jeddah real estate market overview - q1 2013 office market overview office supply and demand •...
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Dubai Real Estate Market Overview
Q1 2013
Jeddah
Macroeconomic overview
2
Indicator 2012 2013 (f) 2014 (f)
Saudi Arabia
Population (millions) 29.3 30.2 31.1
Real GDP Growth (Y-o-Y) 6.8% 4.2% 3.6%
Inflation (% Change) 4.5% 4.3% 3.8%
Budget Surplus (USD billions) 103 47 35
Jeddah
Population (millions) 37 3.8 3.9
Cost of Living Index (% change) 4.9% 3.5% 3.6%
Sources: Sama, Jadwa, IHS Global Insights April 2013, CDS , 2012
f:forecasted
Economic highlights – Q1 2013
3
Real GDP in KSA grew by 6.8% in 2012. High oil production and expansionary fiscal policy have kept the Kingdom‟s growth at a high level.
Retail sales continued to increase, growing by 25% in Q1 2013 compared to the same quarter last year.
Bank lending to building and construction has increased by 27% in Q1 2013 from the same period last year. This reflects greater participation in infrastructure and housing projects.
To facilitate housing construction program, King Abdullah has approved the creation of a new USD 67 billion housing fund.
At 3.9% Y-o-Y, inflation increased for the third consecutive month in March. This was almost entirely due to higher rental inflation and increasing food prices.
Saudi banks increased their lending to real estate end users (mostly mortgages) by 30% in 2012, the largest increase during the last five years.
Property & project news– Q1 2013
4
• Jeddah Municipality has approved 64,000 residential units in a
range of projects across Jeddah. These include developments by
Jeddah Development & Urban Regeneration Company (JDURC),
the Ministry of Housing and private developers.
• Da‟em Real Estate Company has announced a new residential
project in Jeddah called Da‟em Residence. Located in Al Marwa
district, it consists of 120 residential units to be completed in
2015.
• Saudi Industrial Property Authority (MODON) has approved
SAR 50 million to develop the infrastructure of phase-1 of the
Fourth Industrial City, located 25km north of Jeddah. Land rents
in the project have been set at SAR 3 sq m per year
• Makkah Municipality has allocated another 1 million sq m of land
near Makkah Gate to its industrial city project.
• Makkiyoun has announced a new 1,800 unit residential project in
Makkah called Makkah Oaisi. The company has also announced
that the completion date for its Al Tilal Project will be late 2015.
This project in Al Haram area, consists of a mall, wedding hall
and a conference hall.
• Kingdom Holdings expects work on the world second deepest
(72m) pumping station in Jeddah to be complete in Q2 2013.
5
Jeddah prime rental clock
*Hotel clock reflects the movement of RevPAR.
Note: The property clock illustrates where Jones Lang LaSalle estimate each prime market is within its individual rental cycle as at end of relevant quarter.
Source: Jones Lang LaSalle
5
Jeddah office market overview
Office supply and demand
• Around 38,000 sq m was completed in Q1 2013, with the major additions to
stock being private offices (14,400 sq m) on Prince Sultan Street, Diwan
Najia (14,700 sq m) on Tahlia Street and Al-Sohaily 2 on Andalus street.
• This brings the total office stock in areas surveyed by Jones Lang LaSalle
(see definitions page for details) to approximately 661,000 sq m in the first
quarter of 2013.
• A major increase in supply (103,000 sq m) is expected in 2013, the majority
of which will be delivered in the Headquarters Building (75,000 sq m).
• The office market has witnessed strong demand during the first quarter of
2013, with strong take up recorded across the city. A major driver for this
demand is government expenditure in sectors such as infrastructure,
healthcare and transportation.
• There is also increased demand from the private sector with multinational
firms expanding their business across Jeddah.
• Government initiatives to improve the regulatory environment (such as
Sawaed and Nitaqat) will further enhance the demand for office space in
Jeddah.
