Saudi Arabia Real Estate Report Q3 2012
The Saudi Arabia Real Estate report examines the Commercial Office, Retail and Industrial segments throughout the Kingdom in the context of our bullish outlook for the economy and buoyant construction sector.
With a focus on the two principal cities of Riyadh and Jeddah, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the government fed construction boom on a market already characterized by oversupply. The key growth areas driven by increasing activity on the part of international investors and the potential of the domestic consumer market are also explored with corporate growth strategies looking to the Kingdom for expansionary opportunities.
Nevertheless, Saudi Arabia’s various real estate sectors are developing in different directions and at varying rates. The commercial market in general suffers from oversupply and is forecast to undergo limited growth in the short term; the data from H211 does not contradict this long-held view in light of the dynamic supply pipeline. Of the three sub-sectors that we survey there are pockets of growth opportunity, particularly in the retail and industrial segments.
There are, however, some positive fundamentals which will serve to support the real estate sector in the medium term, including the buoyant construction sector. The transport segment is also booming, especially in terms of rail infrastructure, with US$24bn of projects currently under way or in the pipeline. Positive infrastructure and pipeline developments, combined with a strengthening macroeconomic backdrop will insulate the economy somewhat from global economic headwinds.
Key Points
With a focus on the two principal cities of Riyadh and Jeddah, the report covers the rental market performance in terms of rates and yields over the past 18 months and examines how best to maximise returns in the commercial real estate market, while minimising investment risk and exploring the impact of the government fed construction boom on a market already characterized by oversupply. The key growth areas driven by increasing activity on the part of international investors and the potential of the domestic consumer market are also explored with corporate growth strategies looking to the Kingdom for expansionary opportunities.
Nevertheless, Saudi Arabia’s various real estate sectors are developing in different directions and at varying rates. The commercial market in general suffers from oversupply and is forecast to undergo limited growth in the short term; the data from H211 does not contradict this long-held view in light of the dynamic supply pipeline. Of the three sub-sectors that we survey there are pockets of growth opportunity, particularly in the retail and industrial segments.
There are, however, some positive fundamentals which will serve to support the real estate sector in the medium term, including the buoyant construction sector. The transport segment is also booming, especially in terms of rail infrastructure, with US$24bn of projects currently under way or in the pipeline. Positive infrastructure and pipeline developments, combined with a strengthening macroeconomic backdrop will insulate the economy somewhat from global economic headwinds.
Key Points
- Riyadh's announcement that it will implement another expansionary budget in 2012 highlights the government's ongoing concerns about the need to shore up its key bases of support, given the growing threat of public unrest. While we maintain that large-scale protests are unlikely to occur in Saudi Arabia, large youth unemployment coupled with a lack of political liberties mean that tensions will continue to linger.
- Recent data from the Saudi Arabian Monetary Agency, which show a sharp pickup in money supply growth and bank lending, have led us to make a minor upward revision to our inflation forecast for 2012, from 4.7% to 4.9%. Nevertheless, we continue to expect moderating imported inflation to keep a lid on consumer price rises through the year.
- We retain our sanguine outlook on Saudi Arabia's growth prospects in 2012. Heavy government spending, coupled with loose monetary policy, will keep domestic consumption and fixed investment growing healthily through the year, though we expect the net export position to worsen as domestic demand for imports picks up. We are forecasting real GDP growth to come in at 4.6% in 2012, before slowing somewhat to 4.1% in 2013.
Contents
Executive SummarySWOT Analysis
Saudi Arabia Real Estate/Construction SWOT
Saudi Arabia Political SWOT
Saudi Arabia Economic SWOT
Saudi Arabia Business Environment SWOT
Real Estate Market Overview
Market Analysis – Office
Rents And Yields
Table: Historic Office Rents, 2010-2011 (SAR per m2/month)
Table: Terms of Office Rental Contract/Lease, Mid 2011
Table Net Office Yields, 2011-2012 (%)
Supply And Demand
Industry Forecast Scenario
Table: Forecast Office Rents, 2012 (SAR per m2/month)
Table: Forecast Net Office Yields, 2008-2016 (%)
Market Analysis – Retail
Rents And Yields
Table: Historic Retail Rents, 2010-2011 (SAR per m2/month)
Table: Terms of Retail Rental Contract/Lease, Mid 2011
Table: Net Retail Yields, 2011-2012 (%)
Supply And Demand
Industry Forecast Scenario
Table: Forecast Retail Rents, 2012 (SAR per m2/month)
Table: Forecast Net Retail Yields, 2008-2016 (%)
Table: Retail Sales Indicators, 2008-2015
Market Analysis – Industrial
Rents And Yields
Table: Historic Industrial Rents, 2010-2011 (SAR per m2/month)
Table: Terms of Industrial Rental Contract/Lease, Mid 2011
Table: Net Industrial Yields, 2011-2012 (%)
Supply And Demand
Industry Forecast Scenario
Table: Forecast Industrial Rents, 2012 (SAR per m2/month)
Table: Forecast Net Industrial Yields, 2008-2016 (%)
Construction And Infrastructure Outlook
Table: Saudi Arabia Construction And Infrastructure Industry Data & Forecasts, 2008-2016
Table: Saudi Arabia Construction And Infrastructure Industry Long-Term Forecasts, 2013-2021
Construction And Infrastructure Forecast Scenario
Macroeconomic Outlook
Table: Power: Saudi Arabia - Economic Activity, 2011-2016
Real Estate Risk/Reward Ratings
Real Estate/Construction Risk/Reward Ratings
Table: Middle East And North Africa Risk/Reward Ratings
Saudi Arabia’s Business Environment
Table: BMI Business And Operation Risk Ratings
Institutions
Table: BMI Legal Framework Rating
Infrastructure
Table: Labour Force Quality
Market Orientation
Table: Middle East & Africa - Annual FDI Inflows, 2008-2010
Table: Trade And Investment Ratings
Table: Top Export Destinations, 2003-2009 (US$mn)
Operational Risk
Competitive Landscape
Company Profiles
Al-Khodari Group
Almabani General Contractors
Arriyadh Development Company (ADCO)
DAMAC
Dar al-Arkan Real Estate Development Company
Makkah Construction And Development Company
BMI Methodology
How We Generate Our Industry Forecasts
Construction Industry
Bank Lending
Real Estate/Construction Business Environment Rating
Table: Weighting Of Indicators
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