dubai jeddah real estate market overview - jll · dubai real estate market overview q3 2013 jeddah...
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Dubai Real Estate Market Overview
Q3 2013
Jeddah
Macroeconomic overview
2
Sources: Sama, Jadwa, IHS Global Insights Oct 2013, CDS , 2012
f:forecasted
Indicator 2012 2013 (f) 2014 (f)
Saudi Arabia
Population (millions) 29.3 30.2 31.1
Real GDP Growth (Y-o-Y) 5.1% 4.0% 3.5%
Inflation (% Change) 2.9% 3.8% 3.4%
Budget Surplus (USD billions) 100 54 31
Jeddah
Population (millions) 3.8 3.9 4.0
Cost of Living Index (% change) 4.9% 3.5% 3.6%
Economic highlights – Q3 2013
3
Real GDP in KSA grew by 2.7% in Q2 2013, with year on year growth for 2013 forecast to be around 4.0%. High oil production and expansionary fiscal policy have kept the Kingdom’s growth at a high level.
Retail sales continued to increase, growing by 15% in Q3 2013 compared to the same quarter last year.
Bank lending to building and construction has increased by 9% in Q3 2013 from the same period last year. This reflects greater participation in infrastructure and housing projects.
The Ministry of Housing has signed contracts worth SAR 4 billion to develop around 40,000 residential units on 26 million sq m of land in eight developments across the Kingdom.
Y-o-Y, inflation decreased from 3.7 in July to 3.2% in August. The reduction in inflation is mainly attributed to falling food prices while rent and housing-related services remained flat.
Saudi banks increased their lending to real estate end users (mostly mortgages) by 25% in Q2 2013, to the highest level recorded during the last five years.
Talking Points - Q3 2013
4
• The grace period for illegal foreign workers ended in November
with thousands of construction workers leaving the country. This
is likely to result in delays and increased construction costs for
many projects, while also decreasing demand for affordable
residential and commercial premises across the city.
• Phase 1 of the Makkah Oasis Housing (14 km from the Grand
Mosque) has been completed, providing housing accommodation
for 2,300 Saudi families.
• Two hotel brands, One & Only and Staybridge, have announced
their entry into the Saudi market, through proposed projects in
Jeddah.
• Three new Starwood hotels to open in the holy city of Makkah in
2015 adding approximately 1500 rooms to the city after the US-
based hotels group signed a deal with Jabal Omar development.
• King Abdullah Sport City Stadium is to be completed by the end
of this year. The stadium is located about 60 km north of Jeddah
and will have a total capacity of over 100,000.
• In a move to provide more affordable housing, Retaj Al Balad Al
Ameen, has appointed Sudra Al Maliya to finance a 520,000 sq m
housing complex within Makkah Gate to accommodate 25,000
employees working in the services and hospitality sector.
• The Saudi Industrial Property Authority (MODON) has signed a
SAR 193 million contract with Al Rajhi bank to finalise the
development of the first phase of Jeddah’s 80 million sq m Third
Industrial City (30 km from the city centre)..
• Approximately 110,000 housing units are currently under
development in Jeddah according to the Ministry of Housing.
These schemes include the AlFareeda project located in northern
Jeddah, and a large project by the Miinistry of Housing located
next to the the Prince Fawaz University in southern Jeddah,
which will eventually accommodate approximately 10.000 Saudi
families.
• Two Harmain trains have arrived in Jeddah to commence trial-
runs between Jeddah and Madinah, ahead of the official opening
of the Haramain railway by the end of 2014.
While major new capital projects continue to drive demand for real estate across Jeddah, the ability to deliver
these major projects is being jeopardised by the crackdown on illegal foreign workers that is resulting in labour
shortages that will delay projects and increase construction costs.
5
Jeddah prime rental clock
*Hotel clock reflects the movement of RevPAR.
Note: The property clock illustrates where Jones Lang LaSalle estimate each prime market is within its individual rental cycle as at end of relevant quarter.
Source: Jones Lang LaSalle
5
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Q3 2013
Rental Growth
Slowing
Rents
Falling
Rental Growth
Accelerating
Rents
Bottoming Out
Q3 2012
Retail
Office
Residential
Hotel*
Retail
Office Residential
Hotel*
Jeddah office market overview
Office supply and demand
• Around 49,000 sq m was completed over Q2 and Q3 2013, with the major
additions being Murjan Commercial Tower (18,000 sq m) and Al Yamamah
Tower (9,600 sq m) on Prince Sultan Street, Al-Basha (8,500 sq m) on
Tahlia Street, and Moahmmed Al Jaboora Building (4,200 sq m) on Madinah
Road.