Source: Jones Lang LaSalle, Q1 2013
7
Tot
al S
tock
(00
0‟‟s
sq
m)
623 661 764
842 882
103
78 40 11
0
100
200
300
400
500
600
700
800
900
1,000
2012 2013 2014 2015 2016
Jeddah Office Stock (2012 - 2016)
Future Supply Completed Stock
8 8
Major Existing & Future Offices Projects
1 KAFD
2 ITCC
Existing
Olaya Towers
MIG Tower
8
Major existing & future offices projects 1 Zahran
2 King Road Tower
3 Bin Sulaiman
4 Jameel Square
1
3
1 3
2
4
Existing
Future
4
2 Murjan Tower
2
5 Jeddah 7575
5
1 Headquarters
3 Al Khair Tower
6 Private Offices
7 Diwan Najyah
6
7
Rental performance
• Rents for both Grade A and B office space have remained stable in Q1
2013.
• Average grade A rents have remained stable at SAR 1,092 per sq m p.a.,
while Grade B rents average have also remained constant at SAR 690 per
sq m p.a. This has resulted in a stable average city-wide rent of SAR 890
SAR per sq m p.a.
• Rental stability is due to healthy demand and the decline in vacancy
levels.
• Vacancy levels have dropped from 16% last quarter to 12% this quarter
due to take up exceeding new supply. Vacancies are expected to decline
further in the short term, until more of the supply in the pipeline becomes
ready for lease.
• A number of other occupiers have also expanded and taken 1000 sqm .
The strongest demand is currently for office space of between 500 and
800 sq m, which represents higher demand for larger units than in 2012.
• Examples of the strong demand include KPMG and Alwan that have both
expanded within the Zahran Business Centre in the north. Taking 2,000
sq m and 2,200 sq m respectively.
9
0
200
400
600
800
1,000
1,200
Average Grade A Average Grade B Average (completedGrade A & B Buildings)
Rental Performance (Q1 2012 – Q1 2013)
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Source: Jones Lang LaSalle, Q1 2013
SA
R p
er s
q m
p.a
.
Office market summary
10
Indicator Level Comment / Outlook
Current Office Stock (CBD) 661,000 sq m
Includes Grade A & B buildings within the CBD. Increase in stock in
Q1 2013 is due to the completion of Private Offices, Diwan Najia and
Al-Sohaily 2. Total city-wide stock is estimated to be around 1.8 million
sq m GLA.
Future Supply (2013 – 2016) 232,000 sq m Major future supply will be available on major roads such as Madinah
and Prince Sultan.
CBD Vacancy 12%
The vacancy rate has decreased, due to
continued strong demand.
Average CBD Rental
Average – Grade A Rental
Average – Grade B Rental
SAR 890 per sq m p.a.
SAR 1,092 per sq m p.a.
SAR 690 per sq m p.a..
No change in Q1 2013 with prospects for
stable rental levels in 2013
Jeddah residential market overview
Residential supply and demand
• Apart from a small number of mega government projects, the majority of
new residential supply is coming from individuals and small developers
undertaking small scale projects.
• Approximately 4,500 units were completed in projects monitored by
Jones Lang LaSalle during first quarter of 2013. This new supply has all
been in small projects comprising between 40-100 units, with no major
projects completed.
• A further 15,000 additional residential units are expected to be completed
during the remainder of 2013. Once again the majority of this new supply
will be in small projects.
• Aayan Real Estate Development will complete its Diyar Jaddah 2 project
located in South Obhor in the final quarter of 2013.
• Da‟em Residences, offering 120 units (expected to be completed by
2015) is the only major project announced during Q1 2013.
• Ewan has commenced construction of the second phase of its Al Faridah
Residential Project (460 units) as well as commencing the infrastructure
work for the third and fourth phases.
• A number of major high-rise towers located on the Corniche are expected
to complete during 2013 including Al Jawhara Tower, developed by
Damac and the Beach Tower.
• Diyar Jeddah Fund has progressed with the servicing of raw land in its
new subdivision “Diyar Jeddah 2”, located east of Jeddah.
Source: Jones Lang LaSalle, Q1 2013
12
735 739 754
778 803
15
24
25
24
680
700
720
740
760
780
800
820
840
2012 2013 2014 2015 2016
Tot
al S
tock
(N
umbe
r of
uni
ts in
000
's)
Jeddah Residential Stock (2012 - 2016)
Future Supply Completed Stock
13
Major existing & future residential projects
1
2 1
3 2
3
4
5 6
Existing
Future
7
4
1 JDURC
2 Fareeda
3 Masharef
4 PPA
5 Lamar
6 Jawhara
7 Kingdom Tower
1 Diyar Al-Bahar
2 Farsi Towers
3 Corniche Dreams
Jeddah Gate 4
Residential sale prices
• The average sale price of villas in those locations monitored by
Jones Lang LaSalle has increased to SAR 4,600 per sq m in Q1 2013.
