Jeddah property market showing signs of recovery: JLL

While residential sale prices and rents fell in Jeddah in 2017, the rate of decline slowed down towards the end of last year as the Saudi city’s property market began to recover, real estate consultancy JLL said in a recent report.

Apartment rents in Jeddah declined 10.9 percent year-on-year (YoY) in the fourth quarter, and dipped 2.7 percent quarter-on-quarter (QoQ) in areas mostly occupied by expatriates.

“The tax levy on expatriates could be restricting demand for rentals, as expatriates repatriate family members to avoid the levy”, JLL said.

Meanwhile, villa rents slipped by a marginal 0.3 percent QoQ and by 2.4 percent YoY.

Sale prices of residential apartments declined 8.1 percent, while villa prices retreated 1.9 percent.

Residential supply in Jeddah increased by around 10,000 units to 813,000 units in 2017. Only around 1,000 units entered the market in Q4, with no notable completions.

The near completion of a number of residential developments will likely see up to 1,100 quality apartments enter the market in early 2018.

In the commercial property market, office rents saw a continuous decline in 2017 due to depressed demand and gradually increasing supply.

Rents declined 12 percent YoY and 1 percent QoQ in Q4 2017 to SAR 988 per square meter (sqm) on average, while vacancies in the office sector reached 20 percent during the quarter.

“While this may suggest office rents are close to bottoming out in 2018, this is unlikely to be the case as new supply is expected to enter the market. As competition increases, tenants will be able to negotiate better rents and additional benefits to their tenancy terms,” JLL said.

International companies that are considering setting up base in Jeddah will find favorable office market conditions this year, the report added.

Jeddah’s retail supply remained unchanged at 1.2 million sqm in 2017, but is expected to rise by 17 percent to 1.4 million sq m this year.

“Lifting the ban on cinemas could potentially see an increase in retail gross leasable area (GLA) in existing shopping centers, as owners convert open space, or release retained for this purpose in anticipation of the announcement, to rentable space,” JLL said.

In the hospitality market, the total supply of the hotel rooms rose 10 percent to 10,800 keys in 2017, the report said. New supply of 1,700 keys (16 percent) is expected to enter the market in 2018, with most of these projects at an advanced stage of construction.

Meanwhile, occupancy rates in Jeddah’s hotel market fell 7 percentage points to reach 61 percent in the year-to-November, compared to the same period in 2016. The decline in performance was attributed to lower demand from the corporate sector and changing market dynamics.

“Weaker performance should not deter hotel operators considering entering the market in Jeddah. In an increasingly competitive market, opportunities exist for properties that are responsive to the city’s changing dynamics,” JLL said.

Properties located near exhibition or conference centers, or those that provide these facilities, are likely to benefit from the increasingly number of entertainment, conference and business events being held in the city, the report added.