Abu Riyadh Dh Real Estate Overview Q Riyadh

Transcription

1 Abu Riyadh Dh Real Estate Overview Q Riyadh

2 Macroeconomic Overview Indicator (e) 2013 (f) Saudi Arabia Population (millions) Real GDP Growth (Y-o-Y) 8.5% 6.8% 2.7% Inflation (% Change) 5.0% 4.5% 3.5% Budget Surplus (USD billions) Riyadh Population (millions) Cost of Living Index (% change) 5.8% 4.0% 3.5% Sources: Sama, Jadwa, IHS Global Insights January 2013, CDS, 2012 (e) estimate : (f) forecast 2

3 Economic Highlights Q Real GDP in KSA grew by 6.8% in Despite a difficult global economic environment, higher oil production and expansionary fiscal policy have kept the Kingdom s growth elevated. Retail sales increased by 24% in This growth is improving the profitability of retailers and driving the leasing of new stores. Bank lending rose consistently during 2012 with net credit issued reaching SAR 125 billion, the highest level since Bank lending to the building and construction sector has increased by 138% which reflects their participation in infrastructure and housing projects. The Labour Ministry has signed an agreement to allow Saudi women to work in lingerie shops. This will increase the employment of Saudi women in the retail sector. At 4.5% Y-o-Y, inflation is lower than the 5.0% recorded in This was almost entirely due to lower increases in food prices. Saudi banks are currently enjoying near record levels of profitability. Lending to the private sector is up by 16% over the previous year. Real estate investments by Investment Funds have increased by 4% in

4 Incorporating Sustainability and Property Management into Mixed Use Projects in Saudi Arabia The Kingdom of Saudi Arabia is seeing an increased number of large mixed-use complexes, combining components of office, retail, residential and hospitality use, with several such mega projects now underway in Riyadh, Jeddah and Makkah. Jones Lang LaSalle are providing advice to clients on a number of these projects including Jabal Omar in Makkah (with 37 hotels and 90,000 sq m. of retail floor space ) and the King Abdullah Financial District in Riyadh, the largest urban development currently under construction anywhere in the world with a project value close to USD 8 billion. The first phase of the KAFD (comprising four office and four apartment buildings and a conference centre) is currently available for lease and will be completed in the summer of As the Riyadh market becomes more competitive and occupiers have a greater choice of space, two factors that have previously been undervalued in the Saudi market are likely to become more important during 2013: environmental sustainability; and the quality of property management. Awareness of the benefits of more sustainable construction and operation of real estate remains at a nascent stage in the Saudi market. An indication of the increasing importance now being attached to this issue is the requirement that all buildings in the new KAFD project must achieve LEED certification. Recent green building codes and other initiatives by SEEC (the Saudi Energy Efficiency Centre) and others are also starting to raise awareness, but until developers are either mandated to adopt green standards (through stricter legislation) or the financial benefits of green buildings can be more clearly demonstrated, progress is likely to remain limited. 4

5 Incorporating Sustainability and Property Management into Mixed Use Projects in Saudi Arabia (continued) Another trend that we are likely to hear more about is that of effective and pro-active property management as the quality of property management is often a key influence on an occupier s final choice of building. Commercial occupiers are increasingly seeking to understand exactly what they will be getting from their landlord in respect of the servicing and management of their highly specified new office buildings and whether they are getting value for money for the services provided. Driven by the desire of corporate occupiers to manage their total occupancy costs more effectively, greater transparency of building operating costs will be demanded, especially in respect of the Kingdom s higher quality developments. There are three very good reasons why property owners should also address the on going management of their assets. Firstly the recognition that well managed buildings will generally lease up more quickly and maintain a better rental profile. Secondly, well managed properties tend to enjoy a higher retention of tenants over the life of the building. Thirdly, owners are increasingly aware that you cannot manage what you cannot measure. Those landlords able to properly analyse the true financial performance of their assets and set service charges at a level that equates to operating costs, will reduce the risk of a shortfall between those operating costs and the service charge recovered. As a result, we anticipate that best practice property management and carefully structured service charge clauses, will become more evident for prime properties across all real estate asset classes in Riyadh over the next few years. 5

