JEDDAH: Saudi Arabia’s decision to exempt real estate transactions when it increased value-added tax (VAT) last year to 15 percent helped to boost residential market activity.
The residential market witnessed a 1.6 percent increase in Riyadh apartment-sale prices, a 2 percent decrease in Jeddah prices, and a 0.8 percent rise in Dammam.
However, residential villa prices fell in Riyadh by 2 percent, 3.1 percent in Jeddah, and 5.1 percent in Dammam.
The total volume of residential transactions rose by 11 percent in Riyadh, and 17 percent in Jeddah, which also witnessed a 16 percent increase in the total value of transactions.
The review showed that the Kingdom’s private non-oil economy expanded during the last quarter of 2020, and its December index reading was the highest in 12 months.
However, both retail and office markets softened in the last quarter. Vacancy rates across grades A and B office spaces increased by 1 percent and 3 percent, respectively, from 2019 in Riyadh, Jeddah, and Dammam.
Grades A and B offices rents declined by 0.7 percent and 2.9 percent in Riyadh, respectively, 4.2 percent and 8 percent in Jeddah, and 4.8 percent and 8.6 percent in Dammam.
Within the retail sector, average and super-regional mall rents fell by 2.3 percent in Riyadh, 2.7 percent in Jeddah, and 2.6 percent in Dammam. Community mall rents fell by 3.4 percent in Riyadh, and nearly 3 percent in Jeddah and Dammam.
The highest vacancy rate increases were reported in Jeddah, which was up 7 percent to 17 percent in the year up to the fourth quarter of 2020.
According to the Knight Frank review, the increase was primarily driven by small and medium-sized retailers vacating due to limited concessions being offered to support occupiers.
Riyadh’s retail vacancy rate increased 4 percent to 19 percent, while in Dammam it rose 6 percent to 11 percent.
However, the review noted that vacancy rates had been far lower in malls where landlords had offered incentives, such as rent-free periods and discounted rental rates, in order to retain existing tenants.
Furthermore, travel restrictions and the suspension of international Umrah and Hajj impacted the country’s hospitality market. The report said average revenue per available room decreased by 25.8 percent.
Taimur Khan, associate partner at Knight Frank Middle East, said: “Whilst Saudi Arabia’s real estate market will face challenges in parts, particularly its hospitality and retail sectors, the fundamentals underpinning its real estate market remain steadfast for the long-term.”