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Wed 12 Jul 2017 02:44 PM

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Saudi public sector benefits u-turn offers hope to 'subdued' retail market

New JLL report says reinstatement of benefits could boost spending in Jeddah

Saudi public sector benefits u-turn offers hope to 'subdued' retail market

Jeddah's retail sector remained "subdued" during the second quarter of 2017 but sentiment has been boosted by the reinstatement of benefits to public sector staff, according to a new report.

JLL’s Real Estate Market Overview has shown Jeddah’s retail sector is experiencing some improvements, but overall the city’s real estate sector has seen further declines in performance in Q2.

“The pace of decline has generally declined suggesting that some sectors are approaching the bottom of their current cycle,” said Mr Jamil Ghaznawi, national director and country head, JLL, Saudi Arabia.

“Market sentiment is expected to improve somewhat later this year.”

The report said the removal of the 20 percent quota restriction on Hajj pilgrims should see increased demand for both retail and hospitality in Jeddah.

Further reforms to energy costs and the general higher cost of living may, however, curb domestic spending compared to historical trends, it added.

The report said the reinstatement of benefits to public sector workers in Q2 is positive news for the retail market, which suffered weaker performances in light of the introduction of these cuts in 2016.

Whether or not household spending will return to the same levels as the pre-wage cuts period is yet unclear, JLL said.

It added that although wage levels have been restored, the cost of living remains higher than before, due to the removal of subsidies on utilities and energy costs.

The cost of living is also set to increase further with the government considering further revisions to energy costs in 2017, in addition to the recent Sin Tax on tobacco and energy drinks, and the introduction of VAT in January 2018.

JLL said Q2 witnessed the completion of the expansion of Red Sea Mall, adding 18,000 sq m of retail space to the market. The total stock of quality retail space now stands at approximately 1.2 million sq m.

Avenue Mall in North Obhur (116,000 sq m) is expected to be the next major completion following Jeddah Park, with this project likely to draw demand from other malls in the northern districts once completed.   

The number of community and neighbourhood shopping centres in Jeddah is expected to increase as well, JLL said.

Its report noted that overall market rents for the retail sector decreased by 2.4 percent compared to Q1 and by 4.3 percent year-on-year, adding that rents may soften further over the year due to upcoming supply entering the market.

However, stronger household spending following the reinstatement of public sector wages should curb the impact on rents, meaning rents are likely close to bottoming out.

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