Q Jeddah Real Estate Market Overview

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1 Jeddah Real Estate Market Overview

2 Jeddah Market Summary All sectors of the Jeddah rental market remain in the upswing stage of their cycle, although the pace of growth is declining in some and the residential sector has seen a fall in prices during Q3. The office sector continues to show healthy growth as new supply enters the market at a sustainable pace. While residential prices have fallen as buying remains unviable for most middle-income households, the residential rental market is holding up, with continued growth in rents recorded during Q3. Retail rents have increased marginally, despite downward pressure on rents in older centers. The hotel sector remains one of the best performing in the region, with limited new supply entering the market. Jeddah Prime Rental Clock Residential Hotel* Office Office Rental Growth Slowing Rents Falling Rental Growth Slowing Rents Falling Retail Retail Hotel* Rental Growth Accelerating Rents Bottoming Out Rental Growth Accelerating Rents Bottoming Out Residential * 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 Jeddah Office Market Overview Market Summary Several small scale office buildings have entered the market over the last quarter including S19 and 733 Lotus. This has increased total office GLA in Jeddah to 856,000 sq m. The limited increase in office space has kept vacancy rates across the market relatively stable at 7% in, the lowest of any of the major office markets in MENA. Q-o-Q lease rates have remained virtually unchanged while Y-o- Y have increased by 5.8%. Much of the supply scheduled to enter the market over the last quarter of 2015 is expected to be delayed into 2016, which will likely keep vacancy rates stable over the next quarter. Hot Topic Despite the economic slowdown in Saudi, fuelled by declining oil prices, most of the already committed infrastructure projects in Jeddah are going ahead. Work is continuing on the Metro (the most significant project in Jeddah), which is still scheduled to be operational in This is generating continued demand for office space from both Government and private sector tenants in the engineering and construction sectors. Assuming market conditions remain stable and supply continues to enter the market at a sustainable pace, lease rates are expected to continue to grow moderately during Office Supply Current Supply ( ) Future Supply ( ) 627K* 719K 826K 856K 74K 156K 40K M 2015 Q *The increase in supply for 2012 is due to the addition of Al Taher Tower. Office Performance Vacancy Rate Average Rents (per sq m) / Annual Change 6% 7% SAR %

4 Jeddah Residential Market Overview Market Summary The rental sector for both villas and apartments has outperformed the sales sector as buying remains an unviable option for middle income households. The increase in rents over the last quarter have been modest but have increased by 19.7% and 4.5% for apartments and villas respectively. Rentals are expected to continue to increase modestly over the rest of Sales prices have decreased across the board with Q-o-Q prices decreasing by 4.8% and 1.1% while prices have decreased by 3.7% and 4.7% for apartments villas respectively. This is in line with the 8% decrease in residential unit transactions registered by the Ministry of Justice over the last quarter compared to the same quarter in. The supply of has increased by approximately 4,000, bringing the total to 785,000. Hot Topic Falling sale prices and speculation surrounding the new white land tax has increased uncertainty and resulted in few new project launches in recent months. The regulations around the white land tax are not expected to be announced before 2016, but some speculation has begun to circulate on the size of the lands that will be taxed and the tax amount. The Saudi Arabian Real Estate Development Fund has reduced the minimum area for apartments eligible for purchase through their financing programs to 175 sq m inclusive of common areas. This could stimulate further demand for smaller projects. The shortage of affordable housing in KSA is discussed in JLL s latest report Progress & Priorities: Middles-Income Housing in the Middle East and North Africa. The Ministry of Housing is responding to this need, with plans to construct around 15,000 additional by 2017, with a further 15,500 under planning. Residential Supply Current Supply ( ) Future Supply ( ) 735K 754K 769K 785K 5K 23K 25K M 2015 Q Residential Performance Apartment Residential Jeddah Residential Property Rent and Sale Indices Sales -5% Q-o-Q Rentals 1% Villa Residential Sales -1% Q-o-Q Rentals 3% Sales -4% Rentals 20% Sales -5% Rentals 5% Source : JLL Source : JLL

