, the slowdown in government spending and the delivery of new hotels are collectively applying downward pressure on the daily rates and occupancy levels which are in turn negatively impacting the sectors performance. HOT TOPIC More than 8,000 keys are expected to enter the market by the end of Yet substantial delays in delivery are expected to happen given the low materialisation rates of hotel developments in the past. These delays wil l soften the impact of new entrants, and decrease the pressure on occupancy and daily rates exerted by new hotels. The serviced apartments sector is experiencing growth in Riyadh as Ascott prepares to operates its first serviced apartmentsproperty in the city. Ascott will only be the third branded serviced apartments product in Riyadh after Marriott Executive Apartments and Novotel.Suites. Riyadh s new domestic terminal has started trial operations during this quarter and is expected to become fully operationallater this year. The terminal is expected to improve the traffic in King Khalid International Airport which serviced around 11.7 million passengers in Q2, a 7% Y-o-Y increase. CURRENT SUPPLY (2013 Q2 2016) HOTEL SUPPLY FUTURE SUPPLY (H ) 9,500 9,900 10,700 11,000 3,200 11,000 14,200 17,800 KEYS KEYS KEYS KEYS KEYS KEYS KEYS KEYS 3,600 KEYS 1,300 KEYS Q H OCCUPANCY RATE HOTEL PERFORMANCE AVERAGE DAILY RATE 69% 63% YT MAY 2015 YT MAY USD YT MAY % 220 USD YT MAY 2016 OUTLOOK OUTLOOK / ANNUAL CHANGE

7 DEFINITIONS AND METHODOLOGY 12 o clock indicatesa turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards. 3 o clock indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation. 6 o clock indicates a turning point towards re n tal growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards. 9 o clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation. OFFICE The supply data is based on our quarterly survey of the Grade A and B office space located in CBD, North and East Ring roads, Khurais, Mazer, and Sitteen Streets. Completed building refers to a building that is handed over for immediate occupation. The rents shown in the office performance graphic, represent the average of Prime, Grade A and Upper Grade B office space. Prime Office Rent represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter period). The Prime Rent reflects an occupational lease that is standard for the local market. It is a face re n t that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. Vacancy rate is based on estimates from the JLL Agency team. RESIDENTIAL The supply data is based on the National Housing Census (2010) and our quarterly survey of major projects and stand alone developments in selected areas of Riyadh. Completed building refers to a building that is handed over for immediate occupation. Residential performance data is based on two separate baskets one for rentals in villas and apartments and another basket for sales performance for both villas and apartments in selected locations across Riyadh. RETAIL Classification of Retail Centers is based upon the ULI definition and based on their GLA: Super Regional Malls have a GLA of above 90,000 sq m Regional Malls have a GLA of 30,000 90,000 sq m Community Malls have a GLA of 10,000-30,000 sq m Primary Malls are the good performing malls with high levels of turnover. Secondary Malls are the average performing malls with lower levels of turnover. HOTEL Hotel room supply is based on existing supply figures provided by Saudi Commission for Tourism and Antiques as well as future hotel developmentdata tracked by Jones Lang LaSalle Hotels. Room supply includes 3, 4 and 5 star hotelrooms but excludes serviced apartments. Performance data is based on a monthly survey of hotels conducted by STR Global. Rent represents the average quoted average rent for line stores in the major shopping malls in Riyadh. Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at regional malls.

8 Riyadh Abraj Attawuniya 18 th Floor, South Tower King Fahad Road PO Box Riyadh Saudi Arabia Tel: Fax: For questions and inquires about the Riyadh real estate market, please contact: Jamil Ghaznawi Country Head KSA Dana Williamson Head of Agency MENA Andrew Williamson Head of Retail MENA Craig Plumb Head of Research MENA Fayyaz Ahmad National Director, Advisory KSA Hassan Shamseddine Senior Analyst KSA Fahad AlSaleh Analyst youtube.com/joneslanglasalle linkedin.com/companies/jones-lang-lasalle joneslanglasalleblog.com/emearesearch Jll-mena.com 2016 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Rep roduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.