The Real Estate Investment Trusts (REIT) market in Saudi Arabia continues to expand and now surpasses a market capitalisation of USD 2 billion, according to the report released by Knight Frank Saudi Arabia. The number of listed REITs doubled in the last two quarters; with 12 REITs listed on the Tadawul (Saudi Stock Exchange) at the end of Q1 2018.

Knight Frank Saudi Arabia Research Manager, Raya Majdalani commented, “As more REITs are listed in Saudi Arabia, we expect the increasing depth of the market to drive pricing closer in line with fundamental valuations and push towards the adoption of best-in-class practices.”

The vast majority of existing Saudi Arabian REITs have their investments spread across multiple real estate asset classes. This is in part due to a lack of maturity in the market and a constrained pipeline of institutional grade assets. In common with more mature REIT markets, it is likely that thematic REITs will take the lead over diversified REITs in the longer term. Although the blended approach provides important long-term benefits, thematic REITs allow investors to gain exposure to specific real estate sectors in line with a specific risk/return profile. This will be particularly important for investors seeking exposure to non-cyclical, defensive sectors such as healthcare and education.

The regulatory framework will remain a critical priority, generating opportunities as well as challenges for fund managers and investors in the REIT market. Strengthening and adapting regulations, which have proven to be favourable in more mature jurisdictions, will remain a requirement for the REIT market in Saudi Arabia, in light of the government’s drive to enhance the investment environment.

Stefan Burch, Knight Frank General Manager, commented, “While it is still premature to judge the ramifications for the wider real estate market, REIT regulations signal an important step in the government’s drive to enhance the investment environment as part of the wider strategic reform agenda.”

In 2018, Knight Frank expects more REITs to be listed, given the number of approvals that are currently in the pipeline. As more REITs are listed, it is expected that the level of competition will increase in the market, which would translate into a greater focus on the adoption of best-in-class practices for the quality of the underlying portfolio and asset management.

To see the full report, including comparisons of REITs in Saudi Arabia with other GCC countries, visit the Knight Frank website.

For more information, email Raya Majdalani, Research Manager of Knight Frank Saudi Arabia via the contact details below.

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