5 Jeddah Retail Market Overview Market Summary Overall retail rents in Jeddah increased by 2.7% in Q3. Over the past year, rents for regional malls have increased by 5.7%, while super regional rents declined marginally (-1.5%). Vacancy rates have increased to 12% in compared to 8% in, due to tenants upgrading to newer and higher quality retail centers, resulting in higher vacancy rates in older stock. Some older centers are undergoing renovation, which is changing the composition of the supply entering the market which has traditionally been from new malls. The value of retail sales increased marginally (0.5%) during Q3, a much slower rate of growth than earlier in Future demand may however be stimulated by Saudi Arabian General Investment Authority s (SAGIA) recent announcement to allow 100% foreign ownership of retail and wholesale businesses in Saudi. Hot Topic The opening of Yasmin Mall, expected in 2016, located in the East of Jeddah on the Haramain Highway is expected to divert footfall from shopping centers in the Western parts of the city that have traditionally served the previously under provided Eastern suburbs. This trend will be further reinforced if the retail mall being planned as part of the Tahiya Gate development (by Sondos Real Estate) on the Haramain Highway proceeds. This project will further divert demand from the surrounding areas away from existing shopping centers located in the West of Jeddah. Retail Supply Current Supply ( ) Future Supply ( ) 780K 861K 942K* 947K 21K 277K 85K M 2015 Q *The previously reported supply of retail space in has been increased due to the addition of Moj Plaza Retail Performance Vacancy Rate Average Retail Rents (per sq m) / Annual Change 8% 12% SAR Super Regional Regional 3,400 2,430 3,350 2, % 6.7%

6 Jeddah Hotel Market Overview Market Summary Summer months are usually quiet in terms of hotel openings, which was the case in Jeddah this year. The only notable hotel opening was the Radisson Blu Plaza with its 112 rooms and the Ascott Tahlia in the serviced apartment sector. Despite its minimal impact on the total quality supply, which now stands at 8,600, the opening of the Radisson Blu Plaza is significant in that it is one of the first projects announced in the last few years to open, defying the construction delays that have plagued so many announced projects across the city. Jeddah s performances remain healthy with YT August ADR at USD 257, the highest in the region, with occupancy rates at a healthy 76% in YT August Hot Topic Despite the increased popularity of serviced apartments in Saudi, there has been very limited supply of internationally branded properties in Jeddah to date. The opening of the Ascott Tahlia, and two more properties expected to open in Q under the Ascott and Citadines brands, marks the start of an upward trend in the supply of quality, branded serviced apartments in Jeddah. Several hotel projects are also scheduled to open by the end of 2015, one of the most notable being the Ritz Carlton. Further delays are however expected to result in many of these projects postponing their openings until Hotel Supply Current Supply ( ) Future Supply ( ) 6,800 7,300 8,500 Keys 8, ,900 2,400 2, M 2015 Q Hotel Performance Occupancy Rate Average Daily Rate / Annual Change 75% YT Aug 76% YT Aug 2015 USD 260 YT Aug 257 YT Aug % Source : STR Global Source : STR Global

7 Definitions and methodology Interpretation of market positions: 6 o clock indicates a turning point towards rental 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. 12 o clock indicates a 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. The supply data is based on our quarterly survey of the Grade A & B office space located in the Jeddah CBD, defined as Prince Sultan, Tahlia, Al-Malek, Ibrahim Al Jaffali, Amanah Street, Madinah, King Abdullah and Rowdah 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. Office vacancy rates are based on JLL estimates for a basket of buildings that comprises approximately 60% of the current supply. 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. 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. The two baskets cover projects in selected locations across Jeddah. Classification of Retail Centres 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 Neighbourhood Malls have a GLA of 3,000-10,000 sq m Convenience Malls have a GLA of less than 3,000 sq m Average Rent Shopping Centre represents the quoted average rents for line shops for the major shopping malls in Jeddah. Retail supply relates to the Gross Lettable Area (GLA) within retail malls. 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. JLL now tracks the supply of 3, 4 and 5 star quality hotels. The supply data excludes serviced apartments. Performance data is based on a monthly survey conducted by STR Global.

8 Jeddah Level 4, Suite 406 Jameel Square Tahliya and Andalus Streets PO Box 2091 Jeddah Saudi Arabia Tel: Fax: For questions and inquires about the Jeddah real estate market, please contact: Jamil Ghaznawi Country Head KSA Dana Williamson Head of Agency MENA Andrew Williamson Head of Retail MENA Chiheb Ben-Mahmoud Head of Hotels & Hospitality MEA Craig Plumb Head of Research MENA Fayyaz Ahmad Director, Advisory KSA Ahmed Almihdar Analyst KSA Mohammad Alajmi Analyst youtube.com/joneslanglasalle linkedin.com/companies/jll joneslanglasalleblog.com/emearesearch jll-mena.com 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 JLL 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. JLL does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.