Riyadh Real Estate Market Overview

Q3 2014

Riyadh Real Estate Market Overview

Riyadh Market Summary The Riyadh real estate market maintained a positive performance in Q3 2014. The residential sector saw prices and rental increases across all areas due to the continued shortage of housing units. The retail sector also continued to experience rental growth, despite the major malls in the pipeline. While selected preferred office buildings have seen an increase in asking rents, the overall market saw no growth in rentals due to the anticipation of large levels of new office supply in the near future. Hotel performance remains patchy, with higher occupancy levels but lower room rates than over the same period in 2013.

Riyadh Prime Rental Clock Q3 2013

Rental Growth Slowing

Rents Falling

Hotel*

Residential

Rental Growth Accelerating

Rents Bottoming Out

Office Retail Q3 2014

Hotel* Residential

Retail

Rental Growth Slowing

Rents Falling

Rental Growth Accelerating

Rents Bottoming Out

Office

* 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

Riyadh Office Market Overview Hot Topic

Market Summary Average rentals in the Riyadh office market have remained unchanged over the last quarter. This average does however disguise a greater variation in rents between projects. As tenants continue to prefer Grade A office buildings, some owners have been able to take advantage of the delays in the delivery of office space in the KAFD and ITCC projects to raise their asking rents in light of declining vacancy rates. Although Riyadh’s economy is growing, the excess supply of office space from KAFD and ITCC is likely to result in increased vacancies over the next 12 months, thereby creating downward pressure on average rentals.

Delays in the completion of new projects and the limited supply of available space within the preferred existing buildings has resulted in a spike in rentals in these locations. Some Grade A buildings on King Fahd road have increased their asking rentals by 8%- 10% over the past year. This trend is not however being experienced across the broader market where average rentals have remained largely unchanged as the market anticipates more new supply in 2015.

Office Supply

Current Supply (2011–2014)

1.7M

sq m (GLA)

2011

1.9M

Future Supply (2014–2016)

2.1M

sq m (GLA)

sq m (GLA)

2012

2013

2.3M

sq m (GLA)

Q3 2014

0.1M

0.4M

sq m (GLA)

0.5M

sq m (GLA)

Q4 2014

sq m (GLA)

2015

2016

Office Performance Vacancy Rate

19%

Q3 2013

16%

Average Rents (per sq m)

SAR 1,059 SAR 1,071

Q3 2014

Q3 2013

2014 / 2015 Outlook

Q3 2014

2014 / 2015 Outlook COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Riyadh Residential Market Overview Market Summary

Hot Topic

Approximately 13,000 units were completed during the last 6 months, bringing the total supply to around 957,000 units. The market is still witnessing an increase in rental and sale prices for both villas and apartments. This increase is due to the continued undersupply of housing affecting the Kingdom as a whole. 75,000 housing units are expected to enter the market in 2015 and 2016 which is expected to relieve some of the shortage in Riyadh. Sale prices have increased across all areas of the capital with increases being highest in the North. Rentals saw small decreases in the South and Center. However, rents continued to increase in the East, West and North.

As more than 60% of Saudi citizens do not currently own their own home, the Saudi Arabian government has developed its ESKAN housing aid program. This program has been created to address the shortage of housing for low income Saudi families. ESKAN has been designed to accelerate progress in housing development and create a transparent system for allocating aid. More than 690,000 families have been found eligible to apply to the program. Despite this and other measures, there is likely to remain a shortage of affordable housing in Riyadh for some time to come.

Residential Supply



882K

909K

936K

957K

2011

2012

2013

Q3 2014

units

units

units

units

6K

units

Q4 2014

38K

37K

2015

2016

units

units

Residential Performance Performance Residential Riyadh Residential Property Rent and Sale Indices

Apartment residential

Sales

Rentals

5%

4%

Villa residential

Q-o-Q Sales

Source : JLL

6%

Y-o-Y

Rentals

3%

7%

Q-o-Q Rentals

11%

Sales

Source : JLL

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Sales

Rentals

4%

12%

Y-o-Y

Riyadh Retail Market Overview Market Summary

Hot Topic

Among the major completions in 2014 have been the Al Nakheel Mall and the Olaya Towers retail space. Rentals have slightly increased in super regional and regional shopping centres whereas community centres have seen no significant increase since the last quarter. Vacancy levels have slightly decreased (1%) during this quarter. Delays in the KAFD and ITCC projects have resulted in their retail components being pushed back into 2015.

