RIYADH: The Saudi capital led the residential market boom in Saudi Arabia in the second quarter of this year, according to a report from Knight Frank.
The number of residential transactions in Riyadh went up by 77 percent from a year ago, while the number of homes sold in the Red Sea coastal city of Jeddah rose by 44 percent, the report said.
“The post-Covid recovery was never going to be smooth sailing, but we are seeing sustained growth in certain segments of the market,” said Faisal Durrani, partner and head of Middle East research at Knight Frank. “In the residential market for instance, the government’s various initiatives, such as Sakani and Wafi are continuing to contribute to an acceleration in home ownership rates across the Kingdom.”
Government initiatives are supporting the residential market with 155,000 new homes scheduled to complete before the end of 2023 across Riyadh, Jeddah and Dammam Metropolitan Area, 100,000 of which are in Riyadh alone, the report said.
Apartment values in the capital grew by 7.6 percent last year, the fastest pace since at least 2017, it said. However, rental rates have continued to decline outside of Riyadh as demand remains muted.
The Riyadh office is market is facing similar pressures to the rest of the world as tenants look to “rightsize” following the pandemic, Durrani said. While Grade A office rents are being supported in Riyadh by demand from public and quasi-public sector entities, growing new supply “is quickly emerging as an area of concern,” he said.
Knight Frank has identified almost 1.8 million square meters set for completion by the end of 2023, 56 percent of which is planned for Riyadh.
“It’s likely that Grade B buildings will feel the greatest downward pressure on rents as the flight to quality intensifies, particularly in cities like Riyadh and Jeddah, which will see a 25 percent and 36 percent increase in total office supply in the next three years,” Durrani said.
Knight Frank expects total office stock in Riyadh and Jeddah to reach 5.3m sqm and 1.8m sqm by the end of 2023.
Rents in shopping malls have suffered amid restrictions in travel. Lease rates in prime shopping malls across the Kingdom fell between 1 percent and 5 percent over the last 18 months, according to Knight Frank. During the second quarter alone, rents in the Kingdom’s best shopping malls declined by between 1.5-3 percent in Riyadh, Jeddah and DMA.
“The reopening of the border to tourists from 49 nations this week, combined with ‘revenge spending’ from surging domestic tourism may help to cushion the market from further sharp declines,” Durrani said.