Saudi Arabia Riyadh Mall
Olaya Towers and centria mall, view from Tahlia St, in Riyadh, Saudi Arabia. Image Credit: Shutterstock

Riyadh: Shoppers will welcome the idea of having bigger malls in Riyadh in the near future. But this comes at a cost for regional retailers who have been shelling out higher rents over the last 12 months, a new survey showed.

Average rental rates across Riyadh’s retail market have increased by 3 per cent to SAR2,725 per square metre for both regional and super regional malls in the last 12 months, according to global property consultancy Knight Frank’s Summer 2024 Saudi Arabia Retail Market Overview.

The good news, however, is that occupancy rates across the retail market increased by 5 percentage points to 90 per cent in tandem, aided by the ongoing tourism boom in the country. Retail space in Riyadh now stands at 3.6 million square metres, with 27,050 square metres entering the market in Q1.

The analysts at Knight Frank forecasts that the capital’s retail space will grow by 28 per cent to 4.6 million sqm by 2026.

Dips in Riyadh, Dammam

In contrast to the capital, Jeddah and Dammam have experienced subdued retail market growth in the last 12 months with occupancy rates dropping by 1 percentage point in both cities, to 84 per cent and 89 per cent, respectively, according to Knight Frank.

Lease rates have responded, with average rents in Jeddah dropping by 7 per cent to SAR2,465 per square metre, while regional and super regional malls rental rates in Dammam have, on average, witnessed a decline of 1.3 per cent to SAR2,275 per square metre.

Faisal Durrani, Partner – Head of Research, MENA, explained: “The rapidity of the evolution of the retail and food and beverage landscape in Saudi Arabia cannot be overstated and Riyadh sits at the heart of this phenomenal growth, which is also powering the Kingdom’s economic diversification efforts.

“We are in the midst of a significant liberalisation of Saudi Arabia's entertainment sector as well, resulting in the development of new cinemas, concert halls, theme parks, and sports complexes, facilities. This transformation is reshaping the retail landscape while also making a substantial contribution to non-oil GDP growth.

“Looking ahead, a further 100,000 sqm of space is likely to completed in the capital this year, which while welcome news for consumers, shines a light on the importance for mall operators, developers and retailers to double-down on experiential retail offerings in order to stay relevant and appealing.”

Data-driven future success

Knight Frank highlights the importance of data to ensure the longevity of success of new retail market entrants.

Jonathan Pagett, Partner – Retail Advisory, KSA, commented: ‘What we are witnessing today in Saudi’s retail scene is a newly defined retail destinations and recent consumer demands evolving around ‘feels’ where purchases have become a by-product of shopping mall visitation with consumers continue to seek unique immersive experiences.

“With a particular focus on food and beverage and lifestyle retail developments, Saudi Arabia is undergoing an exciting transformation as it pivots towards steady adaptation to evolving consumer preferences and market dynamics.

“Therefore, we believe developers should aim to avoid the ‘build it and they will come’ mentality and instead focus on ‘top down’ approach to define market share and a ‘bottom up’ strategy to fully understand consumer data and what is the optimal positioning to optimise footfall, conversion, net operating income and capital value’.”

Making well-informed decisions about significant capital investment plans requires a thorough analysis of consumer trends, customer journeys, and evolving spending patterns, reiterated Knight Frank.

Digital diversification

Knight Frank also points to the e-commerce market in Saudi Arabia, which expanded by 28 per cent to SAR 157 billion ($41.8 billion) in 2023, fuelled by an increase in internet and smartphone usage, coupled with government support for digital retail infrastructure.

Amar Hussain - Associate Partner, Research, ME, concluded: "The rapid adoption of digital payment methods and e-commerce platforms is reshaping the retail sector in Saudi Arabia. Retailers are increasingly investing in omnichannel strategies to integrate their online and offline operations, ensuring a seamless consumer experience. This digital transformation is essential for meeting the evolving preferences of consumers."