Average villa prices are however remain at the same level as Q1 2012.
• This average disguises considerable variation between different districts.
Sale prices for villas continued to increase in the Western districts of
Jeddah during Q1. In the North, the previous decline has been reversed
with a small increase recorded in Q1. North East districts have seen
prices continue to decline due to new supply.
• The Western region (closest to the Red Sea) remains the prime location
for villas, with the price exceeding SAR 6,600 per sq m in selective
locations.
• Demand for apartments is currently higher than that for villas in Jeddah,
which is keeping average prices stable.
• The average asking price for apartments has remained stable during Q1
at SAR 4,150 per sq m.
• The average sale price of apartments has declined slightly in the South
and West districts of Jeddah while prices of apartments in the East
continue to increase. It should be noted that this data does not include
high end waterfront projects and apartments e.g Jeddah Gate.
14
Source: Jones Lang LaSalle, Q1 2013 Source: Jones Lang LaSalle, Q1 2013
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
West North North-East
Villa - Average Sales Price
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
0
1,000
2,000
3,000
4,000
5,000
6,000
West East South
Apartment - Average Sales Price
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
SA
R/p
er s
q m
SA
R/p
er s
q m
Rental performance
• Villa rents increased by 4% in the preferred Northern regions of Jeddah in
Q1 2013 reaching an average of SAR 112,000 p.a. Villa rents in residential
areas such as South Obhour, North Obhour, Zahrah and Golden Beach
remain higher than surrounding neighborhoods
• Average villa rents also increased in the West (by 3%) to reach SAR
186,000, while rents in the North West decreased marginally to average
SAR 75,000.
• Villas in residential compounds have shown continuous strong
performance in terms of rents and occupancy due to the preferences of
expatriate families to live in gated communities. The limited availability of
such products in the market has also contributed to the growth in rentals.
• Average rentals for apartments have remained stable during Q1 2013.
• In Q1 2013 there was a small decrease in rents in projects that we
monitored in the South and West of Jeddah. Rents for projects in the West
have registered an increase due to higher demand, to reach SAR 52,000
and 50,400 per year. Rents of apartments in the south Jeddah have
slightly decreased during the first quarter.
• Apartment rents on the Corniche (West) are higher than those in
surrounding neighborhoods, however these projects witnessed a major
increase in their rents during Q1 2013.
• Rents in high income North Western areas such as Al Hamra, Al Zahra,
and Al Rawdah have shown moderate performance during Q1 2013.
15
0
50,000
100,000
150,000
200,000
250,000
West North North-East
Villa - Average Annual Rent
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
0
10,000
20,000
30,000
40,000
50,000
60,000
South East West
Apartment - Average Annual Rent
Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013
Source: Jones Lang LaSalle, Q1 2013 Source: Jones Lang LaSalle, Q1 2013
SA
R/p
er a
nnum
SA
R/p
er a
nnum
Residential market summary
Note: Direction arrows are based on the performance of the REIDIN monthly index.
16
Indicator Level Comment / Outlook
Current Residential Stock 739,000 units Based on National Housing Census (2010) and units completed in
locations monitored by Jones Lang LaSalle since 2010.
Future Supply (2013 – 2016) 89,000 additional units in
all projects
New affordable housing stock built by JDURC, PPA and the Ministry of
Housing may increase this figure.
Average 3 Bed Apartment
Rent SAR 38,000 p.a.
Apartment rents expected to increase further throughout
2013 due to higher demand for apartments for lease
from expatriates.
Average 3 Bed
Apartment Sale Price SAR 4,150 per sq m
Increase in middle priced units will escalate average
prices.
Average 4 Bed Villa Rent SAR 124,000 p.a. Rents are expected to increase despite significant
additions to supply.
Average 4 Bed Villa Sale Price SAR 4,600 per sq m Average villa sale price has remained stable in Q1 but is
expected to increase over the coming year
Jeddah retail market overview
780 780 873
969 1,044
93 96
75
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016
Jeddah Retail Stock (2012 – 2016)
Future Supply Completed Stock
Tot
al S
tock
(„0
00 s
q m
)
Retail supply and demand
• There were no additions to shopping mall stock in Jeddah during Q1 2013.
