The Jeddah Real Estate Market Q Jeddah

Transcription

1 The Jeddah Real Estate Market Q Jeddah

2 Jeddah 03 Market Summary Ongoing investments in infrastructure and non oil industries expected to offset subdued nature of the market in the long term. Despite delays in the delivery of office buildings in Q3 2018, there were two notable completions over the quarter bringing total office GLA to 1.05 million sq m. Further completions are expected over the last quarter, however we might see delays in the delivery of projects within the timeframe. Office rents weakened further as vacancy rates continued to increase. There were no notable residential completions in Q3 2018, leaving the total supply relatively stable at 817,000 units. Due to delays in largescale community developments, the market will likely see a small number of residential completions in the final quarter of the year. Residential rents and sale prices remained under pressure in Q3 2018, reflecting current market conditions. There were no new retail completions in Jeddah during Q3 2018, which saw rents and vacancy rates remain relatively stable over the quarter. Cinemas, F&B and entertainment options are becoming increasingly important features of shopping centres, and will play a greater role in shopping centre performance going forward. Competition continued to increase in the hotel sector as two new hotels were handed over. Hotel occupancies declined marginally in the YT August 2018, while ADRs remained unchanged. Our long-term outlook for the hotel market remains positive due to growing developments in the entertainment sector. Jeddah Prime Clock Growth Slowing Rents Falling Growth Slowing Rents Falling Growth Accelerating Rents Bottoming Out Office Residential Growth Accelerating Rents Bottoming Out Office Residential Retail Retail Hotel Hotel Q Q * Hotel clock reflects the movement of RevPAR (Revenue per available room: ADR * occupancy rate) 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 recognize 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.

3 05 Office Hot Topic The Haramain high speed railway, operated its first journey from Jeddah s Al-Sulaymaniyah station during Q The completion of the largest electric train project in the Middle East, will provide a high speed rail link between Jeddah, Makkah and Madinah. Along with the Jeddah Metro, this will positively impact office demand, particularly in those locations with good access to the major interchange stations in Makkah, Jeddah, King Abdulaziz International Airport, King Abdullah Economic City, and Madinah. The new King Abdulaziz International Airport will officially open and begin operations in mid This major completion is regarded as positive for the office sector in Jeddah, as it is expected to draw further investments and consequently result in increased long-term corporate demand for office space. Supply Jeddah s office market saw the delivery of two notable developments in Q3, Randa Tower and Ibrahim Centre on King Abdulaziz Road, which added around 8,900 sq m and 10,700 sq m of office space respectively. This brings the total stock of quality office space to 1.05 Annual supply Stock Office F 1.20M 2019F 1.11M 2018F 1.05M Q M M M M million sq m as of Q The market is expected to witness the delivery of an additional 57,000 sq m of office GLA by year-end. While most of this space is at the final stages of construction, we could see delays in the handover of some projects Million sq m of GLA There is a growing amount of upcoming office supply along King Abdulaziz Road, as this location continues to develop and expand its offerings to better service the commercial sector. This is supported by several upcoming hotel projects and retail centres

4 06 07 Office Vacancy Rate % 17% 20% Performance Office rents continued to soften registering annual declines of 12%. Meanwhile vacancy rates increased to 20% in Q This comes as economic conditions in the Kingdom remain subdued. As supply is expected to increase over the next 12 months, we expect rents to continue facing downward pressure. This is likely to see landlords offer leasing incentives to retain their tenants. We expect the office market to recover as of 2019, with the completion of major infrastructure projects and further progress on the national reform agenda. Q Q Rents (SAR / sq m) Q Q ,176-12% 1,035

