Jeddah Real Estate Market Overview - Q3 2016 FINAL - Jll-mena
JEDDAH REAL ESTATE MARKET OVERVIEW
Q3 2016
JEDDAH MARKET SUMMARY Challenging times for the retail and office sectors amid slowing economy and government reforms. A number of office buildings entered the market over Q3. At the same time economic conditions have caused some firms to descale and revise their expansion plans, prompting a number of owners to repurpose office buildings to other uses. While office vacancies remained relatively stable Q-o-Q, average rentals have marginally decreased (by 1%).
Limited retail supply entered the market over Q3 keeping Q-o-Q lease rates stable, while Y-o-Y rates grew at similar levels for both regional and super regional centers. Vacancies have increased, indicating that demand for retail space may be waning amid weaker spending power. The residential sector witnessed a further completion in the quality mid-rise segment with several more in the pipeline. Although such developments are popular with end users, they do little to address the shortage of affordable housing due to higher pricing.
decreased by 4% and 7% for each period respectively. Villa rents remained relatively unchanged (increasing by 1% for both periods) while apartment rents remained unchanged over the quarter, reducing the Y-o-Y increase to 3%. A further two hotels opened in Q3 with further completions expected by the end of the year. Hotel occupancies decreased compared to the same period last year, but remain strong. ADRs have also shown strong performance over the summer months due to summer holidays and the Hajj pilgrimage in September.
Apartment sale prices remained relatively unchanged for both Q-o-Q and Y-o-Y periods while villa sale prices have
JEDDAH PRIME RENTAL CLOCK
RENTAL GROWTH SLOWING
RENTS FALLING
RENTAL GROWTH SLOWING
Q3 2015
RENTAL GROWTH ACCELERATING
RENTS FALLING
Q3 2016
RENTS BOTTOMING OUT
OFFICE
RENTAL GROWTH ACCELERATING
RESIDENTIAL
RETAIL
RENTS BOTTOMING OUT
HOTEL*
* Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH OFFICE MARKET SUMMARY SUPPLY Several office buildings were completed over Q3, most of which are located on Prince Sultan Street, adding over 23,000 sq m of office space to the market. The largest addition was Al Olaya Tower which added over 10,000 sq m. The completion of Emaar Square has been delayed to Q4 2016. Following the delivery of Emaar square, the next notable deliveries to the market will be phase 1 and 2 of Lilian which are expected to complete in 2017 and 2018 respectively and the commercial tower part of Jeddah Park, expected to complete in 2018.
HOT TOPIC
PERFORMANCE There have been a number of vacancies over Q3, mainly due to the contraction of firms in the energy and construction sectors. Further vacancies are expected by the end of the year. The downsizing of these companies has not been significant enough to impact city wide vacancies which currently stand at 6% (unchanged from Q2). The amount of shadow vacancy (unused or underused space not yet returned to the market) has however increased. Average rentals have remained virtually unchanged at SAR 1,124 in Q3. This represents a marginal Y-o-Y decrease of just 1%.
Further job losses expected as the government copes with lower oil prices. One of the recent measures announced will be to cut one fifth of civil service jobs. Reducing the headcount of civil servants will mean less demand from a previously major occupier in the office sector. However, this is likely to affect Riyadh, as the seat of the government, more than Jeddah. Conversion of office buildings: a number of office buildings still under construction are being converted to hotels, furnished apartments and residential buildings. Landlords are becoming more responsive to the current economic climate, which is witnessing waning demand for office space, and more willing to convert their office buildings to other asset classes currently in demand.
OFFICE SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
86K
SQ M (GLA)
71K
SQ M (GLA)
52K 52K
SQ M (GLA)
742K
853K
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
892K
SQ M (GLA)
SQ M (GLA)
960K
1,012K
1,083K
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
960K
OFFICE PERFORMANCE
VACANCY RATE
7%
SQ M (GLA)
SQ M (GLA)
AVERAGE RENTS (PER SQ M)
6% 1,137
1,124
SAR
SAR
-1% Q3 2015
Q3 2016
Q3 2015
Y-O-Y
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK / ANNUAL CHANGE
Q3 2016
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH RESIDENTIAL MARKET SUMMARY SUPPLY The total supply of residential units in Jeddah currently stands at almost 800,000 units, with approximately 3,000 number of units entering the market in Q3. The most recent notable completion was Diyar Al Salama on Madinah Road which added 168 apartments spread over six buildings. Similar to Da’em Residences which entered the market earlier this year, the development is one of a growing number of projects which offers above average quality architecture and finishing. Future quality mid-rise projects include the nearby Gardenia Residence and Diyar Al Salam Residences. A further addition to the high rise segment is also expected with the completion of the Farsi Seven Towers expected by the end of the year.