• This brings the total office stock in areas surveyed by Jones Lang LaSalle in
Q3 to approximately 710,000 sq m.
• A substantial increase in supply (105,000 sq m) is expected to be delivered
by the end of 2013, the majority of which will be delivered with the
completion of the Headquarters Building (75,000 sq m).
• Although the completion of the Headquarters Building is expected to cause
an oversupply of office space in Jeddah, the continued strong demand for
office space will partially offset the new supply.
• Demand from the private sector remains strong, with more contracts being
awarded on a growing number of infrastructure, commercial and residential
projects in the city.
• Most recently, EC Harris Mace has been awarded a SAR 162m contract by
Jeddah Economic Company (JEC) to provide project management services
for the construction of the Kingdom Tower in North Jeddah.
Source: Jones Lang LaSalle, Q3 2013
7
623 710
815 864 916
105 49
52 11
0
100
200
300
400
500
600
700
800
900
1000
2012 2013 2014 2015 2016
To
tal S
tock
(00
0's
sqm
)
Jeddah Office Supply 2012 - 2016
Completed Stock Future Supply
8 8
Major Existing & Future Offices Projects
1 KAFD
2 ITCC
Existing
Olaya Towers
MIG Tower
8
Major existing & future offices projects 1 Zahran
2 King Road Tower
3 Bin Sulaiman
4 Jameel Square
1
3
1 3
2
4
Existing
Future
4
2 Murjan Tower
2
5 Jeddah 7575
5
1 Headquarters
3 Al Khair Tower
6 Private Offices
7 Diwan Najyah
6
7
Office rental performance
• Average rents for both Grade A and B office space have increased
significantly over the past 6 months.
• Average grade A rents increased to SAR 1,242 per sq m p.a. during Q2
and remained stable through Q3 2013, while Grade B average rents
increased slightly to SAR 704 per sq m p.a. in Q3. This has resulted in an
average city-wide rent of SAR 973 SAR per sq m p.a.
• This rental growth reflects the healthy demand from the government and
private sectors, which has resulted in vacancy levels decreasing from 12%
last quarter to 10% in Q3, as take up has exceeded new supply.
• Despite the addition of more than 100,000 sq m of new space in Q4,
vacancies are expected to remain relatively low in the medium term, given
the strong demand from both the private and public sectors.
9
Source: Jones Lang LaSalle, Q3 2013
SA
R p
er s
q m
p.a
.
0
200
400
600
800
1000
1200
1400
Average Grade A Average Grade B Average (completedGrade A & B Buildings)
Average Rents (Q3 2012- Q3 2013)
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Office market summary
10
Indicator Level Comment / Outlook
Current Office Stock (CBD) 710,000 sq m
Includes Grade A & B buildings within the CBD. Increase in stock in
Q1 2013 is due to the completion of Private Offices, Diwan Najia and
Al-Sohaily 2. Total city-wide stock is estimated to be around 1.8 million
sq m GLA.
Future Supply (2013 – 2016) 217,000 sq m Major future supply will be available on main roads such as Madinah
and Prince Sultan.
CBD Vacancy 10%
The vacancy rate has decreased, due to
continued strong demand.
Average CBD Rental
Average – Grade A Rental
Average – Grade B Rental
SAR 973 per sq m p.a.
SAR 1,242 per sq m p.a.
SAR 704 per sq m p.a..
Rents have increased slightly over past 6 months and
likely to remain stable in 2014
Jeddah residential market overview
Residential supply and demand
Source: Jones Lang LaSalle, Q3 2013
12
735 748 754
770
794
6
16
24
33
680
700
720
740
760
780
800
820
840
2012 2013 2014 2015 2016
Tot
al U
nits
(in
mill
ions
)
Jeddah Residential Supply 2012 - 2015
Completed Stock Future Supply
• Approximately 9,000 units were completed in projects monitored by
Jones Lang LaSalle during Q2 and Q3 2013. Most of the new supply has
all been in small projects comprising between 40-100 units, with Diyar
Jeddah being the largest, with 108 units.
• A further 6,000 units are expected to be completed during the last quarter
of 2013, including Masarat (250 units), Eskan (380 units) by Al Rajhi and
Jawhara (266 units) by Damac.
