Government initiatives targeting tourism development and encouraging investment are expected to boost the real estate market in Jeddah, according JLL MENA’s latest report.

Crown Prince Mohammad bin Salman bin Abdulaziz Al-Saud (also Chairman of the Council of Economic and Development Affairs) in the Saudi Vision 2030 document said "opening Saudi Arabia further for business will boost productivity and smooth our journey to become one of the largest economies in the world. We will improve our business environment, restructure our economic cities, create special zones and deregulate the energy market to make it more competitive." He continues, "diversifying our economy is vital for its sustainability. Although oil and gas are essential pillars of our economy, we have begun expanding our investments into additional sectors, we understand that there are complicated challenges ahead but we have long-term plans to overcome them."

As these initiatives to increase tourism, pilgrimage, investment and local entertainment options are set to strengthen Jeddah’s market, JLL’s Jeddah Real Estate Market Overview Q3 2017 reports that it is showing indications of hitting the bottom of the cycle.

“The Saudi Vision 2030 set a clear socioeconomic path and guidelines for the Kingdom which is attractive to investors. The impact so far has been positive on the real estate market with sentiment in some sectors improving,” said Ahmed Almihdar, a senior analyst at JLL MENA. Large-scale developments, such as the newly announced Red Sea Tourism project have confirmed the government’s commitment to increasing tourism’s contribution to the economy.

Read "Richard Branson confirmed to invest in Saudi Arabia’s ‘The Red Sea’ project" here.

At a glance:

• Residential development delays will show a smaller supply delivered
• Large scale developments are making up a large proportion of stock once dominated by stand-alone villas and apartments
• Apartment rents have declined -9% yoy
• Villa prices have increased by 1.3% qoq, but apartments declined -9% yoy
• Hotel occupancy decreased by 10% to 62% and ADRs decreased 4.4%
• The Red Sea Project and further leisure and entertainment offerings should boost the sector
• 300 more keys brought stock in Jeddah to 10,400 keys, with 900 more set to enter the market in Q4
• The Saudi Arabian General Investment Authority relaxed regulations to permit foreign ownership of companies in engineering, education and healthcare
• This should increase demand for commercial space

Residential

Delays in large-scale community developments will show a smaller supply of residential units delivered, but developments are set to make up a larger proportion of the market once dominated by stand-alone villas and apartment buildings. This year, a total of 61,600 loans have been made by the Ministry of Housing, and 23,100 are expected to be paid out by the end of the year. The Ministry intends to deliver 280,000 residential products and loans to beneficiaries in 2017, which should all encourage further activity in the residential market. Rents have continued to soften but are showing signs of stabilising. Apartment rents have declined -9% yoy, while villa rents decreased by -4.2%. Sale prices have shown minimal change as villa prices have increased by 1.3% qoq due to a slight rebound in affluent areas to the West and North of the City. Apartments sale prices remain unchanged this quarter, but showed a sharp decline of -9% yoy.

Hotels

Raised competition wit new rooms has made ADRs decline despite the increased number of pilgrims during the Hajj. Occupancy levels decreased by 10% to reach 62% YT August compared to 72% during the same period last year. ADRs also declined to USD258 YT August, a decrease of 4.4% compared to the same period last year. But the Red Sea Project and projects being developed by public and private entities will diversify the leisure and entertainment offerings for both residents and visitors. A further 300 keys were added to the hotel market in Q3, bringing the total stock of quality hotel rooms in Jeddah to almost 10,400 keys. A potential 900 keys could enter the market in Q4 with several properties nearing completion.

Office

The Saudi Arabian General Investment Authority has gone further to diversify economic base by relaxing investment regulations. They now permit 100% foreign ownership of companies in three sectors: engineering, education and healthcare. This, plus plans to privatise various government holdings should increase demand for commercial space as investors, financiers, consultants and new companies move into the Jeddah market. In Q3 2017, rents have declined and vacancies have increased to 14% as new supply outpaces demand. Until the impact of the new regulations is felt, the office rent market favours tenants over landlords.

See the full JLL Jeddah Real Estate Market Overview Q3 2017 report here.

See also:

JLL names Dubai as a Rising Giant of growth, and Riyadh and Jeddah as Emerging Hotspots

Richard Branson confirmed to invest in Saudi Arabia’s ‘The Red Sea’ project

Mecca property prices surge