HOT TOPIC A series of job cuts witnessed over the year, focusing mainly on the construction sector, has reduced demand for residential units for rent in Jeddah. This has also resulted in increased vacancies, as many of the positions cut were occupied by expatriates.
PERFORMANCE There has been little change in the apartment segment of the market Q-o-Q with both sale prices and rents remaining unchanged. Sale prices sales decreased marginally Y-o-Y, and rents have increased by around 3%. Showing further signs of slowing down.
Current economic conditions are expected to result in further decline in employment opportunities, particularly for expatriates, which may lead to further vacancies in the market.
The villa segment of the market has witnessed a decline in sale prices of -4% and -7% Q-o-Q and Y-o-Y respectively. Rents have remained relatively stable (increasing marginally by 1%) thereby increasing the rental yield available in this sector of the market.
Market conditions: are currently in favour of tenants due to the increase in vacant units in the market. Tenants are now able to negotiate lower rents and units with higher rents are taking longer to lease. In response, owners have become flexible, with many offering options to either buy or lease units.
The recently implemented cut in allowances and the freeze of civil servant wages for the next year, will negatively impact the purchasing power of government employees, which may put further downward pressure on sale prices.
RESIDENTIAL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
14K UNITS
15K UNITS
4K 1
UNITS
754K
769K
789K
799K
799K
803K
818K
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
UNITS
UNITS
UNITS
UNITS
UNITS
UNITS
RESIDENTIAL PERFORMANCE APARTMENTS
RENTALS
Q-O-Q
Q-O-Q
SALES Y-O-Y
-1%
SOURCE: JLL
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
PROPERTY RENT AND SALES INDICES
SALES
-0.5%
UNITS
VILLAS
SALES
RENTALS
Q-O-Q
Q-O-Q
RENTALS
SALES
RENTALS
Y-O-Y
Y-O-Y
Y-O-Y
0%
3%
-4%
-7%
SOURCE: JLL
1%
1%
JEDDAH RETAIL MARKET SUMMARY SUPPLY Construction of the Elaf Galleria completed in Q3 although this only increased supply by less than 3,000 sq m of quality retail space. Total stock currently stands at 1.15 million sq m. Combining other uses (eg: hotels, entertainment and residential) within large retail developments has emerged as a successful method of increasing footfall. This concept of mixed use development is broadening still further to include other sectors such as healthcare and office space. Both of which are included within the Jeddah Park project which is currently under construction. Some shopping centers are also leasing space to training and call center operators. This ensures a regular stream of footfall during the day and increases demand for F&B facilities.
HOT TOPIC The post-oil economy which has seen subsidies cut and taxes introduced, has affected the expenditure of Saudi households. The recent announcement by the government to freeze annual salaries for public sector employees next year will further reduce spending power. Top level salaries will also be cut by 20% for ministers and 15% for members of the Shoura Council.
PERFORMANCE Q-o-Q lease rates have remained relatively stable for both regional and super regional shopping centers, with both sectors recording marginal falls of just 1% over Q3. This compares with growth of around 5% that has been experienced in both sectors over the past year.
The announced Municipal fees on retail (up to SAR 300 sq m) and restaurants (up to SAR 10 sq m) will further reduce retailers profitability unless they are passed on to consumers, which will in turn reduce affordability.
Signs of the impact of weakening spending power on demand for retail space has started to emerge. Vacancies have increased from 7% in Q2 to reach 10% in Q3. These additional vacancies were mostly in dated shopping centers and those in less prime locations, emphasizing the increasing competition in the market.
Point of sales transactions: while the number of transactions actually increased (by 24% ) in the year to August, the value of transactions has decreased by 6%, indicating further weakness in spending power.