• 73,000 unts are expected to be completed over the next three years
including Almada (993 units) by Sedco-kappell, Masharef (6,000 units) by
Kinan and two residential projects by Jeddah Development and
Regeneration Company (JDURC) which will deliver a total of 25,000
units.
• Rezaik Al-Jedrawi Company has been awarded a SR313 million contract
for the construction of Phase One of Al Waha Community (650 units) at
King Abdullah Economic City (KAEC) to be completed by Q4 2015.
• All the residential plots for Beach Community 2 in Al Murooj District
KAEC have been sold at sales events held in Jeddah and Riyadh
• EMAAR launched the sale of Tower 2 in its Abraj Al Hilal residential
complex in November 2013, with prices starting from SAR 793,000. This
follows the sale of Tower 1 and 3 which recorded sell-out responses from
customers
13
Major existing & future residential projects
1
2 1
3 2
3
4
5 6
Existing
Future
7
4
1 JDURC
2 Fareeda
3 Masharef
4 PPA
5 Lamar
6 Jawhara
7 Kingdom Tower
1 Diyar Al-Bahar
2 Farsi Towers
3 Corniche Dreams
Jeddah Gate 4
Residential sale prices
• The average sale price of villas in those locations monitored by
Jones Lang LaSalle has decreased by 4% to SAR 4,400 per sq m over
the past 6 months
• This decline has been driven by a significant fall of 8.7% in villa prices in
the Western districts of Jeddah (to SAR 6,059 in Q3 2013). Despite this
decrease, the Western district (closest to the Red Sea) remains the
prime location for villas.
• Villa prices have remained largely unchanged in the North and North
East of Jeddah over the past 6 months,
• The average asking price for apartments has decreased over Q2 and Q3
to SAR 3,800 per sq m, however, demand for apartments is still higher
than that for villas.
• The average sale price of apartments has declined in the South and
West districts, while prices in the East have remained stable over the last
two quarters following a decrease in early 2013. It should be noted that
this data does not include high end waterfront projects and apartments
e.g Jeddah Gate which has sold out Towers 1 and 3.
14
Source: Jones Lang LaSalle, Q3 2013 Source: Jones Lang LaSalle, Q3 2013
SA
R/p
er s
q m
SA
R/p
er s
q m
0
1,000
2,000
3,000
4,000
5,000
6,000
West East South
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Apartment - Average Sales Price
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
West North North-East
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Villa - Average Sales Price
Rental performance
• Villa rents increased by 4% in the Northern regions of Jeddah in Q3 2013
reaching an average of SAR 114,000 p.a. Rents in residential areas such
as South Obhour, North Obhour, Zahrah and Golden Beach remain higher
than surrounding neighbourhoods.
• Average villa rents also increased in the West (3%) to reach SAR 178,333,
while rents in the North East increased marginally to SAR 77,000.
• Villas in residential compounds have shown continuous strong
performance in terms of rents and occupancy due to the preferences of
expatriate families to live in gated communities. The limited availability of
such products has also contributed to the growth in rentals.
• Apartment rents in South Jeddah continued to decrease throughout the
past 6 months to average SAR 26,400. Districts such as Albalad and
Alkandara which have a concentration of apartment buildings used as
labour accommodation are likely to experience further declines due to the
recent expulsion of illegal migrants.
• Rents for projects in the West have registered an increase due to higher
demand, to reach SAR 51,000 per year. Rents in high income North
Western areas such as Al Hamra, Al Zahra, and Al Rawdah have also
increased slightly since Q2 to SAR 44,000.
• Apartment rents on the Corniche (West) are higher than those in
surrounding neighbourhoods, with these projects witnessing a major
increase in rents during 2013.
15
Source: Jones Lang LaSalle, Q3 2013 Source: Jones Lang LaSalle, Q3 2013
SA
R/p
er a
nnum
SA
R/p
er a
nnum
0
50,000
100,000
150,000
200,000
West North North-East
Villa - Average Annual Rent
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
0
10,000
20,000
30,000
40,000
50,000
60,000
South East West
Apartment - Average Annual Rent
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Residential market summary
16
Indicator Level Comment / Outlook
Current Residential Stock 748,000 units Based on National Housing Census (2010) and units completed in
locations monitored by Jones Lang LaSalle since 2010.
Future Supply (2013 – 2016) 79,000 additional units in all
projects
New affordable housing stock built by JDURC, PPA and the Ministry of
Housing may increase this figure.
Average 3 Bed Apartment
Rent SAR 37,667 p.a.
