Riyadh: Despite the headwinds to global economic growth as a result of the pandemic, the real estate market in Saudi Arabia has remained resilient, with all sectors growing rapidly over the course of the last 18 months.
The industrial sector however stands out due to its exceptional expansion, according to the H1 Saudi Arabia Industrial Market Review by global property consultant, Knight Frank.
“The government’s transformational vision for the economy is nowhere more visible than in the real estate market, with the industrial market in particular emerging as a stand-out performer. Indeed, the 281 per cent jump in industrial sector investments in the last 12 months has delivered a staggering 30,000 new jobs across the Kingdom,” said Faisal Durrani, Partner – Head of Middle East Research, Knight Frank.
Fast growing industrial sector
The fast-paced growth in Saudi Arabia’s industrial sector has also been supported by initiatives led by MODON (Saudi Authority for Industrial Cities and Technology Zones). Apart from developing and managing 36 industrial cities around the Kingdom, spread across more than 200 million sqm of developed land, MODON has started to offer new products and services, such as ready warehouses, self-storage units and financing solutions to small and medium enterprises and entrepreneurs, including ‘plug n’ play’ factories.
“While the government’s economic initiatives have been a catalyst for the growth in the industrial sector, the pandemic has played an equally significant role. The shift to online shopping has driven a surge in requirements for modern distribution facilities, built to international specifications, which remain in very short supply,” said Durrani.
“We do not expect a let-up in online shopping and indeed the government forecasts revenues for the sector to close in on SAR30 billion this year, up from SAR 24.7 billion in 2020”.
Rising lease rates
The market’s buoyancy is driving up lease rates and occupancy levels, according to Knight Frank. In Riyadh, rents have risen by almost 7 per cent over the last 12 months and currently stand at about SAR 130 per square metre (psm), but range from SAR 65-250 psm. Meanwhile, Jeddah has recorded rent rises of 4.5 per cent over the same period, with better quality space recording rents as high as SAR 310 psm.
“The growing delta between rents for best in class and more secondary warehouses across the Kingdom is set to widen as demand intensifies for modern facilities. And with occupancy levels in Riyadh at 92 per cent and Jeddah at 87 per cent, both up two percentages points on last year, we expect upward rental pressure to persist. Riyadh in particular is expected to outperform Jeddah as stock levels have remained unchanged so far this year. Indeed, over the last six months, prime rents have increased by close to 8 per cent, while grade B rents have retreated by 3.5 per cent,” said Durrani.
Knight Frank highlights that the rising demand for prime space is being met with limited high-quality stock. Traditionally, developers have developed warehouse and logistics facilities based on speculative demand, while built-to-suit stock has always been limited. However, this trend is reversing. Developers are increasingly building stock only when demand has been confirmed, further limiting new supply.