RETAIL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
142K SQ M (GLA)
166K SQ M (GLA)
39K 39K
SQ M (GLA)
979K
1.06M
1.07M
1.15M
1.15M
1.19M
1.36M
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
RETAIL PERFORMANCE
VACANCY RATE
12%
CHANGE IN AVERAGE RENTS
10% -1% Q-O-Q
Q3 2015
Q3 2016
5%
-1%
Y-O-Y
5%
Q-O-Q
SUPER REGIONAL
Y-O-Y
REGIONAL
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH HOTEL MARKET SUMMARY SUPPLY Q3 witnessed the opening of two internationally branded hotels; the Movenpick City Star Hotel (228 keys) and the Centro Rotana by Shaheen (254 keys) which add to the burgeoning supply of quality branded midscale hotels in the city.
HOT TOPIC
PERFORMANCE Occupancy rates have decreased by 4% compared to the previous year, to 72% YT August. While the first half of the year saw ADRs fall below the same period last year, Q3 is showing stronger results. The knock-on effect of the 2016 Hajj pilgrimage, which took place in early September, is reflected In the YT August ADRs which increased by 5% compared to the same period last year, to reach USD 270.
This marks the first property for the Centro Rotana brand in Jeddah, while the Movenpick City Star Hotel is its third property. A further two Movenpick properties are under construction and expected to open within the next three years.
The summer holiday period and Eid Al Fitr also contributed to the strong performance of ADRs which witnessed strong rates during the months of June and July. RevPAR remained unchanged at USD 196.
The total supply of quality rooms in Jeddah now stands at approximately 9,400 keys. A further 700 keys are expected to open over the next three months. The properties include the Assila Rocco Forte, Ritz Carlton and Novotel Jeddah Tahlia.
Administrative delays have caused a number of hotels to postpone their opening dates. Although 2016 has witnessed a higher rate of hotel delivery, there are a number of hotels which have completed construction, but have not yet opened their doors due to bureaucratic delays with obtaining licenses and approvals. Increased competition: has prompted existing hotels to upgrade their facilities to compete with recently opened or upcoming properties. Several of the properties that opened more than 15 years ago are currently undergoing or planning to start refurbishment work. The Marriott is currently closed for renovation and is expected to reopen in 2017. The latest announcement was from the Movenpick Al Nawras which is being repositioned as a top luxury resort.
HOTEL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
1,100 KEYS
1,600 KEYS
700 KEYS
7,300
8,500
8,600
9,400
9,400
10,100
11,700
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
KEYS
KEYS
KEYS
KEYS
KEYS
KEYS
KEYS
HOTEL PERFORMANCE
OCCUPANCY RATE
76%
AVERAGE DAILY RATE
72% 258
270
USD
USD
5% YT AUGUST 2015
YT AUGUST 2016
YT AUGUST 2015
Y-O-Y
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK / ANNUAL CHANGE
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
YT AUGUST 2016
DEFINITIONS AND METHODOLOGY
12 o’clock indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards.
3 o’ clock indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation.
6 o’clock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards.
9 o’clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation.
OFFICE
RESIDENTIAL
Supply data is based on our quarterly survey of the Grade A & B office space located in the Jeddah CBD, defined as Prince Sultan, Tahlia, Al-Malek, Ibrahim Al Juffali, Amanah Street, Madinah, King Abdullah & Prince Saud AlFaisal (Rawdah) Streets.
The supply data is based on the National Housing Census (2010) and our quarterly survey of major projects and stand alone developments in selected areas.
Completed building refers to a building that is handed over for immediate occupation. Prime Office Rent represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter). The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes.
Completed building refers to a building that is handed over for immediate occupation. Residential performance data is based on two separate baskets one for rentals in villas and apartments and another basket for sales performance for both villas and apartments. The two baskets cover projects in selected locations across Jeddah.
Office vacancy rates are based on JLL estimates for a basket of buildings that comprises approx. 60% of the current supply.
RETAIL
HOTEL
Classification of Retail Centres is based upon the ULI definition and based on their GLA: • Super Regional Malls have a GLA of above 90,000 sq m • Regional Malls have a GLA of 30,000 - 90,000 sq m • Community Malls have a GLA of 10,000 - 30,000 sq m • Neighbourhood Malls have a GLA of 3,000 - 10,000 sq m • Convenience Malls have a GLA of less than 3,000 sq m
JLL tracks the supply of 3, 4 and 5 star quality hotels. The supply data excludes serviced apartments. Performance data is based on a monthly survey conducted by STR Global.
