2019 Expected to be more positive on the back of the reform and development initiatives

14 March 2019

Dana Salbak, Associate, Research of JLL, this year’s Gold Workshops and Awards Sponsor, speaks to Cityscape about how the Kingdom has made significant progress in providing opportunities for international and local investors through implementing various urban development and regeneration schemes and investing in infrastructure. 

What is the current overview of the Saudi market?

On the macroeconomic level, stronger oil revenues and progress on economic and social reforms have helped drive the Saudi economy in 2018, with GDP growth levels expected to register 2.4% according to Oxford Economics. GDP is expected to grow further to 2.9% in 2019 on the back of strong reform momentum and increased government spending. Inflationary pressures are expected to ease off as the base effect of the VAT and subsidy cuts wear off, registering 2% in 2019F (Oxford Economics). Meanwhile, we are likely to witness growth in the labor market in the medium-to-long term following several reforms aimed at promoting Saudization, particularly in the retail sector, and encouraging more female participation in the labor force. This is particularly significant because by providing women with the opportunity to contribute to the economy, Saudi Arabia is proactively targeting some of the goals outlined in Vision 2030. These include lowering the country’s unemployment rate from 11.6% to 7% and increasing women’s participation in the workforce to 30% by 2030.
 

What are the current real estate trends shaping the market in KSA?

On the real estate level, some of the main trends include the ushering in of a new era for hospitality and tourism, one that is focused on developing the sector as the main contributor to the growth of non-oil GDP. Developing new industries and expanding alternative real estate sectors such as the industrial market is another main trend. This is evident by the inauguration of SPARK (King Salman Energy Park) in the Eastern Province. The world-class infrastructure and advanced technologies integrated within the project are likely to act as a catalyst for expanding the industrial sector and encouraging private and foreign investments. Developments to the transport and infrastructure of the cities is the third main trend shaping the real estate market. The Haramain Railway connecting Jeddah and Makkah is expected to support the growing number of Pilgrims to the Makkah region. The Railway also connects to Jeddah Airport and King Abdullah Economic City, thus easing and promoting business travel. Another key development in the transport sector was the soft opening of the new King Abdulaziz International Airport (KAIA) in Jeddah. This forms part of plans to welcome 30 million passengers annually. KAIA features a 28,000 sqm commercial area and an onsite hotel of 175 keys.

 

The past year has been a challenging one for the real estate market. Do you think there will be an air of caution for investors this year or are initiatives like Vision 2030 attracting local and international investors?

We expect there to continue to be some risk factors that will weigh on investor sentiment, namely oil price volatility, interest rate hikes, and geopolitical tensions, but overall 2019 is expected to be more positive on the back of the reform and development initiatives. The government’s commitment to providing housing for Saudi nationals and boosting homeownership rates is expected to attract more local investors. For international investors and businesses, the launch of large-scale projects in the hospitality market for example, and developments in the transport and infrastructure sector will improve the competitiveness of the Kingdom and tap into its potential as a hub providing opportunities for private and foreign investments.

 

What sectors are likely to be the bright stars this year?

Activity in the retail and hospitality sectors are expected to drive the real estate market in 2019. The entertainment and tourism industry is set to witness ongoing activity on the back of major large-scale project announcements (e.g. Amaala / NEOM / Al Qiddiya). Meanwhile, the retail market is undergoing significant change in the Kingdom on the back of cinemas making a return and the growth of shopping-entertainment ‘shoppertainment’ which is likely to see innovative, unique and international concepts tap into the Saudi retail market. Ultimately, both these sectors are expected to play a significant role in driving Saudi Arabia’s non-oil economic growth. They are also likely to generate more job opportunities, especially for women.

 

How important are events like Cityscape Jeddah to boost confidence in the market?

The Kingdom has made significant progress in providing opportunities for international and local investors through announcing and launching large-scale and world-class projects, implementing various urban development and regeneration schemes and investing in infrastructure to improve connectivity and the urban landscape of the cities. Events like Cityscape offer a platform for industry professionals whether they are private developers or government entities to display these opportunities and engage with both international and local investors which in turn boosts sentiment and improves the dialogue between all parties.