Stable in last 6 months but expected to increase in 2014
due to higher demand for apartments for lease from
expatriates.
Average 3 Bed
Apartment Sale Price SAR 3,800 per sq m
Decrease in middle priced units in South and West
regions have resulted a decrease in the city average.
Average 4 Bed Villa Rent SAR 123,111 p.a. Rents are expected to remain stable following small
recent fall on a Y-o-Y basis.
Average 4 Bed Villa Sale Price SAR 4,400 per sq m Average villa sale prices are expected to remain stable
over the coming year
Jeddah retail market overview
Retail supply and demand
• The only additional retail completion over the past 6 months was Flamingo
Mall (46,000 sq m) during Q2 2013 on Prince Majid Road. This increased
Jeddah’s total retail mall stock to 826,000 sq m.
• Flamingo Mall preleased all of its space before opening, with Carrefour as
one of its major tenants.
• Construction of shopping centers is increasing in North and North-East
Jeddah in response to strong demand from retailers for space in those
areas in anticipation of planned residential growth. Kingdom City Mall
(40,000 sq m) is expected to open in 2017 in North Obhur.
• Galaria (5,100 sq m) and Sairafi 2 (20,000 sq m) are among the retail
projects expected to complete in Central Jeddah during 2014 .
• Many retailers are planning expansions and opening new outlets and new
brands continue to enter Jeddah’s retail market, such as West Elm which
has recently opened on Tahlia street.
• Debenhams has opened its 11th store in the Kingdom, in Red Sea Mall.
Spanning 5,600 sq m on the 1st and 2nd floors of the mall, this opening
reflects the continued demand for retail space in the city driven by strong
consumer demand.
Source: Jones Lang LaSalle, Q3 2013
18
780 826 826 899 945
73 46
105
0
200
400
600
800
1,000
1,200
2012 2013 2014 2015 2016
Tot
al S
tock
('0
00 s
q m
)
Jeddah Retail Supply 2012 - 2016
Completed Stock Future Supply
19 19
Major existing & future retail projects 1 Red Sea mall
2 Arab Mall
1 Le Prestige
2 Galleria
3 Andalus Mall
1
3
2
3 Sairafi 2
4 Flamingo
1
2
4
3
Existing
Future
4 Le Beteau
5 Stars Avenue
4 5
Rental performance – Estimated Rental Value (ERV)
• ERV’s remained stable across all types of retail centres apart from a
marginal increase on regional shopping malls over the past 6 months.
The average ERV is approximately SAR 2,486 per sq m p.a. in Q3 2013.
• Regional malls have witnessed an increase in average rentals from SAR
2,392 per sq m to 2,475 sq m. over the last 6 months. Average rentals in
community malls increased to SAR 1,850 sq m during Q2 and remained
stable in Q3.
• Most of the newer shopping malls have high occupancy rates. Demand is
strong and all centres under construction have managed to prelease a
significant proportion of their space.
• Despite strength of demand, market wide vacancy rate has increased to
around 8% with the opening of the Flamingo Mall.
• Mall rents are expected to remain stable over the last quarter of 2013.
• Entertainment options and F&B retailers continue to be a major source of
attraction and differentiation between malls in Jeddah..
• With only one completion during Q2 2013, projects that are under
construction are experiencing continued demand and have preleased
significant space before opening.
• Strip retail centres continue to perform well across the city due to high
demand from customers. Further opportunities remain for this product,
especially to the north and north east of Jeddah.
20
Source: Jones Lang LaSalle, Q3 2013
0
250
500
750
1,000
1,250
1,500
1,750
2,000
2,250
2,500
Community Regional Super Regional
SA
R/p
er s
qm
Average Retail Rentals
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013
Indicator Level Comment / Outlook
Current Retail Space* (GLA) 826,000 sq m Additional 46,000 sq m added to stock with the opening of Flamingo
Mall during Q2 2013.
Future Supply (2013 – 2016) 224,000 sq m No further additions to retail supply expected in 2013.
Average Estimated Rental
Value SAR 2,486 per sq m p.a.
Average rental for line store in major malls is
expected to remain stable, although market may
become more fragmented with not all centres able to
maintain current rental levels.
Average Regional Mall Vacancy 8% Vacancies have increased slightly over Q2 and Q3
2013 due to new stock entering the market.
Retail sector summary
21
Jeddah hotel market overview
Hotel supply
• There have been no major supply additions to the Jeddah market since Q1 2013 with only 150 rooms entering the market during 2013 to date.