Average Rent Shopping Centre represents the quoted average rents for line shops for the major shopping malls in Jeddah. Retail supply relates to the Gross Lettable Area (GLA) within retail malls. Vacancy rate is based on estimates from the JLL Retail team, in addition to data received from the Shopping Centre Committee of the Jeddah Chamber of Commerce and Industry, and represents the average rate across standard in line unit shops at regional malls. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
Jeddah Jameel Square Level 2, Suite 209 Tahliya & Andalus Streets Junction PO Box 2091 Jeddah 8909 – 23326 Saudi Arabia Tel: +966 12 660 2555 Fax: +966 12 669 4030
For questions and inquires about the Jeddah real estate market, please contact: Jamil Ghaznawi Country Head KSA [email protected]
Dana Williamson Head of Agency MENA [email protected]
Andrew Williamson Head of Retail MENA [email protected]
Craig Plumb Head of Research MENA [email protected]
Fayyaz Ahmad Director, Advisory KSA [email protected]
Ahmed Almihdar Senior Analyst KSA [email protected]
youtube.com/joneslanglasalle
linkedin.com/companies/jones-lang-lasalle
@JLLMENA
Mohammad Alajmi Analyst KSA [email protected]
joneslanglasalleblog.com/EMEAResearch
Jll-mena.com © 2016 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.
Q3 2016
JEDDAH MARKET SUMMARY Challenging times for the retail and office sectors amid slowing economy and government reforms. A number of office buildings entered the market over Q3. At the same time economic conditions have caused some firms to descale and revise their expansion plans, prompting a number of owners to repurpose office buildings to other uses. While office vacancies remained relatively stable Q-o-Q, average rentals have marginally decreased (by 1%).
Limited retail supply entered the market over Q3 keeping Q-o-Q lease rates stable, while Y-o-Y rates grew at similar levels for both regional and super regional centers. Vacancies have increased, indicating that demand for retail space may be waning amid weaker spending power. The residential sector witnessed a further completion in the quality mid-rise segment with several more in the pipeline. Although such developments are popular with end users, they do little to address the shortage of affordable housing due to higher pricing.
decreased by 4% and 7% for each period respectively. Villa rents remained relatively unchanged (increasing by 1% for both periods) while apartment rents remained unchanged over the quarter, reducing the Y-o-Y increase to 3%. A further two hotels opened in Q3 with further completions expected by the end of the year. Hotel occupancies decreased compared to the same period last year, but remain strong. ADRs have also shown strong performance over the summer months due to summer holidays and the Hajj pilgrimage in September.
Apartment sale prices remained relatively unchanged for both Q-o-Q and Y-o-Y periods while villa sale prices have
JEDDAH PRIME RENTAL CLOCK
RENTAL GROWTH SLOWING
RENTS FALLING
RENTAL GROWTH SLOWING
Q3 2015
RENTAL GROWTH ACCELERATING
RENTS FALLING
Q3 2016
RENTS BOTTOMING OUT
OFFICE
RENTAL GROWTH ACCELERATING
RESIDENTIAL
RETAIL
RENTS BOTTOMING OUT
HOTEL*
* Hotel clock reflects the movement of RevPAR Note: The property clock is a graphical tool developed by JLL to illustrate where a market sits within its individual rental cycle. These positions are not necessarily representative of investment or development market prospects. It is important to recognise that markets move at different speeds depending on their maturity, size and economic conditions. Markets will not always move in a clockwise direction, they might move backwards or remain at the same point in their cycle for extended periods. Source: JLL COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH OFFICE MARKET SUMMARY SUPPLY Several office buildings were completed over Q3, most of which are located on Prince Sultan Street, adding over 23,000 sq m of office space to the market. The largest addition was Al Olaya Tower which added over 10,000 sq m. The completion of Emaar Square has been delayed to Q4 2016. Following the delivery of Emaar square, the next notable deliveries to the market will be phase 1 and 2 of Lilian which are expected to complete in 2017 and 2018 respectively and the commercial tower part of Jeddah Park, expected to complete in 2018.
HOT TOPIC
PERFORMANCE There have been a number of vacancies over Q3, mainly due to the contraction of firms in the energy and construction sectors. Further vacancies are expected by the end of the year. The downsizing of these companies has not been significant enough to impact city wide vacancies which currently stand at 6% (unchanged from Q2). The amount of shadow vacancy (unused or underused space not yet returned to the market) has however increased. Average rentals have remained virtually unchanged at SAR 1,124 in Q3. This represents a marginal Y-o-Y decrease of just 1%.
