Challenging economic conditions, low oil prices and government reforms have contributed to a slowdown in Jeddah’s real estate market, according to JLL.
Residential, retail and office property have all been affected, the property consultancy said in its latest Jeddah Real Estate Outlook.
“With the reduction of jobs in the civil sector, the residential market is impacted by the subsequent limited purchasing power of civil servants, with the market now approaching the peak of its current cycle and showing initial signs of softening in some sectors,” JLL noted in its report.
The total supply of residential units in Jeddah currently stands at almost 800,000, with approximately 4,000 entering the market in Q3, the report said.
Year-on-year property sales have decreased marginally, while rents increased by around 3 percent, with the market “showing further signs of slowing down”, JLL said.
Villa sales saw a decline of 4 percent and 7 percent quarter-on-quarter and year-on-year respectively, it added.
“The market conditions are currently in favour of tenants who are looking to occupy vacant units. They are now in the position to negotiate lower rental prices, increasing the demand for the rental market in the residential sector,” said Jamil Ghaznawi, National Director and Country Head of JLL in Saudi Arabia.
The report also noted the opening of two internationally branded hotels – the Movenpick City Star Hotel (228 keys) and the Centro Rotana by Shaheen (254 keys) – in Jeddah.
Hotel occupancies in the city have declined by 4 percent compared to the same period last year, but remain strong overall at 72 percent, with average daily rates (ADRs) showing a “strong performance over the summer months”, the report noted.
The office market saw “a number of vacancies” in the third quarter, mainly from the energy and construction sector occupiers.
“The office market also observed an increase in the number of vacancies over Q3 as the government introduces measures to resize the civil service sector to reduce government expenditure and increasingly weave into the private sector. And landlords responded to the current economic climate optimistically, converting offices into alternative assets such as hotels,” said Ghaznawi.
The report added the retail sector had been hit by the “post-oil economy” phenomenon. This has affected the spending power of Saudi households, and in turn the demand for retail in Jeddah, the report said.
“Although retail vacancies have decreased slightly over the past year, they increased from 7% to 10% over the past quarter as the overall market begins to soften. These vacancies however were mainly attributed to shopping centres in less prime locations, with few vacant units in the prime malls,” said Ghaznawi.