Saudi Real Estate registered an Increase in Villa Prices and Over 20% Rise in Office Rents

The Saudi Arabian real estate sector concluded year 2023 with an expanding trend in villa prices across major cities, alongside a significant increase in office rental rates, as per a CBRE analysis.

Despite varying performances across different cities and real estate categories, CBRE anticipated continued strong results throughout the year. This varied performance is exemplified by a 63.7% surge in residential real estate transactions in Riyadh, compared with a 23.4% decrease in Dammam.

Within the residential sector, Riyadh experienced a 63.7% boost in transaction volumes compared to the previous year’s same quarter. Jeddah saw a 23.4% rise, whereas Dammam faced a 23.4% reduction in transaction volumes. Most major cities in Saudi Arabia reported growth in average apartment prices, with increases of 10.7%, 1.8%, and 2% in Riyadh, Dammam, and Khobar, respectively, while Jeddah saw a 1.9% decrease in average apartment prices. The year leading to Q4 2023 witnessed a consistent rise in villa prices across all principal cities monitored, with average increases of 5.5%, 4.8%, 0.3%, and 1.1% in Riyadh, Jeddah, Dammam, and Khobar, respectively.

In the office sector, Riyadh reported rent increases across all grades in the 12 months leading to Q4 2023, with prime rent soaring by 20.7%. Both Grades A and B in the capital saw annual rent growths of 13% and 22.2%, respectively. Occupancy rates for Grade A reached full capacity with a 0.8% increase, while Grade B occupancy stood at 99.4%. In Jeddah, Grade A office rents climbed by 19.7%, with Grade B rents experiencing a modest 1% increase. Occupancy rates for Grade A and B offices in Jeddah escalated to 92.5% and 82.1%, respectively. The Eastern Province’s office markets in Dammam and Khobar saw Grade A rents rise by 7.4% and 7.2%, respectively, with occupancy rates for Grade A at 84.2% and 83.6% as of Q4 2023, and Grade B office occupancy in Dammam at 71.6%.

The hospitality sector in Saudi Arabia generally surpassed its 2019 performance benchmarks. For the entire year of 2023, compared to 2019, the kingdom’s average occupancy rate increased by 3.5 percentage points, with the average daily rate (ADR) rising by 12.3%, leading to an 18.9% hike in revenue per available room (RevPAR). City-specific data for 2023 showed Riyadh’s average occupancy rate grew by 3.1 percentage points, its ADR by 17.5%, resulting in a 23.5% RevPAR increase. Jeddah witnessed a 7%-point increase in occupancy levels and a 0.4% ADR growth, culminating in a 12.9% RevPAR growth. Both Makkah and Madinah continued their positive performance, with occupancy increases of 3.9 and 5.6 percentage points, respectively, and ADR growths of 21.9% and 35.3%, leading to RevPAR increases of 29.8% and 46.6%. In Khobar, occupancy rates grew by 7.5 percentage points, despite a 5% ADR decline, resulting in an 8.1% RevPAR improvement. Dammam saw a 7.5 percentage point rise in occupancy and a 1.6% ADR decrease, leading to a 13.1% RevPAR increase.

The industrial real estate sector, in Q4 2023, reflected the ongoing structural and operational reforms by the Ministry of Transportation and Logistics Services, aimed at transforming the industrial and logistics sector. The introduction of 28 new cargo services and enhancements in container handling under the Saudi Ports Authority (MAWANI) elevated Saudi Arabia to the 16th spot in the Lloyds List One Hundred rankings. These structural changes, combined with limited supply, resulted in average industrial and logistics rent increases of 17.6%, 17.8%, 11.3%, and 6.6% in Riyadh, Khobar, Dammam, and Jeddah, respectively, by the year-end.

Looking ahead to 2024, Taimur Khan, Head of Research – MENA at CBRE, commented on the persistent significant demand outpacing supply across almost all real estate market sectors in Saudi Arabia. Despite some economic challenges, the market showed strong performance in 2023. Khan predicts that while supply in many sectors is expected to rise in 2024, it will likely continue to fall short of demand, suggesting that the market will maintain its robust performance throughout the year.