Fragmented performance and activity levels in Saudi Arabia’s real estate sector continued into the second quarter of the year across the Kingdom’s regions.
Looking at Saudi Arabia’s office sector figures, visitation to the workplace remains above its pre-pandemic baseline and now sits 19.3% above the baseline. Activity remains centered towards Riyadh, where demand continues to significantly outstrip supply. As a result, occupancy levels in Riyadh have risen over the last quarter by 0.7 percentage points to reach 98.1% on average in Q2 2022. Constrained supply levels have also continued to support growth in rental rates, where in the year to Q2 2022, average Grade A and Grade B rents increased by 3.9% and 4.2% respectively. In Jeddah, with the Grade A segment of the market being landlord favoured, average rents Grade A rents have increased by 2.4% in the 12 months to June 2022. In the Eastern Province, Grade A rents in Dammam increased by 2.9% over the same period, whereas in Khobar, average Grade A rents remained stable.
Residential transaction volumes in Saudi Arabia fell by 19.9% in Q2 2022, compared to a year earlier, while the total value of transactions increased by 21.4%. During this period, the number of residential transactions totalled 44,055 and the value of transactions totalled SAR 36.0 billion. In Riyadh, in the year to Q2 2022, the total number of transactions fell by 33.1% compared to a year earlier. Transaction volumes in Jeddah fell by 6.2% in the 12 months to Q2 2022. The Dammam Metropolitan Area (DMA) also saw its total number of residential transactions fall over this period by 3.4%. However, unlike Riyadh and Jeddah, the DMA saw its year-on-year year-to-June 2022 transaction volumes total increase by 0.7%. Average apartment prices, on a per square metre basis, in Saudi Arabia have increased by 6.2% in the year to Q2 2022. Over this period, apartment prices in Khobar, Jeddah, Riyadh and Dammam increased by 11.3%, 5.0%, 4.2% and 4.1% respectively. Aside from Khobar, all major cities have registered a sharp decline in the annual rate of price growth in Q2 2022, compared to the quarter earlier.
Looking at Saudi Arabia’s hospitality sector, the average occupancy rate in the year to date to June 2022 increased by 19.0 percentage points. Over the same period, the ADR increased by 13.5%, and, RevPAR, on average, increased by 72.8. In the year to date to June 2022, compared to the same period in 2019, Saudi Arabia’s average occupancy sits 5.1 percentage points lower, despite its ADR increasing by 2.6%, its RevPAR decreased by 6.0%. Riyadh and Medina are the only two markets which have exhibited improved performance levels in comparison to 2019. With further easing of restrictions on religious tourism, we expect performance in the holy cities of Makkah and Medina to continue to improve during the remainder of 2022. With regards to business and leisure visitation, we also expect performance to improve, albeit not dramatically. We believe this slower rate of improvement will be underpinned by a number of regional events scheduled outside of Saudi Arabia during the last quarter of 2022.
Taimur Khan, Head of Research – MENA at CBRE, comments: “Whilst Saudi Arabia’s economy has gone from strength to strength recently, its real estate market performance remains fragmented on a city and asset class level. Given the scale of the change that the Kingdom is undergoing across all asset classes, this is to be expected. Our long-term outlook on Saudi Arabia’s real estate sector remains optimistic, despite some of the short-run challenges which certain market segments may be facing.”
