Saudi Arabia’s real estate market has recorded improving key performance indicators in 2022, with its performance almost uniformly improving across its offices, hospitality, industrial and residential sectors, according to leading property expert CBRE.

However, owing to short supply of quality stock and delay in the handover of new projects, the expected results are yet to come, stated CBRE in its Saudi Real Estate Market Review Q4 2022.

Overall, Saudi real estate sectors have recorded fragmented performance across cities and asset classes in 2022, it stated.

CBRE said residential transaction volumes fell by 24.5% during 2022, compared to a year earlier. Overall, the number of transactions totalled 175,067 netting a value of SR126.5 billon ($34.4 billion) over the period, posting a marginal decline of 3.7% year-on-year, it added.

On a regional level, it has seen total transaction volumes fall across the three major regions over the course of 2022.

The deal volumes in Riyadh, Jeddah and the Dammam Metropolitan Area (DMA) fell by 33.9%, 16.2% and 20.9% respectively.

With regards to price performance in the residential sector, average villa prices in Riyadh, Jeddah and Dammam increased by 6.2%, 6.7% and 17.4% in 2022, stated the expert.

According to CBRE, Al Khobar was the only major city to record a decline in average villa prices over this period, with prices falling by 4.4%. The apartment segment of the market showcased much poorer performance in the year to Q4 2022 overall, where only Riyadh saw average growth in the year, with prices increasing by 17.4%.

Over this period, average apartment prices contracted across Jeddah, Dammam and Khobar by 0.2%, 1.1% and 4.4% respectively. Given the marked increase in interest rates, increasing development costs and uniform price growth over the last two years in all market segments mentioned above, a drop-off in demand and consequent slowdown or reversal in price growth has been expected, it said.

Looking ahead, as affordable stock matching the quality and configurations required by owner-occupiers is delivered, CBRE expects to see a gradual rate of recovery in activity levels, it added.

Looking at Saudi Arabia’s office sector figures, occupier demand remained strong over the last quarter of 2022. This was particularly so in Riyadh, where stock levels remain anemic at best and many upcoming developments are mostly fully pre-leased.

Grade A offices in Riyadh saw average rental rates increase by 5.8% year-on-year increase in Q4 2022, while Grade B rents rose by 1.5%. As for average occupancy rates, both Grades A and B stock saw occupancy levels improve slightly to 99.2% and 98.7% in 2022, marking annual increases of 0.8 and 1.9 percentage points respectively.

In Jeddah, Grade A office rents increased by 7.4% in the 12 months to December 2022, whereas Grade B rents remained unchanged. Occupancy rates for both Grade A and Grade B office rose to reach 90.6% and 76.0%, up from 87.8% and 74.6% in 2021.

In the Eastern Province, Dammam and Khobar’s office markets saw Grade A rents increase by 7.9% and 6.2% respectively over the year to Q4 2022, with Grade B rents remaining flat. Grade A occupancy levels in Dammam and Khobar at the end of 2022 stood at 81.2% and 78.7% respectively.

On the industrial sector, CBRE said a prominent component of Vision 2030 was to transform Saudi Arabia into one of the world’s leading industrial and logistics hubs.

With the launch of the National Industrial Development and Logistics Program (NIDLP), changes in regulations, standards and relocation will lead to the creation of concentrated clusters within and in close proximity to major cities for industrial and logistics related activities and associated services.

Given the level of demand for such industrial and logistics space and extremely limited levels of supply, the realisation of this aspect of Vision 2030 will be critical to a number of sectors. In Riyadh, average rent prices for warehouses registered an increase of 3.7% in Q4 2022 compared to the corresponding quarter in 2021.

In Jeddah, the property expert said average rents as of Q4 2022 fell by 9.4% from a year earlier.

Rental rate performance for industrial and logistics stock in Dammam and Khobar has been fragmented over the year to Q4 2022, with average rents increasing by 6.1% and declining by 21.1% respectively, it stated.

Looking ahead, CBRE said it expects the industrial and logistics sector to continue to garner significant interest from both occupiers and investors alike.

Subdued levels of supply and burgeoning demand will likely continue to drive performance. However, in the long run, as the sector matures and international quality stock begins to be more readily available, we expect significant fragmentation in performance, it added.

Taimur Khan, the Head of Research (Mena) at CBRE, said: "Saudi Arabia’s real estate sector has recorded improving key performance indicators in 2022, with performance almost uniformly improving across its offices, hospitality, industrial and residential sectors."

"However, with quality and suitable stock in short supply and the delivery of new projects still not on the immediate horizon in most cases, we continue to see activity not reach its true potential," noted Khan.

"In its key metropolitan centres, the delivery of this stock will be key in achieving future growth, in terms of prices, rents and transactions," he added.

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