6 Talking Points Q Contract awarded for USD 800m expansion of Riyadh s King Khalid International Airport (KKIA). NACO, SADECO and HOK will design expansion of Terminals 3 and 4 which are expected to be completed by King orders medical cities in Riyadh and Jeddah. Two new complexes to be built providing specialist healthcare for security forces and their families. The Real Estate Development Fund (REDF) has approved USD 1.4 billion to finance around 12,500 homes across the Kingdom. Fluor has been hired as consultant to oversee work on the 958km Jeddah to Riyadh rail link. Kingdom Holding has sold 970,000 sq m of the 16 million sq m of land in the Kingdom Residential City-Riyadh to Subul Development Co for SAR 250 million. Damac has launched a luxury serviced apartment project, branded as Damac Esclusiva in Riyadh. This project comprises around 100 apartments designed by Fendi. 6

7 Riyadh Prime Rental Clock Q Q Q Q Hotel* Rental Growth Slowing Rents Falling Rental Growth Slowing Rents Falling Rental Growth Accelerating Rents Bottoming Out Rental Growth Accelerating Rents Bottoming Out Residential Office Residential Office Hotel* Retail Retail *Hotel clock reflects the movement of RevPAR. Note: The property clock illustrates where Jones Lang LaSalle estimate each prime market is within its individual rental cycle as at end of relevant quarter. Source: Jones Lang LaSalle 7

8 Riyadh Office Market Overview King Abdullah Financial District

9 Office Supply and Demand Total stock of Grade A and B office space in locations monitored by Jones Lang LaSalle remains at 1.9 million sq m, with no completions recorded in Q Fifteen new buildings were completed during 2012, adding more than 200,000 sq m of office GLA. The largest completion was GOSI s Granada Business Park (133,000 sq m), the majority of which was pre-let to Government sector occupiers. Several new Grade B buildings have completed on King Fahd Road and Olaya Street during 2012, but these have not enjoyed the same pre-letting success. Many occupiers are seeking to relocate away from Olaya / King Fahd CBD as parking and access have become more of a challenge. During the fourth quarter, take up was led by the financial and engineering sectors that leased around 13,000 sq m of space. New supply will increase substantially in 2013, with the completion of initial phases of the King Abdullah Financial District (KAFD) and the IT and Communications Complex (ITCC). GOSI s Olaya Towers at the intersection of Tahlia and Olaya will also add 100,000 sq m of efficient, high quality space in the CBD. More than 1 million sq m of new space is scheduled to be delivered over , but some of this space may be delayed as the market becomes oversupplied. Total Stock (sq m GLA in 000's) 3,500 3,000 2,500 2,000 1,500 1, Riyadh Office Stock ( ) ,029 2,490 1,669 1,883 1, Completed Stock Future Supply Source: Jones Lang LaSalle, Q

10 Major Existing & Future Offices Projects 4 1 Faisaliyah Center Kingdom Center 3 Tatweer Tower 4 Tamkeen Tower 5 Granada Business Park 6 The Business Gate 1 KAFD 2 ITCC Existing 3 Olaya Towers 4 MIG Tower Future 10

11 Office Rental Performance The average quoted rents for completed Grade A & B buildings in Riyadh has declined marginally in Q4 to SAR 1,062 per sq m pa. due to higher vacancy in B grade buildings in the CBD and South of Riyadh. Quoted prime rents (for the best quality buildings) remained unchanged at SAR 1,900 per sq m p.a., with the average for Grade A and Grade B buildings at SAR 1,305 and SAR 883 respectively. Vacancy rates have increased in Q4, with city-wide and CBD vacancies at 16% and 18% respectively. There will be further upward pressure on vacancy rates over the next 12 months given the expected new supply entering the market. Given the increased competition to secure tenants, landlords will need to look carefully at incentives and other terms to remain competitive. We expect that increased vacancy rates and the greater choice available to tenants will maintain downward pressure on rental levels during 2013, especially for Grade B properties. SAR per sq m p.a. 1,600 1,400 1,200 1, Rental Performance (Q Q4 2012) Average Grade A Average Grade B Average (completed Grade A and Grade B buildings) Q Q Q Q Q Source: Jones Lang LaSalle, Q

12 Office Market Summary Indicator Level Comment / Outlook Current Office Stock 1.9 million sq m Includes Grade A, B & C space within major precincts (see definitions for further details). Total city-wide stock is estimated to be above 3 million sq m GLA. Future Supply ( ) 1.44 million sq m The Riyadh market will face a major supply shock over the next two years with the release of space in projects such as ITCC, KAFD and Olaya Towers. City-wide Vacancy CBD Vacancy 16% 18% Average Grade A Rental SAR 1,305 per sq m p.a. Average Grade B Rental SAR 883 per sq m p.a. 12

