Posted inNews

Unlocking opportunities in the Saudi real estate market

From residential to commercial projects, discover how the Kingdom’s GDP growth and development plans are shaping the real estate industry

Unlocking opportunities in the Saudi real estate market

The Saudi real estate market is buzzing with activity. Many new residential and commercial projects have been completed, and there are now four exciting Special Economic Zones (SEZs) to look out for. With the Kingdom’s GDP hitting $2.6 trillion (SR10.1 trillion) in 2023, the future looks bright as it is expected to reach $3 trillion (SR11.6 trillion) by 2030. Deloitte, the global professional services firm, has just released their Saudi Arabia Real Estate Report for 2023, offering valuable insights into the kingdom’s property market growth and what’s to come.

Remote work facilities

New trends in residential property are moving towards homes that can accommodate remote work setups and include features that promote wellness. The desire for flexible workspace is also on the rise, pushing developers to come up with new office designs that suit hybrid work models. Retail and hospitality sectors are also adapting to meet the changing needs of consumers, with a special emphasis on creating experiential spaces.

Stefan Burch, Partner and Head of Real Estate at Deloitte Middle East says, “2023 continued to be dominated by strong levels of demand for commercial office space both from large corporates and SMEs reflecting robust economic activity in the kingdom, while in the residential markets demand has shifted to apartment stock as affordability continues to be a key driver amidst a backdrop of higher interest rates. As the market continues to evolve, 2024 looks set to be dominated by the delivery of high-quality mixed-use schemes that more accurately respond to market demand both in terms of pricing and offering.”

Oliver Morgan, Partner and Head of Development in Deloitte’s Real Estate team in the Middle East adds, “The kingdom is now in delivery mode; the last 12 months have seen innovative approaches to bring key development projects to market. The sophistication of due diligence, regulations and use of technology are all changing the way investors and our clients are planning projects – all leading to a more institutional approach to delivery. Our predictions for the market focus on continued growth in landmark funding deals, the impact of ESG as a value creator from lifecycle cost savings and how retail needs to evolve to stay relevant.”

Residential market

Transaction volumes in the residential sector have seen a decrease, yet sales prices for villas and apartments continued to ascend in 2023 compared to the previous year. Notably, Riyadh, Jeddah, and Dammam collectively recorded 67,233 residential transactions in 2023, totalling $21 billion (SR79 billion), reflecting a 15% decrease in value compared to 2022. Sales prices and rents have experienced notable growth across Riyadh and Jeddah.

Hospitality market

Saudi Arabia’s tourism industry is on the rebound, attracting 53.6 million visitors in the first half of 2023, with 14.6 million inbound tourists and 39 million domestic tourists. This influx in tourism is projected to contribute 6% to the country’s GDP in 2023.

 Efforts such as the facilitation of tourist visas for GCC residents, and the extension of visas on arrival to UK, US and EU residents, have supported the country’s hospitality sector in the post-pandemic period.

 The KSA occupancy rate averaged 63% in 2023, showing an increase from 58.2% in 2022. Occupancy in Riyadh averaged 64.7% while Jeddah averaged 63.2% in 2023. Riyadh’s average daily rate (ADR) surged by 18% Y-o-Y during 2023, reaching SR797. Riyadh hotels recorded the strongest occupancy in October and November reaching 80%, meanwhile, Jeddah hotels recorded their highest occupancy performance in May at 79%.

Office market

Office supply in the key markets of Riyadh, Jeddah and DMA stood at 5.9 million sq m, 2.1 million sq m and 1.4 million sq m respectively as of the end of 2023. Grade-A office space rent witnessed an 11% year-on-year increase in Riyadh, 7% in Jeddah and 4% in Dammam. Notable additions include Hiyazah Gate, Yline, North Yard and Luxury Plaza located in the Al Yasmin district of Riyadh. A significant portion of the King Abdullah Financial District (KAFD) office supply has been successfully delivered, demonstrating high pre-leasing/leasing rates.

Industrial and logistics

The launch of four Special Economic Zones (SEZs) in 2023, including King Abdullah Economic City, Jazan, Ras Al Khair, and Cloud Computing in the King Abdulaziz City for Science and Technology, is expected to create new avenues for sustainable business growth. These zones are poised to become global investment destinations, focusing on various sectors such as automobile supply chains, consumer goods, ICT, pharmaceuticals, and logistics.