Central bank vote boosts Riyadh's office demand

OFFICE BOOST: The choice of Riyadh for the GCC's central bank has further boosted the city's office market, a new report says. (Getty Images)

Riyadh’s already booming office market had been boosted further following the announcement that the central bank for the GCC monetary union will be located in the Saudi Arabian capital, according to a real estate report released on Wednesday.

A total of 1.1 million square metres of office space was expected to be delivered between 2009 and 2014, said the report by real estate services firm Jones Lang LaSalle.

But demand for offices was expected to grow further in the wake of the controversial decision last month to house the headquarters of the regional central bank in the King Abddullah Financial District, it said.

But the main challenge facing the real estate market in the GCC’s largest city was how to provide for the increasing shortfall in affordable housing, said the report, entitled Riyadh City Profile.

Currently there were less than 3,000 completed housing units available and only 4,000 serviced plots ready for construction by families, it said.

The real estate market in the city was much more stable than in other cities, according to the report.

It indicates that all sectors were either approaching or had passed their cyclical peaks over the past six months, with minimal price and rent increases recorded. Prices and values were declining in many sectors combined with a continued correction in the price of land, Jones Lang LaSalle said.

Housing demand in Saudi Arabia, the GCC’s most populous country, had been relatively unaffected by the global credit crunch.

A number of new real estate investment funds had been created to develop residential property in Riyadh in partnership with local landowners, which, the report, said provided an early indicator of possible increases in the supply of housing.

However, major questionmarks remained over the relatively small number of experienced house builders in the local market and continued uncertainty over the confirmation of the country’s mortgage laws, according to the report.

In the retail sector, while headline rents were holding up, effective rents were falling as operators demanded concessions and even rent free periods for locations where footfall numbers did not meet their expectations, it said.

It said the retail sector was struggling, with indicators of private consumption showing that retail spending growth had been modest in late 2008 and into 2009 and growth in point-of-sale transactions slowing to 13 percent in February – down from 34 percent in the same month last year.

Demand for hotel rooms in Riyadh should continue to rise, as was indicated by a noticeable increase in business activity in the city in 2009 on the back of a number of events and conferences.

Following strong growth in the hospitality sector in recent years, hotel occupancy rates peaked at 74 percent in 2007, before declining in 2008 and the beginning of 2009 due to the global economic downturn, the report added.

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