5 09 Residential Hot Topic In line with the Ministry of Housing s (MoH) target of increasing home ownership in Saudi Arabia to 60% by 2020, Q saw the announcement of the ninth instalment of the Sakani program. The instalment aims to deliver 33,000 housing and financing options to citizens across the Kingdom. The MoH announced that it offered 8,300 loans and provided almost 11,200 residential plots for development as part of the instalment, while 5,900 housing units are currently under construction in partnership with real estate developers. An additional 1,000 units are expected to be delivered by year-end, mostly in the mid and high-rise segments of the market. These include Emaar Residences Abraj Al Hilal 3 within Jeddah Gate, Bayat Plaza Towers, and Al Tawheed Tower along the Corniche. Community developments are likely to make up a larger share of upcoming supply over the next months, as the market continues to favour fully integrated residential developments. Notable projects include the first phases of Al Makarona Community and Salman Bay Housing Project. Supply Q continued to witness delays in the handover of residential projects, with some being put on hold due to the current market conditions. As such, no new residential projects were handed over in the quarter leaving total supply unchanged at approximately 817,00 units. Annual supply 2020F F F 817 Q Stock Residential Thousand units

6 10 11 Residential Apartments (% change) Performance Sales Sales Average rents continued to drop in Q with apartment and villa rents declining 4% and 3% respectively Q-o-Q. On an annual basis, rents registered a sharper decline of 11% for apartments and 9% for villas. Residential sale prices remained relatively stable Q-o-Q, registering only marginal declines. However on an annual basis, apartment and villa prices both dropped around 7%. The softening performance reflects current market conditions, mainly the slowdown in the job market, which has negatively impacted demand for residential units in Jeddah. This trend is likely to continue over the next 12 months, before we see an uptick in performance on the back of economic reforms. -0.2% Q-o-Q -6.8% -3.6% Q-o-Q -11.2% Villas (% change) Sales -0.1% Q-o-Q Sales -6.9% -3.4% Q-o-Q -8.6%

7 13 Retail Hot Topic In line with Vision 2030 and the government s aim to provide job opportunities for an additional 1 million Saudis, the Government has announced it will restrict jobs in a total of 43 retail sectors to nationals. Under the new rules, employment in retail sub-sectors will be available to Saudi nationals over three phases; in September and November 2018, and January Retail sectors impacted in the first phase include automobile showrooms, ready-to-wear apparel stores, home & office furniture and household goods. of Red Sea Mall, AlMarwa Plaza by Al Andalus Property, and Oasis Mall in AlHamadhnyah by year-end. respectively, with super regional and regional shopping centres dominating upcoming supply. The market is also expected to see the delivery of several neighbourhood and community centres as developers continue to cater to Jeddah s resident population. Supply Q saw no retail mall completions, leaving the total supply in the market unchanged at 1.4 million sq m. Assuming all projects currently under construction are completed within the specified timeframe, we expect to see the delivery of the 2nd expansion Annual supply Stock Retail F F F 1.40 Q Scheduled completions over the next two years amount to 334,000 sq m and 140,000 sq m in 2019 and Million sq m of GLA

8 14 15 Retail Vacancy Rate 10% 11% Performance Performance of the retail market remained relatively stable in Q3 2018, with no notable changes in rental rates recorded. Similarly, vacancy rates only increased marginally to 11% over the same period. As more supply enters the market over the remainder of 2018, we expect rents to drop further and vacancy rates to increase, particularly in the lesser-quality centres. Data released by the Saudi Arabia Monetary Authority (SAMA) shows that the number of point of sales transactions in Jeddah increased by around 36% in August 2018, while the value of transactions rose by 6% over the same period. The data suggests that while households in Jeddah continue to spend, they are becoming increasingly selective; choosing more value for money goods. Q Q Change in Average Rents Regional 0% Q-o-Q Regional -1.8% Super Regional 0% Q-o-Q Super Regional 0%

