Government spending and megaprojects to provide catalyst for future investment in KSA – JLL report

Report finds that 2019 will see ongoing activity off the back of the Kingdom’s largest-ever expansionary budget

Increased government spending and progress on major projects, such as the King Salman Energy Park, will provide a catalyst for future investment opportunities in Saudi Arabia, according to a report by Jones Lang LaSalle, a leading real estate investment and advisory firm.

In its report, JLL said that the kingdom’s is expected to register a 2.4% increase in GDP growth levels in 2018, citing Oxford Economics. This increase from the -0.9% posted in 2017 was due to stronger oil revenues and progress on new social reforms.

The ‘2018 Year in Review’ report provided an overview of the Saudi real estate market performance across the residential, office, retail and hotel sectors, keeping in mind micro-economic factors and new government initiatives that are affecting the market’s future outlook.

It added that 2019 was expected to see ongoing activity of the back of the Kingdom’s largest-ever expansionary budget of $266 billion. This spending and commitment to driving economic growth is in line with Vision 2030’s objectives, it added.

While conditions remained soft across most sectors in 2018, the hospitality and entertainment industries witnessed several major development announcements, JLL added. These included the launch of Al Qiddiya in Riyadh, and Amaala, a luxury wellness destination, both projects that are part of a gig-projects investment portfolio launched by the Public Investment Fund (PIF), it said.

“The government’s continued focus on strengthening the business environment and attracting foreign investment should have a positive impact on the real estate sector in the long run,” remarked Dana Salbak, an associate at JLL Mena.

“These milestone projects are key drivers of Saudi non-oil economic growth and are expected to trigger other large-scale real estate development activity,” said Salbak.

“In addition, the wave of development across the Kingdom and other reforms promoting Saudisation are expected to create a surge of job opportunities in the long run,” she added.

According to JLL, the entertainment sector saw the return of cinemas sparking development opportunities, as well as significant retail opportunities in the field of ‘shoppertainment’.

Although economic reforms have reduced the purchasing power of residents, namely VAT, subsidy cuts and expatriate levy, the retail sector overall is set to benefit from the long-term growth potential presented by reformative changes, the firm said.

The inauguration of Spark last year was another milestone project which is expected to fuel demand for commercial and industrial real estate in the Eastern Province of the Kingdom. With an expected GDP contribution of $5.86 billion by 2035 the park’s unique infrastructure is likely to act as a catalyst for attracting foreign investment and private sector participation.

Saudi Arabia’s potential as a global transport hub has led to the development of major infrastructure projects focused on connecting cities, in turn providing private and foreign investment opportunities, the report said. 2018 saw significant progress with the inauguration of the 448-km Al Haramain High Speed Railway and the soft opening of the new King Abdulaziz International Airport in Jeddah, said Thierry Delvaux, the CEO of JLL Middle East and Africa (MEA).

“The market dynamics in Saudi Arabia have seen a major shift in the last year, with significant government investment and new reforms expected to have a positive long term impact on the Kingdom’s real estate market,” he added.

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