Jeddah draws top hotel brands despite economic challenges

Jones Lang LaSalle (JLL), world's major real estate investment and advisory firm, released its Q3, 2016 Jeddah Real Estate Market Overview report, which assesses the latest trends in the office, residential, retail and hotel sectors. 
The latest market summary report discusses the opening of two internationally branded hotels - the Movenpick City Star Hotel (228 keys) and the Centro Shaheen by Rotana (254 keys).
The opening marks the first property for Centro Shaheen by Rotana in Jeddah, while the Movenpick City Star Hotel is its third property in the city. A further two Movenpick properties are under construction and expected to open within the next three years. 
Hotel occupancies in Jeddah have declined by 4 percent compared to the same period last year, but remain strong overall at 72 percent, according to the report.
Unlike most other regional markets, average daily rates (ADRs) in Jeddah have also shown strong performance over the summer months (increasing by 5 percent compared to the same period last year) due to domestic tourism during the summer holidays and the Hajj pilgrimage in September. 
However, a challenging economic backdrop amid low oil prices and government reforms continues to add to a slowdown across the residential, retail and office real estate sectors.
Jamil Ghaznawi, national director and country head of JLL KSA, said: “As the government changes the strategic direction of the country, the demand-supply ratio widens slightly among the office, residential and the retail market. The hotel segment has also witnessed a decline in occupancy rates of four percent compared to Q3 in 2015 despite average daily rates (ADR) increasing during the summer months.”
He added: “The office market also observed an increase in the number of vacancies over Q3 as the government introduces measures to resize the civil service sector to reduce government expenditure and increasingly weave into the private sector. We’ve also noted that landlords responded to the current economic climate optimistically, converting offices into alternative assets such as hotels.”
The report says the retail sector was affected by the post-oil economy phenomenon, which has seen subsidies cut and taxes introduced. As a result, these elements have affected the spending power of Saudi households. 
“Although retail vacancies have decreased slightly over the past year, they increased from 7 percent to 10 percent over the past quarter as the overall market begins to soften. These vacancies however were mainly attributed to shopping centers in less prime locations,” said Ghaznawi. 
With the reduction of jobs in the civil sector, the residential market is impacted by the subsequent limited purchasing power of civil servants. 
“Keeping this in mind, the market conditions are currently in favor of tenants who are looking to occupy vacant units. They are now in the position to negotiate lower rental prices, increasing the demand for the rental market in the residential sector,” says Ghaznawi. 
Office: Several office buildings in Jeddah completed over Q3, most of which are located on Prince Sultan Street, adding over 23,000 sqm of office space to the market.
There have been a number of vacancies over Q3 mainly from the energy and construction sector occupiers. Quarter-on-Quarter lease rates have remained virtually unchanged at SR1,124 in Q3, while Year-on-Year lease rates have decreased marginally by 1 percent. 
Residential: The total supply of residential units in Jeddah currently stands at almost 800,000 units, with approximately 4,000 number of units entering the market in Q3.
There has been little change in the apartment segment of the market Quarter-on-Quarter with both sales and rents remaining unchanged. Year-on-Year sales decreased marginally, and rents increased by around 3 percent showing further signs of slowing down. The villa segment of the market has witnessed a decline in sales. 
Retail: Construction of the Elaf Galleria completed in Q3 moderately increasing supply by just over 2,900 sqm of quality retail space.
Signs of the impact of weakening spending power on demand for retail space have started to emerge. Although Year-on-Year vacancies have decreased by 2 percent, Quarter-on-Quarter vacancies increased from 7 percent in Q2 to reach 10 percent in Q3. 
Hotel: Q3 2016 witnessed the opening of two internationally branded hotels: The Movenpick City Star Hotel (228 keys) and the Centro Shaheen by Rotana (254 keys) which adds to the burgeoning supply of quality branded midscale hotels in the city.

Source: Arab News