RIYADH – Saudi Arabia’s real estate market is set to grow significantly over the next four years, a new report from Jones Lang LaSalle, the world’s leading real estate investment and advisory firm has found.
The report entitled “The Gulf’s Powerhouse - Saudi Arabia’s Real Estate Market” published on Monday as part of the Global Foresight Series, highlighted the breadth of the investment opportunity across the residential, office and hotel sectors in Saudi Arabia. The real estate markets are being driven by a combination of a large and growing economy and strong demographic fundamentals. The Saudi economy is by far the largest in the region and is well positioned to outperform others in the region in the face of the current global economic downturn, the report said.
One of the main drivers of both the economy and the real estate market is the size and rapid growth in population. Saudi Arabia has been the world’s fastest growing large country in terms of population over the past 10 years. As a result, Saudi has a very young demographic profile, with around 45 percent of the population currently aged below 20 years. The young age profile and the rapid rate of urbanization (growth of the major cities) have been the major demographic factors driving the real estate market.
Saudi Arabia has the largest real estate market in the GCC, with more commercial (office, retail and residential) floor space than all of the other GCC countries combined. The current stock of commercial space is planned to increase by more than 60 percent by 2012 with the residential sector also poised for significant growth.
The key areas of growth are:
• The residential market is suffering a major housing shortage, running currently at over 500,000 units and expected to double by 2012. Residential sales prices are currently considerably below other GCC markets and the introduction of a new mortgage law may transform the market bringing with it increases in supply, quality of construction and transparency. These factors should ensure that growth is sustainable, with strong internal demand.
• The office sector is also positive with current rental growth rates in Riyadh and Jeddah remaining ahead of the majority of other GCC economic centers. There is strong potential for new high-rise developments in CBD locations and significant proposed supply particularly in non-CBD office parks.
• The hotel sector - Saudi Arabia is uniquely positioned to benefit from the forecast growth in religious tourism over the next few years. Coupled with an increase in business travel, this has led to a shortage in quality hotel room supply. The outlook for the hotel sector is extremely positive with strong growth in ADR’s and revenue per room and an increase in market interest from international hotel operators.
Additionally, across all asset classes there is a drive from local quality to international quality.
The report formed part of Jones Lang LaSalle’s, World Winning Cities Research program. This program covers emerging cities in Asia, Central, Eastern Europe and Latin America as well as the Middle East and examines the rapid changes that are occurring in the geography of real estate, with new opportunities are now emerging in cities that have not traditionally been on the radar screen of the real estate sector.
Jones Lang LaSalle also announced the launch of its offices in Riyadh and Jeddah.
John Harris, head of Kingdom operations for Jones Lang LaSalle, said: ‘I am thrilled to confirm the opening of our first Saudi Arabia offices. We believe the opportunity for our business in the Kingdom is vast, with the KSA economy enjoying a higher degree of internal self sufficiency with a sizeable domestic market, less dependence on global capital or international workforce. KSA also enjoys low levels of debt in both public and private sectors and 25 percent of global oil reserves.”
He further said “favorable economic conditions are matched by positive demographic drivers. KSA is the world’s fastest growing large country with a current population in excess of 25 million, 40 percent higher than the combined population of rest of the GCC. In addition, almost 50 percent of the total population is below 20 years old and the country is also one of the world’s fastest urbanizing countries.”
Saudi Arabia is the region’s largest economy with a nominal GDP of $608 billion, over 20 percent greater than the total combined GDP of the other GCC countries. The country has delivered five years of continued economic growth, with GDP increasing by an average of 15 percent per annum since 2002. Saudi Arabia remains the focal point for foreign direct investment in the GCC, receiving over $17.5 billion in 2007.
These combined factors, when placed in the context of strong domestic demand, relative economic insulation and structural and legislative reforms offer a investment opportunity distinct from both the other GCC states and other emerging markets. JLL have worked in 25 countries on projects worth $200 billion and on transactions over $1.2 billion. It has advised on projects above $50 billion in the Kingdom in last 2 years.
Abdollah Al-Faadhel, director of Kingdom branch, said “given the size of the market, the current economic status and the demographics in place we expect to see a substantial KSA increase in demand for advisory services in the, as investors look for opportunities in the region with minimal exposure to the global financial conditions.”