9 17 Hotel Hot Topic Saudi Arabia s Public Investment Fund announced plans to develop an ultra-luxurious Global Destination for Wellness on the northwestern coast of the Red Sea in the Prince Mohammed bin Salman Nature Reserve. The Amaala resort will cover an area of more than 3,800 sq km, featuring more than 2,500 hotel keys, private villas and a retail village, in addition to an art academy and several yacht clubs. The completion of phase one is scheduled for 2020, with the whole development due for completion by This new development comes as authorities take an active role in implementing Vision 2030 and diversifying the Kingdom s leisure and tourism industry. This is expected to increase demand in the hospitality market over the long-term, and is set to diversify Jeddah s visitor base. over the next couple of years with the delivery of new hotel brands. These include the Park Inn by Radisson Madinah Road the first property for the brand in Jeddah, Ibis on King Abdulaziz Road and in Alesayi Plaza, the new Jeddah Marriott, Four Points by Sheraton in South Obhur, Al-Salam Hotel, Double Tree by Hilton, the Copthorne by Millennium Jeddah, and Arif Andalusia Millenium hotel in South Obhur. Supply Q witnessed the opening of two internationally branded hotels: Centro Salama on Madinah Road and TIME Beach Villas Resort located close to the new corniche. This brings the total supply of quality hotel keys in Jeddah to 11,500. A further 700 keys are expected to be handed over during the last quarter of the year. Supply is expected to increase significantly Annual supply Stock Hotel F 15, F 12, F 11,500 Q , , , ,400 7,000 8, , ,000 10,000 11,000 12,000 Number of Hotel Rooms Further growth is expected in the branded serviced apartment segment in Jeddah with several properties currently under development including Somerset Corniche Jeddah and the Adagio on King Abdulaziz Road. 13,000 14,000 15,000 16,000

10 18 19 Hotel Occupancy 66% 62% Performance The hotel performance in the YT August 2018 remained relatively stable. Despite performance picking up during the Hajj Season, occupancy rates declined by 4 basis points to 62% in the YT August 2018 (compared to 66% in the YT August 2017). ADRs increased marginally to register USD 296 in the YT August 2018; a 0.1% increase compared to the same period last year. Although RevPAR s also decreased by 18% to reach USD 184 in the YT August 2018, these rates are nonetheless considered healthy. While the market may face downward pressure in the short-term, we remain positive in our long-term outlook for Jeddah s hotel market given the city s strategic location between the two Holy cities of Makkah and Madinah, and the expansion of its entertainment sector. YT August bp YT August 2018 ADR (USD) USD265 YT August % USD296 YT August 2018 Source: STR

11 20 21 Property Clock Definitions 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. 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. 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. Definitions Office 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 Juffali, Amanah Street, Madinah, King Abdullah & Prince Saud AlFaisal (Rawdah) 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). 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 approx. 60% of the current supply. 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. 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. Retail Retail supply relates to the Gross Lettable Area (GLA) within major retail malls and quality plazas tracked by JLL. Weighted average shopping centre rents represent the quoted average rents for line shops for major shopping malls. Vacancy rate is based on estimates from the JLL Retail team, and discussions with leasing agents, and represents the average rate across shopping centres. Classification of retail centres is based upon the ULI definition and based on their GLA: Hotels Super Regional centres have a GLA of above 90,000 sq m Regional Malls centres a GLA of 30,000-90,000 sq m Community centres have a GLA of 10,000-30,000 sq m Neighbourhood centres have a GLA of 3,000-10,000 sq m Convenience centres have a GLA of less than 3,000 sq m JLL 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.

12 Jeddah Jameel Square Level 2, Suite 209 Tahliya & Andalus Streets Junction PO Box 2091 Jeddah Saudi Arabia Tel: Fax: For questions and inquires about KSA real estate market, please contact: Thierry Delvaux CEO, MEA Andrew Rotteveel Head of Project & Development Services, MENA John Fekete Head of Consulting, MENA Dana Williamson Head of Corporate Solutions & Tenant Representation, MENA Amr El Nady Head of Hotels & Hospitality, MENA SVP, Global Hotel Desk Fayyaz Ahmad National Director, Consulting, KSA Craig Plumb Head of Research, MENA Dana Salbak Associate, Research, MENA Shahd AlMehdar Senior Analyst, Research, KSA With MEA offices in: Dubai, Abu Dhabi, Cairo, Riyadh, Al Khobar, Johannesburg, Nairobi, Lagos and Casablanca. COPYRIGHT JONES LANG LASALLE IP, INC This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report.