Driven by the ambitious Vision 2030 agenda aimed at economic transformation and diversification, Saudi Arabia’s strategic initiatives and significant investments in infrastructure and mega projects are continuously fueling growth and resilience in the Kingdom’s real estate sector.
According to JLL’s latest KSA Real Estate Market Dynamics Report, the residential and hospitality segments have shown remarkable performance in the first half of 2024. This success is driven by government initiatives to enhance home ownership, the introduction of tourist visas, the expansion of entertainment options, and efforts to promote sports and new experiences, all aimed at positioning the Kingdom as a premier global leisure destination.
Residential market growth: Key highlights
The residential market kicked off 2024 strongly, with the completion of 27,500 units in Riyadh and Jeddah during the first half, raising the total stock to approximately 1.46 million units in Riyadh and 891,000 in Jeddah. An additional 16,000 units are anticipated to be added in both cities by the end of the year.
In Riyadh, residential sale prices surged by 10 percent year-on-year in the first half, while average rents rose by 9 percent. Jeddah experienced slightly slower growth, with sale prices increasing by 5 percent and rents by 4 percent during the same period. Despite rising construction costs and other challenges, the KSA residential market is on a promising path toward further growth and development.
In the Dammam Metropolitan Area (DMA), residential development is shifting inland, with Khobar seeing the majority of activity. Sale prices have remained consistent, while rents have experienced a modest annual rise of 4 percent.
Hospitality sector growth amid tourism surge
As Saudi Arabia gears up to welcome 150 million visitors by 2030, the hospitality sector has also shown impressive growth in H1 2024. Year-on-year, the average occupancy rate in the Kingdom rose by one percentage point, and the average daily rate (ADR) increased by 7 percent, leading to an 8 percent rise in revenue per available room (RevPAR). In the Holy Cities of Makkah and Medina, key performance indicators have generally improved, with RevPARs increasing by 4 percent and 15 percent, respectively. In Riyadh, the ADR surged by 25 percent, fueled by a rise in corporate visits linked to major events in the capital.
Investments and major events
The tourism sector’s pivotal role in Saudi Arabia’s economic diversification efforts creates a positive outlook for the hospitality industry, with planned investments of USD 800 billion over the coming decade a vibrant roster of major events, including the Asian Cup 2027, Asian Winter Games 2029, Expo 2030, and FIFA World Cup 2034. The newly implemented star rating system is addressing immediate quality challenges while promoting long-term market enhancement.
Competitive landscape of the office market
Insights from industry sources and experts in JLL’s H1 2024 KSA report indicate that the office market remains competitive, with landlords actively engaging in rental negotiations and new entrants establishing a foothold in the Kingdom. In H1 2024, around 52,000 sq. m of office space was added in Riyadh, bringing the existing total to 5.2 million sq. m, while Jeddah maintained a stable supply of 1.21 million sq. m. An additional 249,000 sq. m in Riyadh and 48,000 sq. m in Jeddah are anticipated in the second half of the year. Demand for office space in the DMA is primarily driven by government-related entities, leading to a 10 percent increase in average Grade A rents by Q2 2024.
Rising demand for quality office spaces
The demand for quality institutional-grade properties has surged, particularly in northern Riyadh, which is less impacted by traffic congestion and offers high-quality office spaces. Consequently, average Grade A rents in the capital rose by 19 percent year-on-year to SAR2,090 per sq. m. annually, while Jeddah saw an 11 percent rise, reaching SAR1,335 per sq. m. per annum.
The northern region of Riyadh has also attracted cautious retailers who are delaying expansion plans due to anticipated market competition and new supply. The retail landscape is increasingly leaning towards experiential offerings, reflecting a shift toward e-commerce, which has effectively adapted to rapid socio-economic changes, incorporating cinemas, food and beverage outlets, and entertainment facilities. In Dammam and Dhahran, the retail market focuses on super regional and regional malls, while Khobar presents a distinctive retail experience centered around the corniche.
Expanding retail spaces in Jeddah
Although no major malls were completed in Riyadh during the first half of 2024, Jeddah expanded its retail space with several new zones at Souq 7, adding 106,000 sq. m and increasing total supply to 2.16 million sq. m. In Jeddah, average rents for super regional malls rose by 4 percent year-on-year, while regional malls experienced a 4 percent decline. While Riyadh’s retail space held steady at 3.48 million sq. m, an extra 77,000 sq. m is projected for later in the year, suggesting a favorable long-term outlook for the sector.
Strategic priorities for 2024
Saud Alsulaimani, country head for KSA at JLL, remarked on the dynamic and rapid evolution of Saudi Arabia’s real estate landscape, highlighting that it is characterized by expansion and growth opportunities as the Kingdom approaches its Vision 2030 objectives. He noted that robust demand for properties across various asset classes is fueled by population growth, infrastructure development, and strategic government initiatives, which are driving unprecedented growth in the real estate sector. He emphasized that ongoing development will significantly impact the economic landscape and create sustainable, diversified opportunities throughout the real estate spectrum, positioning it for long-term resilience and success.
Looking ahead to 2024, he indicated that key themes in KSA’s real estate sector will focus on priorities, alignment, and collaboration among government projects. He stressed the importance of effective engagement with the private sector and strategic talent management to ensure sustainable growth. These initiatives, he suggested, would help drive progress, foster innovation, and unlock the full potential of the Kingdom’s real estate industry.
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