13 Riyadh Residential Market Overview Al Qasr Project

14 Residential Supply & Demand Approximately 6,000 residential units were completed in Riyadh in Q4. This brings the total residential stock in Riyadh to just under 910,000 units. The majority of the recent supply has been delivered in small projects comprising less than 20 units. The major new announcement in the fourth quarter was Kinan s residential project Masharef Hills located in the north of Riyadh which is expected to deliver more than 500 units over the coming four years. An additional 100,000 units are due to enter the market from 2013 to 2015, with annual supply of around 34,000 units. One of the more active developers is Al-Habib Group, which is currently building two residential projects. The first of these, Reem Residences, is expected to deliver 500 units by the end of We are seeing an increase in the registration of off-plan sales programmes with the Ministry of Commerce. The Ministry of Housing is working on new regulations for leasing housing. This will help standardize leasing contracts and create a system to register these contracts. Approximately 6,000 residential units are expected to be delivered in expatriate residential compounds over the next five years. This new supply is likely to reduce the current upward pressure on compound rents. Data released by SAMA shows the Real Estate Development Fund disbursed more than SAR 11 billion in loans during the first half the These loans were granted to Saudi citizens to facilitate the building or purchase of new homes. Total Stock (Number of units in 000's) 1,050 1, Riyadh Residential Stock ( ) Source: Jones Lang LaSalle, Q Completed Stock Future Supply 14

15 6 5 Major Existing & Future Residential Projects Al Qasr Project 2 Balencya Project 1 3 Al Argan Project 4 Maskan Arabiah Al Rabiah Project 2 Al Shams Arriyadh Project Existing Future 3 3 Al Ghroub Project 4 Rafal Tower Project 5 Akaria Village 6 Durrat Al Riyadh

16 Residential Sale Prices Average villa prices have increased across most districts of Riyadh. The average price has increased by 2% in Q4 to SAR 4,200 per sq m due to significant increases in the West and Central districts. However, average prices in the Center of Riyadh have remained unchanged in Q4 as most sales have been of older / refurbished projects due to the lack of new products available for sale. Malaqa, Yasmeen, and Sahfa in the North, Al-Hada and Khuzama in the West and Qurtaba and Ishbiliyah in the East are perceived as the most attractive locations for villas. The new concept of mixing apartments with villas through a separate access is becoming more popular in low end districts to the South and West of Riyadh. SAR per sq m 4,300 4,200 4,100 4,000 3,900 3,800 3,700 3,600 Villa - Average Price Q Q Q Q Q Source: Jones Lang LaSalle, Q The average sale price of apartments has also increased in districts to the East, South, and West of Riyadh during Q The average asking price for new apartments increased 3% during Q4 to SAR 2,810 per sq m (excluding branded apartments). Average prices will increase further once Al-Argan and Habib Group releases its apartments for sale. Al-Reem Residences and Phase 2 of Manazel Al-Qurtaba, currently under construction are expected to deliver around 1,300 apartment units. Once complete these projects will provide quality apartments for end users. Currently, most apartments available for sale are located in the low income areas of Qurtaba, Yarmouk, in the East and Shifa, Badr, and Suwaidi the South. SAR per sq m 3,000 2,900 2,800 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 Apartment - Average Price Q Q Q Q Q Source: Jones Lang LaSalle, Q

17 Rental Performance - Villas Villa rents have increased by 6% in Q compared to the same quarter last year. High income villas in the West and Centre have experienced greater increases than other districts. Rents in residential areas such as Olaya, Sulemania in the center and Hiteen and Nakheel in the west and Shumaisi in the south are higher than those in surrounding neighborhoods. Due to the preference for apartments in South, villa rents have not increased much during the last year. SAR p.a. 180, , , , ,000 80,000 60,000 40,000 20,000 0 Source: Jones Lang LaSalle, Q Villa - Average Annual Rent Villas in residential expatriates compounds have shown a larger increase in rents, reflecting the long waiting lists for access to this kind of accommodation. The availability of new villas for lease is greatest in areas such as Qurtaba and Monisia in the East, Malaqa, Sahfa and Yasmin in the North. Villa occupancy in districts between North ring road and Prince Salman street is increasing rapidly and expected to get more attention from Saudi families when government offices move towards the north of Riyadh. North South East West Center Q Q Q Q Q

