JEDDAH: The Riyadh real estate market is reaping the benefits of the Saudi government's regulatory reform and massive investment in infrastructure, Jones Lang LaSalle, a global real estate services firm, said in its report entitled "Riyadh City Profile". The report said Riyadh real estate market continues to experience rapid growth due to government initiatives to open up the market and attract foreign investment, increased government spending on infrastructure which has attracted private sector investment, development of further educational and health facilities, and strong demand from end-users, including government agencies and private groups in the banking and telecoms sectors. The residential sector remains in the upswing of the market cycle, with results from the 2010 census revealing that population growth has been more robust than expected. The increased number of low income expatriates and other demographic shifts are further exacerbating the shortage of affordable housing in Riyadh, the report noted. Other sectors of the real estate market are currently experiencing falls in average rentals and performance as the office, retail and hotel sectors are becoming more competitive in the light of recent additions to supply, the report further said. "This is creating more favorable conditions for tenants or visitors in these sectors of the market," it added. Jones Lang LaSalle expects rents in prime locations will continue to rise against falls in less sought after and peripheral areas of the city. With the exception of the new wing of the Al Faisaliah Hotel, the hotel market saw no additions in 2010. The next two years however, will see significant growth, primarily through the addition of new hotels from regional and international branded hotels, the report said. "Saudi is witnessing strong economic growth on the back of government investment and stronger than expected population growth. In Riyadh in particular, we have seen major investment in the King Abdullah Financial District and the Princess Noura Bint Abdulrahaman University," said John Harris, co-head of Jones Lang LaSalle. "These major developments have been leading a general northward shift of activity in the city. The outlook is very positive with major government and private projects well underway across the residential, office, retail and hotel markets." The office market will see approximately 200,000 sq m of new office space completed in 2010. However a large proportion of this does not meet typical corporate requirements for safety and parking, the report said. As the CBD and central areas fill with development, access to parking is becoming an increasing problem for a population that relies on cars. Demand however is keeping pace with supply and vacancy levels remain around 10 per cent. Average office rents have declined during the year with older buildings and those outside the CBD seeing the largest falls, it noted. Riyadh's current stock of retail space is estimated by Jones Lang LaSalle to be around 2.7 million sq m, and this is expected to rise to over 3 million sq m by 2014. Strong growth in consumer spending has meant that demand for space from retailers remains strong. However the expected growth in large new retail centers will take some time for the market to absorb. Demand for hotels rooms is predominantly driven by government bodies and business travelers. The decline in average occupancy rates in 2009 has continued into 2010, with the exception of five star properties which have consistently outperformed the market. Jones Lang LaSalle predicts a relatively stable hospitality market in the coming year with a slight risk of over-supply in the medium term as new properties come on stream.