Further job losses expected as the government copes with lower oil prices. One of the recent measures announced will be to cut one fifth of civil service jobs. Reducing the headcount of civil servants will mean less demand from a previously major occupier in the office sector. However, this is likely to affect Riyadh, as the seat of the government, more than Jeddah. Conversion of office buildings: a number of office buildings still under construction are being converted to hotels, furnished apartments and residential buildings. Landlords are becoming more responsive to the current economic climate, which is witnessing waning demand for office space, and more willing to convert their office buildings to other asset classes currently in demand.
OFFICE SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
86K
SQ M (GLA)
71K
SQ M (GLA)
52K 52K
SQ M (GLA)
742K
853K
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
892K
SQ M (GLA)
SQ M (GLA)
960K
1,012K
1,083K
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
960K
OFFICE PERFORMANCE
VACANCY RATE
7%
SQ M (GLA)
SQ M (GLA)
AVERAGE RENTS (PER SQ M)
6% 1,137
1,124
SAR
SAR
-1% Q3 2015
Q3 2016
Q3 2015
Y-O-Y
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK / ANNUAL CHANGE
Q3 2016
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH RESIDENTIAL MARKET SUMMARY SUPPLY The total supply of residential units in Jeddah currently stands at almost 800,000 units, with approximately 3,000 number of units entering the market in Q3. The most recent notable completion was Diyar Al Salama on Madinah Road which added 168 apartments spread over six buildings. Similar to Da’em Residences which entered the market earlier this year, the development is one of a growing number of projects which offers above average quality architecture and finishing. Future quality mid-rise projects include the nearby Gardenia Residence and Diyar Al Salam Residences. A further addition to the high rise segment is also expected with the completion of the Farsi Seven Towers expected by the end of the year.
HOT TOPIC A series of job cuts witnessed over the year, focusing mainly on the construction sector, has reduced demand for residential units for rent in Jeddah. This has also resulted in increased vacancies, as many of the positions cut were occupied by expatriates.
PERFORMANCE There has been little change in the apartment segment of the market Q-o-Q with both sale prices and rents remaining unchanged. Sale prices sales decreased marginally Y-o-Y, and rents have increased by around 3%. Showing further signs of slowing down.
Current economic conditions are expected to result in further decline in employment opportunities, particularly for expatriates, which may lead to further vacancies in the market.
The villa segment of the market has witnessed a decline in sale prices of -4% and -7% Q-o-Q and Y-o-Y respectively. Rents have remained relatively stable (increasing marginally by 1%) thereby increasing the rental yield available in this sector of the market.
Market conditions: are currently in favour of tenants due to the increase in vacant units in the market. Tenants are now able to negotiate lower rents and units with higher rents are taking longer to lease. In response, owners have become flexible, with many offering options to either buy or lease units.
The recently implemented cut in allowances and the freeze of civil servant wages for the next year, will negatively impact the purchasing power of government employees, which may put further downward pressure on sale prices.
RESIDENTIAL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
14K UNITS
15K UNITS
4K 1
UNITS
754K
769K
789K
799K
799K
803K
818K
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
UNITS
UNITS
UNITS
UNITS
UNITS
UNITS
RESIDENTIAL PERFORMANCE APARTMENTS
RENTALS
Q-O-Q
Q-O-Q
SALES Y-O-Y
-1%
SOURCE: JLL
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
PROPERTY RENT AND SALES INDICES
SALES
-0.5%
UNITS
VILLAS
SALES
RENTALS
Q-O-Q
Q-O-Q
RENTALS
SALES
RENTALS
Y-O-Y
Y-O-Y
Y-O-Y
0%
3%
-4%
-7%
SOURCE: JLL
1%
1%
JEDDAH RETAIL MARKET SUMMARY SUPPLY Construction of the Elaf Galleria completed in Q3 although this only increased supply by less than 3,000 sq m of quality retail space. Total stock currently stands at 1.15 million sq m. Combining other uses (eg: hotels, entertainment and residential) within large retail developments has emerged as a successful method of increasing footfall. This concept of mixed use development is broadening still further to include other sectors such as healthcare and office space. Both of which are included within the Jeddah Park project which is currently under construction. Some shopping centers are also leasing space to training and call center operators. This ensures a regular stream of footfall during the day and increases demand for F&B facilities.