18 Rental Performance - Apartments Apartment rents have increased at a higher rate than villas over the past year, growing by 8% in the year to Q and now stand at approximately SAR 31,000 p.a. for an average 2 bed unit. Apartment rents in areas such as Wazarat and Malaz in the South Olaya in the Center, Diplomatic Quarter in the West and Yarmuk and Qurtaba in the East are higher than those in other districts. Due to high occupancy rates, and the concentration of private schools and hospitals, rents in areas such as Warooud, Malaz, Olaya and Sulaimania continue to grow at higher levels. Due to lack of labour accommodation within the industrial cities, districts like Batha, Manfoua, Khalediyah and Amal have high concentration of apartment buildings used as labor accommodation. The Government is planning to move the government office towards the north while large expat schools are also moving north which will impact rents in the North and Centre. SAR p.a. 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Apartment - Average Annual Rent North South East West Center Q Q Q Q Q Source: Jones Lang LaSalle, Q

19 Residential Market Summary Indicator Level Comment / Outlook Current Residential Stock 909,000 units Based on the National Housing Census (2010) and units completed during 2011 and Future Supply ( ) 102,000 additional units in all projects Includes all of types of housing. Average 2 Bed Apartment Rent SAR 30,700 p.a. Apartment rents expected to increase further during the first half of Average 2 Bed Apartment Sale Price SAR 2,810 per sq m Average price is expected to increase once Habbib group and Alargan releases better quality apartments. Average 4 Bed Villa Rent SAR 117,000 p.a. Rents are expected to increase. Average 3 Bed Villa Sale Price SAR 4,200 per sq m Villa Prices are expected to increase further once better quality villas are completed in the West and North. 19

20 Riyadh Retail Market Overview Al Qasr Mall

21 Retail Supply & Demand There were no significant completions in Q and the stock in major retail malls (those over 10,000 sq m in size) across Riyadh therefore remains unchanged at approximately 1.2 million sq m. Outside of the mall sector, Othaim hypermarket in Laban area was the major completion in Q (approximately 2,000 sq m of GLA). Fawaz Al- Hokair is planning an aggressive expansion in Riyadh. In addition to Nakheel Mall, two other centers have been announced, which will add approximately 174,000 sq m of GLA to their retail portfolio. Total mall based retail supply is expected to reach around 1.62 million sq m by the end of This includes around 188,000 sq m of retail space in mixed use projects such as KAFD and ITCC. Lulu Hypermarkets are expanding their presence in Riyadh and are currently constructing their 4 th store on Khurais road. This store is expected to be completed in Shula community mall (one of oldest retail centers in Riyadh) has been closed after a recent fire. The repositioning of non performing retail centers also continues. Part of the second floor of Sadhan Mall in Sulemania has been converted to office space. Total Stock ('000 sq m) 1,800 1,600 1,400 1,200 1, Riyadh Retail Stock ( ) ,498 1,138 1,214 1,214 1, Completed Stock Future Supply Source: Jones Lang LaSalle, Q

22 Major Existing & Future Retail Malls 1 Riyadh Gallery 2 Sahara Mall Hayat Mall 4 Khurais Plaza 5 Al Otheim MAll 6 Granada Mall 9 7 Rimal Center 8 Panorama Mall Existing Future 9 Al-Qasr Mall 1 KAFD Retail 2 Nakheel Mall

23 Retail Rental Performance Average retail rents have increased marginally (3%) in super regional centres, while remaining unchanged in other centre types during Q4. This has resulted in the average rent across all types of centres (super regional, regional and community malls) increasing slightly from SAR 2,520 per sq m in Q3 to SAR 2,562 per sq m in Q4. Most of the super regional malls have high occupancy rates and rents are expected to continue to increase during However, we anticipate limited increases in average retail rents in regional and community shopping malls given the availability of space and continued downward pressure on rentals in poorer performing malls. There remains demand for retail space outside of organized malls. Standalone centers such as Nesto and Othaim have opened on the Southern Ring Road and in Laban area respectively. Their new supermarket is Othaim s 55 th store in Riyadh. SAR / sq m 3,000 2,500 2,000 1,500 1, Average Retail Rentals (Q Q4 2012) Super Regional Regional Community Q Q Q Q Q Source: Jones Lang LaSalle, Q