Confidence in the retail market is reflected in the announcement of various new shopping centres around the capital. One of the largest malls to be announced is Salboukh Mall, which will add around 275,000 sq m to the market upon completion in 2016. Another major announcement is Al Dirriyah Festival City which will add 250,000 sq m (including another IKEA store), but this project is not expected to be completed until 2018.

Retail Supply


1.1M

1.1M


1.2M

1.4M

sq m (GLA)

sq m (GLA)

sq m (GLA)

sq m (GLA)

2011

2012

2013

Q3 2014

10K

sq m (GLA)

Q4 2014

477K

sq m (GLA)

325K

sq m (GLA)

2015

2016

Retail Performance Average Retail Rents (per sq m) Super Regional

Vacancy Rate

12%

Q3 2013

11%

Regional

Q3 2014

Community

2014 / 2015 Outlook

SAR 2,760

SAR 2,830

Q3 2013

Q3 2014

SAR 2,580

SAR 2,710

Q3 2013

Q3 2014

SAR 2,250

SAR 2,710

Q3 2013

Q3 2014

2014 / 2015 Outlook COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Riyadh Hotel Market Overview Market Summary The occupancy rates of hotels in Riyadh have been showing signs of improvements as the market absorbs the increase in supply experienced over the last couple of years. However, the increase in occupancy has come at the cost of lower average room rates. Average daily rates over the third quarter stood at USD 237, a decline of almost 10% compared to the same period in 2013. RevPAR figures have shown a decline of almost 6% compared to the same period in 2013.

Hot Topic The completion of multiple hotels in 2015 will increase the pressure on average daily rates which in turn will cause a further decrease in RevPar. Occupancy rates are expected to decline since the number of hotels being completed is likely to be too high for the market to absorb quickly.

Hotel Supply


7,385 keys

2011

8,400

12,040

2012

2013

keys


13,390

410

Q3 2014

Q4 2014

keys

keys

keys

4,170

1,780

980

2015

2016

2017

keys

keys

keys

Hotel Performance Occupancy Rate

59% YT July 2013

Average Daily Rate

61% YT July 2014

USD 260

USD 237

YT July 2013

YT July 2014

2014 / 2015 Outlook

2014 / 2015 Outlook

Source : STR Global

Source : STR Global

COPYRIGHT © JONES LANG LASALLE IP, INC. 2014

Definitions and methodology Interpretation of market positions: 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. 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

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 of Riyadh. 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 in selected locations across Riyadh.

The supply data is based on our quarterly survey of the Grade A and B office space located in CBD, North and East Ring roads, Khurais, Mazer, and Sitteen Streets. 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 period). 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. Vacancy rate is based on estimates from the JLL Agency team.

Classification of Retail Centers 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 Primary Malls are the good performing malls with high levels of turnover. Secondary Malls are the average performing malls with lower levels of turnover. Rent represents the average quoted average rent for line stores in the major shopping malls in Riyadh Vacancy rate is based on estimates from the JLL Retail team, and represents the average rate across standard in line unit shops at regional malls.

Hotel room supply is based on existing supply figures provided by Saudi Commission for Tourism and Antiques as well as future hotel development data tracked by Jones Lang LaSalle Hotels. Room supply includes 3, 4 and 5 star hotel rooms but excludes serviced apartments. Performance data is based on a monthly survey of hotels conducted by STR Global.

Riyadh 18th Floor, South Tower Abraj Attawuniya King Fahd Road PO Box 13547 Riyadh 11414 Saudi Arabia Tel: +966 11 218 0303 Fax: +966 11 218 0308 For questions and inquires about the Riyadh real estate market, please contact: Jamil Ghaznawi Head of KSA Office [email protected]

Andrew Williamson Head of Retaill MENA [email protected]

Chiheb Ben-Mahmoud Head of Hotels & Hospitality MEA [email protected]

Craig Plumb Head of Research MENA [email protected]

Fayyaz Ahmad Director, Advisory MENA [email protected]

Hassan Shamseddine Analyst KSA [email protected]

@JLLMENA

youtube.com/joneslanglasalle

linkedin.com/companies/jll

joneslanglasalleblog.com/EMEAResearch

jll-mena.com COPYRIGHT © JONES LANG LASALLE IP, INC. 2014 This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the prior written consent of JLL IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation is made, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. JLL does not accept any liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.