HOT TOPIC The post-oil economy which has seen subsidies cut and taxes introduced, has affected the expenditure of Saudi households. The recent announcement by the government to freeze annual salaries for public sector employees next year will further reduce spending power. Top level salaries will also be cut by 20% for ministers and 15% for members of the Shoura Council.
PERFORMANCE Q-o-Q lease rates have remained relatively stable for both regional and super regional shopping centers, with both sectors recording marginal falls of just 1% over Q3. This compares with growth of around 5% that has been experienced in both sectors over the past year.
The announced Municipal fees on retail (up to SAR 300 sq m) and restaurants (up to SAR 10 sq m) will further reduce retailers profitability unless they are passed on to consumers, which will in turn reduce affordability.
Signs of the impact of weakening spending power on demand for retail space has started to emerge. Vacancies have increased from 7% in Q2 to reach 10% in Q3. These additional vacancies were mostly in dated shopping centers and those in less prime locations, emphasizing the increasing competition in the market.
Point of sales transactions: while the number of transactions actually increased (by 24% ) in the year to August, the value of transactions has decreased by 6%, indicating further weakness in spending power.
RETAIL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
142K SQ M (GLA)
166K SQ M (GLA)
39K 39K
SQ M (GLA)
979K
1.06M
1.07M
1.15M
1.15M
1.19M
1.36M
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
SQ M (GLA)
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
RETAIL PERFORMANCE
VACANCY RATE
12%
CHANGE IN AVERAGE RENTS
10% -1% Q-O-Q
Q3 2015
Q3 2016
5%
-1%
Y-O-Y
5%
Q-O-Q
SUPER REGIONAL
Y-O-Y
REGIONAL
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
JEDDAH HOTEL MARKET SUMMARY SUPPLY Q3 witnessed the opening of two internationally branded hotels; the Movenpick City Star Hotel (228 keys) and the Centro Rotana by Shaheen (254 keys) which add to the burgeoning supply of quality branded midscale hotels in the city.
HOT TOPIC
PERFORMANCE Occupancy rates have decreased by 4% compared to the previous year, to 72% YT August. While the first half of the year saw ADRs fall below the same period last year, Q3 is showing stronger results. The knock-on effect of the 2016 Hajj pilgrimage, which took place in early September, is reflected In the YT August ADRs which increased by 5% compared to the same period last year, to reach USD 270.
This marks the first property for the Centro Rotana brand in Jeddah, while the Movenpick City Star Hotel is its third property. A further two Movenpick properties are under construction and expected to open within the next three years.
The summer holiday period and Eid Al Fitr also contributed to the strong performance of ADRs which witnessed strong rates during the months of June and July. RevPAR remained unchanged at USD 196.
The total supply of quality rooms in Jeddah now stands at approximately 9,400 keys. A further 700 keys are expected to open over the next three months. The properties include the Assila Rocco Forte, Ritz Carlton and Novotel Jeddah Tahlia.
Administrative delays have caused a number of hotels to postpone their opening dates. Although 2016 has witnessed a higher rate of hotel delivery, there are a number of hotels which have completed construction, but have not yet opened their doors due to bureaucratic delays with obtaining licenses and approvals. Increased competition: has prompted existing hotels to upgrade their facilities to compete with recently opened or upcoming properties. Several of the properties that opened more than 15 years ago are currently undergoing or planning to start refurbishment work. The Marriott is currently closed for renovation and is expected to reopen in 2017. The latest announcement was from the Movenpick Al Nawras which is being repositioned as a top luxury resort.
HOTEL SUPPLY
CURRENT SUPPLY (2013 – Q3 2016)
FUTURE SUPPLY (Q4 2016–2018)
1,100 KEYS
1,600 KEYS
700 KEYS
7,300
8,500
8,600
9,400
9,400
10,100
11,700
2013
2014
2015
Q3 2016
Q4 2016
2017
2018
KEYS
KEYS
KEYS
KEYS
KEYS
KEYS
KEYS
HOTEL PERFORMANCE
OCCUPANCY RATE
76%
AVERAGE DAILY RATE
72% 258
270
USD
USD
5% YT AUGUST 2015
YT AUGUST 2016
YT AUGUST 2015
Y-O-Y
2016 / 2017
2016 / 2017
OUTLOOK
OUTLOOK / ANNUAL CHANGE
COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
YT AUGUST 2016
DEFINITIONS AND METHODOLOGY
12 o’clock indicates a turning point towards a market consolidation / slowdown. At this position, the market has no further rental growth potential left in the current cycle, with the next move likely to be downwards.