24 Retail Sector Summary Indicator Level Comment / Outlook Current Retail Space* (GLA) 1.2 million sq m Existing stock within organised retail malls over 10,000 sq m GLA. No new completion in Q in Riyadh. Future Supply ( ) 407,000 sq m KAFD and Nakheel Mall are the next major quality retail projects expected to be delivered in 2013 and 2014 respectively. Average Estimated Rental Value SAR 2,562 per sq m p.a. Average rentals for line stores in major malls have increased by 2% in Q Average Regional Mall Vacancy 10% Vacancies remained largely unchanged over Q4, ranging from 0-30% in major malls. * Retail Supply comprises space within major malls over 10,000 sq m GLA 24

25 Riyadh Hotel Market Overview Ritz Carlton Hotel

26 Hotel Supply Riyadh Hotel Stock ( ) The total room supply in Riyadh as at end of 2012 was around 8,400 hotel rooms. The fourth quarter of 2012 witnessed the opening of the Ibis Olaya, which added 176 rooms to the city s hospitality market and introduced a major player in the branded midscale segment. Other hotels scheduled to open in end of 2012 such as Hilton Garden Inn and Holiday Inn projects have now been shifted into Other announced projects scheduled for completion in 2013 include the Movenpick, Fairmont, Hyatt Regency and Crowne Plaza amongst others. The iconic Kempinski Burj Rafal is expected to open in mid Upon completion this will be one of the highest towers in Riyadh and a landmark in the city. Recently announced projects include Sofitel and Four Points by Sheraton. The existing Mena Plaza property has been rebranded as a Suite Novotel from February No. of Rooms 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, ,300 2,500 2,600 13,557 11,057 8,457 8, Current Stock Future Additions Source: Jones Lang LaSalle, Q

27 Hotel Performance The Riyadh hotel market has witnessed a continued softening in performance over the fourth quarter of 2012 as arrival figures have failed to keep pace with the significant increase in supply recorded in Occupancy levels declined to 57% during 2012, down from the 62% achieved in Riyadh Hotel Performance 71% 62% 62% 60% 57% 75% 60% Average Daily Rates (ADR) also declined by 4% (down to USD 260) in 2012, reversing the increase witnessed during Falling occupancies and room rates resulted in RevPAR declining (12%) from USD 169 in 2011 to USD 148 during ADR (USD) % 30% 15% Occupancy % ADR Occupancy Source: STR Global 27

28 Hotel Market Summary Indicator Level Comment / Outlook Current Hotel Supply 8,450 rooms After the addition of about 1,200 rooms in 2011, the only internationally branded hotel to enter the market in 2012 was Ibis Olaya. Future Supply ( ) 7,400 rooms Some of the new supply scheduled to enter the market in 2012 has now been shifted into (YT Dec) Occupancy 57% Decline in YTD levels of occupancy, reversing the positive trend in (YT Dec) ADR USD 260 The increase in supply in 2011 has placed downward pressure on average rates. RevPAR also contracted (by 12%) in 2012 compared to

29 Definitions and Methodology 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: Retail supply data covers the GLA (Gross Leasable Are) within organised malls over 10,000 sq m. Classification of Retail Centres is based upon the ULI definition as published in Retail Development, 4th Edition published by ULI. Mall Category Total GLA (sq m) Community 10,001-32,000 Regional 32,001-74,000 Super Regional 74,001+ Rent represents the average quoted average rent for line stores in the major shopping malls in Riyadh. 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. 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 rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes. Hotels: Hotel room supply is based on existing supply figures provided by Saudi Commission for Tourism and Antiques as well as future hotel development data tracked by Jones Lang LaSalle Hotels. Room supply includes all graded supply and excludes serviced apartments. STR performance data is based on monthly survey conducted by STR Global. 29

30 Contacts: John Harris Co-Head Riyadh Gabriel Matar Director, Hotels MEA Peter Bibby Co-Head Jeddah Craig Plumb Head of Research MENA David Macadam Head of Retail MENA Fayyaz Ahmad Associate Director, Advisory Saudi Arabia COPYRIGHT JONES LANG LASALLE IP, INC This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.