• No further additions are expected in the last quarter of 2013 due to project delays.
• Among projects scheduled for delivery in 2014 and 2015 are the Rocco Forte, Novotel Business Park, Holiday Inn at Jeddah Airport, Four Points Sheraton at the Mall of Arabia and the Kempinski.
• These completions will increase the total hotel room supply in Jeddah to just over 13 000 quality hotel rooms by the end of 2015, increasing the current stock of hotel rooms by approximately 12%.
• Al Derea has announced the development of a second Hyatt Hotel in Jeddah. The 320 room property, designed by J/Brice Design International, is expected to open in late 2015 or early 2016.
• InterContinental Hotels Group has signed an agreement with Dyafah Al Mutahida (DAM) to open a 200 room Staybridge Suites. It will be developed on a 15,0000 sq m plot on Hira Street and will form part of a mixed use development including retail outlets and healthcare facilities.
Source: Jones Lang LaSalle, Q3 2013
23
Jeddah Hotel Stock (2012 – 2016F)
11,300 11,450 11,450 12,850 13,350
1,400 500
1,350
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
2012 2013 2014F 2015F 2016F
No.
of R
oom
s
Current Supply Future Additions
Hotel performance
• Jeddah continues to be one of the best performing hotels markets in
the Middle East in terms of occupancy during 2013.
• Occupancy levels have increased continuously since 2010 but are
now stabilising, with Q3 2013 recording a slightly lower occupancy
level of 78% compared to Q3 2012 (81%).
• Average room rates (ADR) have registered a continuous increase
since 2010 with 2013 showing an 11.3% increase over last year on a
YT September basis.
• The combination of stabilized occupancy and higher ADRs have
resulted in a 8.4% growth in RevPAR over YT September 2012 at
USD 193.
• Jeddah’s continued strong performance is a reflection of both
continued demand from religious pilgrims and its popularity as a
leisure destination amongst Saudi families.
Source: STR Global
24
Hotel Performance (2008 – 2013 YT September)
153 182 199 206 221 246
72% 72%
65%
70%
81% 78%
30%
40%
50%
60%
70%
80%
90%
100
150
200
250
2008 2009 2010 2011 2012 2013
Occ
upan
cy %
AD
R (
in U
SD
)
Yearly ADR Yearly Occupancy Rate
Hotel market summary
25
Indicator Level Comment / Outlook
Current Hotel Supply 11,300 rooms There have been no major additions to the Jeddah hotel supply since
2009.
Future Supply (2013 – 2014) 1,440 units
While a number of new hotel projects have been announced in the city, the
majority of these are experiencing delays with some being put on hold.
Many hotels scheduled to open in 2012 and 2013 are now in the pipeline
for 2014.
Q3 2013 Occupancy 78%
Occupancies have declined marginally to 78% (YT Sept)
and expected to remain at similar levels over rest of
2013.
Q3 2013 ADR USD 246 11.3% increase in ADR (YT Sept), compared to the
same period in 2012.
Definitions and methodology Residential: • 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:
• 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.
Retail: • Retail supply data covers floor space of organised malls over
10,000 sq m. Classification of Retail Centres is based upon
the ULI definition as published in Retail Development, 4th
Edition published by ULI.
• Rent represents the quoted average rent for the major
shopping malls in Jeddah Retail supply relates to the Gross
Lettable Area (GLA) within retail malls.
Office: • The 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 Jaffali, Madinah,
King Abdullah and Rowdah 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.
Hotels: • 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 all graded supply and
excludes serviced apartments.
• STR performance data is based on monthly survey conducted
by STR Global.
26
Market Sector Districts Covered
North (Villa) North Obhor and South Obhor
West (Villa) Basateen, Shatie, Mohammadia
North-East (Villa) Asfan, Salhia, Kassarat
West (Apt) Zahra, Rowdah, Salamah, Hamra
East (Apt) Al Marwah, Safa, Al Manar, Naseem
South (Apt) Waziria, Shafa, Madaen Al Fahad, Ajaweed
Contacts:
Alan Robertson
CEO
MENA
Craig Plumb
Head of Research
MENA
Chiheb Ben Mahmoud
Head of Hotels & Hospitality
MEA
Fayyaz Ahmad
Associate Director, Advisory
Saudi Arabia
Andrew Williamson
Head of Retail
MENA
www.jll–mena.com
COPYRIGHT © JONES LANG LASALLE IP, INC. 2013
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
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