MAKKAH — Government initiatives have proven successful in increasing the number of pilgrims visiting the holy city of Makkah, which has had a positive trickling down effect on all of the city’s real estate sector, according to the H1 2019 Makkah Market Snapshot by global real estate consultancy firm CBRE.

Makkah has reported growth in the residential subdivision developments across the city. This trend is most notable in projects such as Aali Makkah. There has also been an increase in the number of residential communities in the city, such as the Tilal Al Naseem Complex and Al Awali Hill, following concerns about a shortage of affordable housing in the city. In the short-term, residential demand will continue to be focused on smaller size units. Furthermore, unplanned settlements are now being redeveloped to improve quality of life as well as stimulate demand in this particular sector. CBRE’s Market Snapshot also reveals that secondary home buyers and investors are continuing to purchase units within the wider city of Makkah.

International operators are increasing their contribution to large masterplans, including Jabal Omar Development and King Abdul-Aziz Road Development. Hotel operators are continuing to provide promotions and special packages to Hajj and Umrah companies, in line with Government plans to increase the number of religious tourists visiting the Kingdom to 30 million a year by 2025. CBRE has reported a notable shift towards higher quality hotel developments featuring enhanced services and amenities, and serviced apartments, as part of wider plans to diversify the accommodation offerings available to religious tourists. Furthermore, investors are continuing to develop their properties in order to attract international operators. Strong co-operation between the public and private sectors has played a major role in stimulating the city’s hospitality sector, with a trickling down effect on segments including retail and leisure. With increasing visitor numbers, Makkah’s hotels are expected to continue generating positive occupancy growth, with an impressive 15% increase year-to-date. In total, there are over 21,485 keys currently under construction in the city.

According to the CBRE report, Makkah’s retail demand remains heavily oriented towards higher quality retail destinations, with strip malls continuing to report high occupancy figures. The F&B sector continues to perform well, especially outlets located in Al Awali, Rusifah and Al Khalidiyah areas. There is a healthy supply of retail developments due to enter the market, with 0.1m GLA expected to be delivered by 2022 – although these mainly consist of neighborhood and community developments, they are expected to cater to pilgrims, as well as the city’s residents.

Rental rates within the retail sector have fallen with super regional and regional mall rental rates down 1% year-on-year according to CBRE’s Market Snapshot. However, the launch of a number of museums and heritage sites is expected to not only improve quality of life but also further stimulate the city’s growing retail sector.

Makkah’s commercial retail sector is dominated by Government entities and companies that specialize in Hajj. According to CBRE, as the number of Hajj and Umrah pilgrims continue, an influx of new companies is expected to enter the market, which will lead to the increased demand for office space. Upcoming supply in the market is likely to be in the form of Grade B commercial developments.

Total office stock in Makkah currently stands at 284,000 sqm of gross leasable area (GLA) as of H1 2019, with an additional 44,160 sqm of GLA expected to be delivered by 2022.

Despite the positive long-term outlook, rental performances have continued to record pressures within both the primary and secondary office locations with rental rates down 10% and 11% year-on-year respectively.

Commenting on the report, Simon Townsend, General Manager at CBRE KSA, said: “Makkah is currently experiencing growth across a number of key real estate sectors. This trend is a direct result of the ambitious vision of the Saudi Government and its plans to greatly increase the number of religious tourists visiting the Kingdom each year. Makkah is continuing to grow in importance as a real estate market, and as the redevelopment of the city continues, we can expect to see a number of large-scale projects across key segments, come to fruition.

“The hospitality and retail sectors are expected to experience positive impacts as a result of Government initiatives, whilst increased visitor numbers will positively impact local businesses that cater to religious tourism. It will be interesting to see how the infrastructure and transportation segments are overhauled in response to increased visitor numbers. Makkah is a fast-evolving city, and it is important that both the public and private sectors alike collaborate effectively to ensure the real estate sector continues to cater to a changing market.” — SG