According to famous real estate expert CBRE, the Saudi Arabian real estate market saw improvements in its key performance metrics in 2022, with its performance improvements throughout its office, hospitality, industrial, and residential sectors.
However, according to CBRE’s Saudi Real Estate Market Review Q4 2022, the anticipated outcomes have yet to manifest due to a lack of high-quality stock and a delay in the handover of new developments.
According to the report, Saudi Arabia’s real estate markets saw the uneven performance in 2022 across cities and asset classes.
According to CBRE, the number of residential transactions decreased by 24.5% in 2022 compared to the previous year. Overall, there were 175,067 transactions worth SR126.5 billion ($34.4 billion) during the course of the year, representing a little decrease of 3.7% year over year.
Regionally, it has experienced a decrease in total transaction volumes throughout the course of 2022 in all three of the key areas.
Deal volumes decreased by 33.9%, 16.2%, and 20.9% in Riyadh, Jeddah, and the Dammam Metropolitan Area (DMA), respectively.
According to the expert, average villa prices in Riyadh, Jeddah, and Dammam climbed by 6.2%, 6.7%, and 17.4% in 2022 in relation to price performance in the residential sector.
Al Khobar was the only significant city, according to CBRE, to show a decrease in average villa prices during this time, with prices falling by 4.4%. Overall, the apartment market category performed substantially worse in the year leading up to Q4 2022, with only Riyadh experiencing average price growth of 17.4%.
Average apartment prices decreased in Jeddah, Dammam, and Khobar during this time by 0.2%, 1.1%, and 4.4%, respectively. A decline in demand and subsequent slowdown or reversal in price rise have been anticipated, the report said, given the sharp increase in interest rates, rising development expenses, and uniform price growth over the past two years in all of the market sectors mentioned above.
Looking forward, CBRE anticipates a gradual rate of recovery in activity levels as affordable stock meeting the quality and configurations sought by owner-occupiers is delivered.
According to statistics for the Saudi Arabian office market, occupier demand was still high in the fourth quarter of 2022. This was especially true in Riyadh, where inventory levels are still at best modest and many prospective projects have mostly been pre-leased.
In Q4 2022, Riyadh’s Grade A offices experienced an average rental rate increase of 5.8% year over year, while Grade B rents only saw a 1.5% gain. Regarding average occupancy rates, Grades A and B stock both experienced marginally higher occupancy levels in 2022, reaching 99.2% and 98.7% respectively, representing annual gains of 0.8 and 1.9 percentage points.
Grade A office rates in Jeddah increased by 7.4% in the year leading up to December 2022, while Grade B rents remained the same. From 87.8% and 74.6% in 2021, the occupancy rates for Grade A and Grade B offices increased to 90.6% and 76.0%, respectively.
Grade A rents in the office markets of Khobar and Dammam in the Eastern Province increased by 7.9% and 6.2%, respectively, over the course of the year to Q4 2022, while Grade B rates remained unchanged. At the end of 2022, Dammam and Khobar had grade A occupancy rates of 81.2% and 78.7%, respectively.
Regarding the industrial sector, CBRE stated that a key element of Vision 2030 was to make Saudi Arabia one of the top industrial and logistical centers in the world.
Following the launch of the National Industrial Development and Logistics Program (NIDLP), concentrated clusters for industrial and logistics-related activities and related services will be located within and close to major cities as a result of changes in regulations, standards, and relocation.
The realization of this part of Vision 2030 will be crucial for a number of sectors given the magnitude of demand for such industrial and logistical space and the extremely low levels of supply. In Riyadh, the average rent for warehouses increased by 3.7% in the fourth quarter of 2022 compared to the same period in 2021.
According to the real estate expert, average rentals in Jeddah decreased by 9.4% from Q4 2021 to Q4 2022.
According to the report, average rentals in Dammam and Khobar increased by 6.1% and decreased by 21.1%, respectively, over the course of the year to the fourth quarter of 2022.
In the near future, CBRE predicted that both investors and occupiers will continue to show a strong level of interest in the industrial and logistics sector.
The performance will probably keep being driven by low levels of supply and rising demand. We anticipate significant performance fragmentation over the long term, as the sector grows and access to international quality stock increases, it was stated.
Taimur Khan, the Head of Research (Mena) at CBRE, said: “Saudi Arabia’s real estate sector has recorded improving key performance indicators in 2022, with performance almost uniformly improving across its offices, hospitality, industrial and residential sectors.”
“However, with quality and suitable stock in short supply and the delivery of new projects still not on the immediate horizon in most cases, we continue to see activity not reach its true potential,” noted Khan.
“In its key metropolitan centers, the delivery of this stock will be key in achieving future growth, in terms of prices, rents, and transactions,” he added.