JEDDAH: Jeddah’s residential sector has been marked with growing demand resulting to acceleration of sales and rental prices in the recent past, according to Colliers International’s GCC Real Estate Q2, 2009 Overview released recently.
Rental and sales prices in the city have been reported at an average growth of 30 percent YoY until Q3 of 2008. With sustained demand and weak supply, absorption of housing units has been fast with most projects in Jeddah having 50 percent of their units sold prior to completion of construction.
As of Q1 of 2009, average sales price of residential units as part of multi-tiered residential developments reached $2,300 per sq. m. Meanwhile, the rental market saw considerable activity and growth last year on the back of a rising expatriate population and shortage of supply. As of Q1, 2009, lease rates in Jeddah reached an average of $62 per sq. m. per annum.
Decline in construction costs and present market conditions have precipitated land prices to contract together with the softening of rental and sales prices of residential units. Rental rates in Jeddah have declined by 5 percent and sales prices by 15 percent on average.
“With no clear indication as to the implementation of the mortgage law, developers continue to show bias on developing mid to high end residential units while demand for low-cost housing remains unmet”, Emad Damrah of Colliers International said.
Meanwhile, Jeddah’s office sector is still marked by a shortage of supply. “We have seen a shift in favor of more prestigious, higher quality accommodation in line with regional trends. Investors are currently trying to lock in waterfront properties as the city gears itself for anticipated increased flow of FDI (foreign direct investment) creating a shift toward building primary grade office space,” said Damrah.
Secondary grade office space occupancy rates stood at 90 percent, while Class A occupancy levels were at an average of 97 percent as of Q1, 2009,” Damrah added. Uptake of office space recently delivered in the market has been swift indicating a robust demand in the market.
Within the next two years, an additional 340,000 sq. m. of office space is expected to enter Jeddah’s primary CBD’s (central business district’s) office market. “Forthcoming supply will result to softening of lease rates in the short to medium term considering present market conditions,” Damrah said.
In another development, Jeddah’s retail sector remains promising. According to Colliers report, performance of Jeddah’s malls remains robust with an achieved average occupancy rate of 89 percent as of Q1 this year. Reported occupancy rates of malls that are currently at the soft opening stage stood at 64 percent. Grade A malls currently charge an annual average rental rate of $1,333 per sq. m. per annum whilst Grade B malls charge an annual average rent of $635 per sq. m. per annum. A sizable number of malls will enter the market within the next two years, increasing total retail NLA (net leasable area) supply by 34 percent. “Additional supply to be injected in the market may slightly depress retail space rentals in the medium term but demand remains strong,” Damrah said.
Increased corporate tourism and rise in the number of regional travelers have been the main feeders of Jeddah’s hospitality sector. Religious tourism also drives demand with Jeddah serving as “gateway” to the holy city of Makkah.
Jeddah’s hospitality sector achieved an average occupancy rate of 61 percent in 2008 across all market segments. In addition, Jeddah is currently gearing itself to host many business events and exhibitions which are expected to further boost the city’s hospitality sector performance, the report said. However, corporate tourism is expected to decline this year as an inevitable effect of the global financial downturn. Despite anticipated slowdown in corporate activity, regional and domestic visitation continues to buoy Jeddah’s hospitality sector.
The government has allotted funds in support of the development of the city’s infrastructure and promotion of tourism. One of the recent projects unveiled by the government is the rehabilitation of the Obhur Corniche into a cultural and tourist center. However, there remains a challenge in promoting Jeddah as a prime leisure destination. “With various established leisure destinations in the Gulf such as Egypt and Morocco, Jeddah has to reposition itself with an active re-branding campaign and site development in order to compete with other tourist destinations in the Gulf,” Damrah added.
Colliers International currently has 293 offices in 61 countries covering every major real estate market and providing a range of real estate consultancy services for over 20 years. Colliers International began its operations in the Kingdom in 2007.