S&P optimistic on Saudi retail real estate

Riyadh city

S&P Global expressed a positive outlook for Saudi Arabia's commercial real estate sector for 2025-2026, anticipating a strong demand driven by population growth, rising tourism, and changing consumer preferences.

In its latest report, the credit rating agency said that the sector is undergoing a continuous transformation, driven by the Kingdom's Vision 2030 initiatives, economic diversification efforts, and the evolving consumer landscape.

It noted that the sector faces challenges, including the risk of oversupply and the evolution of retail preferences, which could affect rental yields and property owners' profitability amid high capital expenditure.

Government spending and non-oil economic growth in Saudi Arabia are expected to weaken on lower oil prices and market volatility, amid rising global trade tensions and an increasingly fragmented geopolitical landscape, S&P said.

S&P explained that although its overall outlook for the market remains positive, the sector must address several challenges, including shifting consumer behavior, the growth of e-commerce, and, most notably, the potential impact of an oversupply.

Additionally, the agency highlighted that Saudi consumer spending and sentiment could be influenced impacted by weak and volatile oil prices on trade tensions.

risks in this sector are further intensified by rising development costs, which could negatively impact real estate companies' credit quality. The cost of developing mega-scale retail projects is a significant challenge. Thus, owners may face profitability challenges if rental returns missed their expectations. Also, these companies face execution risks related to capital and operating expenditures, due to the nature of their new projects.

For example, Arabian Centres Co. (Cenomi Centers) may face certain pressures, as capital expenditures are estimated at between SAR 2.4 billion and SAR 2.6 billion in 2025, as the company works toward its target of expanding its total leasable area by 44%—from the current 1.4 million square meters—by 2027.

Cenomi Centers is currently developing six projects, with its two largest—the Jewel of Riyadh and the Jewel of Jeddah—scheduled for completion by late 2025 or early 2026. It expects the EBITDA margin to improve starting in 2025, exceeding 70% by 2026.

This followed a period of weakened profitability for the company during 2020-2021 due to pandemic-related disruptions, with continued pressure in the following years driven by higher costs and lower value of receivables.

S&P expected Cenomi Centers to maintain its focus on cost efficiency and control following structural operating expenditure improvements, which are project to boost profitability in 2025.