• At the first quarter, the total stock of mall based retail space in Jeddah
stayed constant at 780,000 sq m. Flamingo Mall on Prince Majid road is
the next major mall expected to be completed in the second quarter of
2013.
• We are witnessing strong demand from retailers for locations to the North
and North East of Jeddah to service the residential growth planned in this
area.
• There also remains demand from retailers for malls located in the city
center, such as Tahliyah, due to high population and workforce
catchments in central Jeddah.
• The Red Sea Mall (one of the leading retail centers in Jeddah) has
reopened after a recent fire. The repositioning of non performing retail
centers also continues.
• Mall operators continue to refresh their tenant mix and replace existing
tenants with better quality brands to maintain high footfall.
Source: Jones Lang LaSalle, Q1 2013
18
19 19
Major existing & future retail projects 1 Red Sea mall
2 Arab Mall
1 Le Prestige
2 Galleria
3 Andalus Mall
1
3
2
3 Sairafi 2
4 Flamingo
1
2
4
3
Existing
Future
4 Le Beteau
5 Stars Avenue
4 5
Rental Performance – Estimated Rental Value (ERV)
• Overall ERV‟s remain stable across all types of retail centres, with a
slight increase on average in regional shopping malls. The average ERV
is approximately SAR 2,420 per sq m p.a. in Q1 2013.
• Most of the newer shopping malls have high occupancy rates. Demand is
strong and all centres under construction have managed to prelease a
significant proportion of their space. Increased take up in Central Park
has kept the market wide vacancy rate around 4% in Q1 2013.
• Mall rents are expected to remain stable over the second half of 2013.
• Increasing occupancy of regional malls has resulted in a marginal
increase in average rentals of regional malls from SAR 2,367 per sq m to
SAR 2,392 per sq m. Average rentals in community malls have reduced
by a similar marginal amount during Q1.
• Entertainment options and F&B retailers continue to be a major source of
attraction and differentiation between malls in Jeddah.
• With no completions during Q1 2013, projects that are under construction
(eg La Prestige and Flamingo Mall) are experiencing continued demand
and have preleased significant space before opening.
• Strip retail centers continue to perform well across the city due to high
demand from customers. We see future opportunities for this product,
especially towards the north and north east of Jeddah.
20
Source: Jones Lang LaSalle, Q1 2013
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
Community Regional Super Regional
SA
R/p
er s
q m
Average Retail Rentals
Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012
Indicator Level Comment / Outlook
Current Retail Space* (GLA) 780,000 sq m No additions to the mall stock during the first quarter of 2013.
Future Supply (2013 – 2016) 265,000 sq m Next major centre (Flamingo Mall) expected to open in the second
quarter of 2013.
Average Estimated Rental
Value SAR 2,420 per sq m p.a.
Average rental for line store in major malls is
expected to remain stable, although market may
become more fragmented with not all centres able to
maintain current rental levels.
Average Regional Mall Vacancy 4% Vacancies have remained stable over Q1 2013 due
to no new completions during Q1 2013.
Retail sector summary
21
Jeddah hotel market overview
11,300 11,300 12,750 12,750
1,440 311
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2012 2013 2014 2015
No.
of R
oom
s
Completed Stock Future Supply
Hotel supply
• There have been no major supply additions to the Jeddah market over the past three years and no projects were completed in Q1 2013.
• With many of the proposed projects currently on hold or cancelled, no new hotels are expected enter the Jeddah market during 2013.
• There are a number of projects that could deliver an additional 1,440 rooms over the remainder of 2013. These include the Rocco Forte, Novotel Jeddah, Elaf Galleria on Tahliah Road, the Dusit Thani overlooking the Obhur Creek, the Park Inn by Radisson and the Ibis Jeddah on Malik Road. In reality many of these projects are likely to experience further delays and not enter the market in 2014.
• These additions will increase the total hotel room supply in Jeddah to around 13 000 quality hotel rooms by the end of 2015, an increase of around 15% on the current stock of rooms.
• Looking forward, the hospitality supply is spreading from the North Corniche Strip and moving further inland as well as to the north of Jeddah.
Source: Jones Lang LaSalle, Q1 2013
23
Jeddah Hotel Stock (2012 – 2015)
Hotel performance
• Jeddah remained one of the best performing hotels markets in the
Middle East in terms of occupancy during 2012.
