Jeddah’s property industry shows upward trend

The real estate market in Jeddah has shown an overall upward trend over the last quarter, but most asset classes are now near their peak and are expected to remain stable or slow down over the next six months. The exception to this is the residential rental market which is continuing to see increased rents as a result of the new mortgage regulations which have shifted demand from the sales sector, Jones Lang LaSalle said in in latest Jeddah Real Estate Market Overiew.
With substantial new office and hotel space expected to enter the market, these sectors are expected to reach their peak later in 2015. The retail market will see less new supply this year and could therefore witness further growth before topping out in 2016.
The JLL report said office vacancy rates have remained stable at 6 percent over the last quarter. This is most likely due to the limited office space entering the market in Q1, 2015 which includes M Sas tower (10,500 sq m) and MITCO tower (4,800 sq m). Average market rents have remained unchanged in Q1 but have increased by 6.5 percent over the past year to SR990 sq m. Prime rents have continued their upward trend and have increased to SR1,900 per sq m, largely due to the high rentals commanded by the Headquarters Tower.
A further 108,000 sq m of office space is expected to enter the market over 2015. The majority of future stock will be in the form of medium sized office buildings between 5,000 sq m – 10,000 sq m. with Al Khair Tower (30,000sq m) being the only larger building expected to complete this year. Although some delays into 2016 are possible, as most of the future supply is small to medium sized, the majority of this is expected to be delivered on time.
This new supply is likely to slow down the growth of office rents, with average rents expected to stabilize during 2015.
The residential stock in Jeddah currently stands at around 775,000 units, with around 6,000 units completed during Q1, 2015. Sale prices have continued to increase but at a lower rate during Q1, with this trend most evident in respect of villa prices that have edged up by just 2.5 percent over the past year. Apartments have generally performed better than villas, due to their affordability.
Rents have increased ahead of sale prices in the apartment sector over the past year (7.5 percent), reflecting the benefit to the rental sector from the new mortgage regulations. While the sales market is nearing the top of its cycle, we see more potential growth in the residential rental market.
The report said residential transactions registered by the Ministry of Justice have substantially decreased over the last quarter as a result of the 30 percent mortgage law and falling oil prices. Transactions of villas have decreased by 59 percent since the mortgage regulations came into affect in November 2014, while transactions for apartments have decreased by 27 percent during the same period.
Saudi Arabia's Cabinet has approved a proposal to tax undeveloped land in urban areas. The objective of this policy is to release more of this land for the development of affordable housing.