3 o’ clock indicates the market has reached its point of fastest decline. While rents may continue to decline for some time, the rate of decrease is expected to slow as the market moves towards a period of rental stabilisation.
6 o’clock indicates a turning point towards rental growth. At this position, we believe the market has reached its lowest point and the next movement in rents is likely to be upwards.
9 o’clock indicates the market has reached the rental growth peak, while rents may continue to increase over coming quarters the market is heading towards a period of rental stabilisation.
OFFICE
RESIDENTIAL
Supply data is based on our quarterly survey of the Grade A & B office space located in the Jeddah CBD, defined as Prince Sultan, Tahlia, Al-Malek, Ibrahim Al Juffali, Amanah Street, Madinah, King Abdullah & Prince Saud AlFaisal (Rawdah) Streets.
The supply data is based on the National Housing Census (2010) and our quarterly survey of major projects and stand alone developments in selected areas.
Completed building refers to a building that is handed over for immediate occupation. Prime Office Rent represents the top open-market rent that could be expected for a notional office unit of the highest quality and specification in the best location in a market, as at the survey date (normally at the end of each quarter). The Prime Rent reflects an occupational lease that is standard for the local market. It is a face rent that does not reflect the financial impact of tenant incentives, and excludes service charges and local taxes.
Completed building refers to a building that is handed over for immediate occupation. Residential performance data is based on two separate baskets one for rentals in villas and apartments and another basket for sales performance for both villas and apartments. The two baskets cover projects in selected locations across Jeddah.
Office vacancy rates are based on JLL estimates for a basket of buildings that comprises approx. 60% of the current supply.
RETAIL
HOTEL
Classification of Retail Centres is based upon the ULI definition and based on their GLA: • Super Regional Malls have a GLA of above 90,000 sq m • Regional Malls have a GLA of 30,000 - 90,000 sq m • Community Malls have a GLA of 10,000 - 30,000 sq m • Neighbourhood Malls have a GLA of 3,000 - 10,000 sq m • Convenience Malls have a GLA of less than 3,000 sq m
JLL tracks the supply of 3, 4 and 5 star quality hotels. The supply data excludes serviced apartments. Performance data is based on a monthly survey conducted by STR Global.
Average Rent Shopping Centre represents the quoted average rents for line shops for the major shopping malls in Jeddah. Retail supply relates to the Gross Lettable Area (GLA) within retail malls. Vacancy rate is based on estimates from the JLL Retail team, in addition to data received from the Shopping Centre Committee of the Jeddah Chamber of Commerce and Industry, and represents the average rate across standard in line unit shops at regional malls. COPYRIGHT © JONES LANG LASALLE IP, INC. 2016
Jeddah Jameel Square Level 2, Suite 209 Tahliya & Andalus Streets Junction PO Box 2091 Jeddah 8909 – 23326 Saudi Arabia Tel: +966 12 660 2555 Fax: +966 12 669 4030
For questions and inquires about the Jeddah real estate market, please contact: Jamil Ghaznawi Country Head KSA [email protected]
Dana Williamson Head of Agency MENA [email protected]
Andrew Williamson Head of Retail MENA [email protected]
Craig Plumb Head of Research MENA [email protected]
Fayyaz Ahmad Director, Advisory KSA [email protected]
Ahmed Almihdar Senior Analyst KSA [email protected]
youtube.com/joneslanglasalle
linkedin.com/companies/jones-lang-lasalle
@JLLMENA
Mohammad Alajmi Analyst KSA [email protected]
joneslanglasalleblog.com/EMEAResearch
Jll-mena.com © 2016 Jones Lang LaSalle IP, Inc. All rights reserved. The information contained in this document is proprietary to Jones Lang LaSalle and shall be used solely for the purposes of evaluating this proposal. All such documentation and information remains the property of Jones Lang LaSalle and shall be kept confidential. Reproduction of any part of this document is authorised only to the extent necessary for its evaluation. It is not to be shown to any third party without the prior written authorisation of Jones Lang LaSalle. All information contained herein is from sources deemed reliable; however, no representation or warranty is made as to the accuracy thereof.