• Occupancy levels have increased continuously since 2010 but are
now stabilising, with Q1 2013 recording the same occupancy level as
Q1 2012 (78%).
• Average room rates (ADR) have also registered a continuous
increase since 2010, 2012 showed an increase of 9.3% over last
year. On a YT [explain] March basis, the ADR increased by 10.3% in
comparison to YT March 2012.
• The combination of stabilized occupancy and higher room rates have
resulted in a 10% growth in RevPAR over YT March 2012 at USD
182.
• The strong performance of the hotel sector reflects the continued
attractiveness of Jeddah as a leisure destination for Saudi families.
Source: STR Global
24
Hotel Performance (2008 – YT March 2013)
170 182 190 204 223 212 234
74% 73% 68%
71%
79% 78% 78%
30%
40%
50%
60%
70%
80%
90%
0
50
100
150
200
250
300
2008 2009 2010 2011 2012 YTD2012
YTD2013
Occ
upan
cy (
%)
AD
R (
in U
SD
)
Average Daily Rate Occupancy Rate
Hotel market summary
25
Indicator Level Comment / Outlook
Current Hotel Supply 11,300 rooms There have been no major additions to the Jeddah hotel supply since
2009.
Future Supply (2013 – 2014) 1,440 units
While a number of new hotel projects have been announced in the city, the
majority of these are experiencing delays with some being put on hold.
Many hotels scheduled to open in 2012 and 2013 are now in the pipeline
for 2014.
Q1 2013 Occupancy 78%
Notable increase in occupancies in 2012. Positive trend
following up on the increase in occupancy levels of 2011.
Q1 2013 Occupancies showed stabilized performance at
78%.
Q1 2013 ADR USD 234 Q1 2013 showed a 10.3% increase in ADR over the
same period in the previous year.
Definitions and Methodology Residential: • The supply data is based on the National Housing Census
(2010) and our quarterly survey of major projects and stand
alone developments in selected areas of:
• Completed building refers to a building that is handed over for
immediate occupation.
• Residential performance data is based on two separate
baskets one for rentals in villas and apartments and another
basket for sales performance for both villas and apartments.
The two baskets cover projects in selected locations across
Jeddah.
Retail: • Retail supply data covers floor space of organised malls over
10,000 sq m. Classification of Retail Centres is based upon
the ULI definition as published in Retail Development, 4th
Edition published by ULI.
• Rent represents the quoted average rent for the major
shopping malls in Jeddah Retail supply relates to the Gross
Lettable Area (GLA) within retail malls.
Office: • The supply data is based on our quarterly survey of the Grade
A & B office space located in the Jeddah CBD, defined as
Prince Sultan, Tahlia, Al-Malek, Ibrahim Al Jaffali, Madinah,
King Abdullah and Rowdah Streets.
• Completed building refers to a building that is handed over for
immediate occupation.
• Prime Office Rent represents the top open-market rent that
could be expected for a notional office unit of the highest
quality and specification in the best location in a market, as at
the survey date (normally at the end of each quarter period).
The Prime Rent reflects an occupational lease that is standard
for the local market. It is a face rent that does not reflect the
financial impact of tenant incentives, and excludes service
charges and local taxes.
Hotels: • Hotel room supply is based on existing supply figures
provided by Saudi Commission for Tourism and Antiques as
well as future hotel development data tracked by Jones Lang
LaSalle Hotels. Room supply includes all graded supply and
excludes serviced apartments.
• STR performance data is based on monthly survey conducted
by STR Global.
26
Market Sector Districts Covered
North (Villa) North Obhor and South Obhor
West (Villa) Basateen, Shatie, Mohammadia
North-East (Villa) Asfan, Salhia, Kassarat
West (Apt) Zahra, Rowdah, Salamah, Hamra
East (Apt) Al Marwah, Safa, Al Manar, Naseem
South (Apt) Waziria, Shafa, Madaen Al Fahad, Ajaweed
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Contacts:
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Peter Bibby
Co-Head
Jeddah
Craig Plumb
Head of Research
MENA
John Harris
Co-Head
Riyadh
Fayyaz Ahmad
Associate Director, Advisory
Saudi Arabia
Andrew Williamson
Head of Retail
MENA
Diyaa Ayoub
Senior Analyst
Saudi Arabia
Gabriel Matar
Director, MEA
Hotels & Hospitality Group