Jeddah market remains subdued, says JLL

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Retail in Jeddah sector is experiencing some improvements – boosted by the reinstatement of benefits to public sector staff – but overall the city’s real estate sector has remained ‘relatively subdued’ in the second quarter in Q2 with further declines in performance recorded, states JLL’s Real Estate Market Overview.

“The pace of decline has generally declined suggesting that some sectors are approaching the bottom of their current cycle,” says Jamil Ghaznawi, national director and country head, JLL, KSA. “Market sentiment is expected to improve somewhat later this year.”

Removal of the 20% quota restriction on Hajj pilgrims should see increased demand for both retail and hospitality in Jeddah. Further reforms to energy costs and the general higher cost of living may, however, curb domestic spending compared to historical trends.

There was a minor completion in the office sector over Q2 2017 that saw the GLA of quality office space in Jeddah increase to over 10.7 million sqft. Office rents showed little change quarter-on-quarter (Q-o-Q), but both rents and occupancies showed significant decreases year-on-year (Y-o-Y). There were no notable completions in the residential sector over the second quarter of the year either. The hotel sector witnessed the opening of the Ritz Carlton in Q2 2017 in addition to a completion in the serviced apartment segment with the Staybridge Suites Al Andalus Mall.

More on the Jeddah retail market

While reinstatement of benefits to public sector workers in Q2 is positive news for the retail market, whether or not household spending will return to the same levels as the pre-wage cuts period is still unclear. Although wage levels have been restored, the cost of living remains higher than before, due to the removal of subsidies on utilities and energy costs. The cost of living is also set to increase further with the government considering further revisions to energy costs in 2017, in addition to the recent Sin Tax on tobacco and energy drinks, and the introduction of Value Added Tax (VAT) in January 2018.

Q2 2017 witnessed the completion of the expansion of Red Sea Mall, adding 193,750 sqft of retail GLA to the market. The total stock of quality retail space now stands at approximately 12.92 million sqft. Avenue Mall in North Obhur, 1.2 million sqft, is expected to be the next major completion following Jeddah Park, with this project likely to draw demand from other malls in the northern districts once completed.

Notable scheduled completions in 2017-18 include Jeddah Park, which is in advanced stages of construction and Al Basateen Centre, which is currently under renovation. The number of community and neighbourhood shopping centres in Jeddah is expected to increase as well.

Overall market rents for the retail sector decreased by 2.4% Q-o-Q and 4.3% Y-o-Y. Rents for super-regional shopping centres continued to soften both Q-o-Q and Y-o-Y, decreasing by 3.2% and 7.5%, respectively. Regional shopping centre rents also decreased by 2.3% Q-o-Q and 3.2% Y-o-Y.

Rents may soften further over the year due to upcoming supply entering the market. However, stronger household spending following the reinstatement of public sector wages should curb the impact on rents, meaning rents are likely close to bottoming out.

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