Changing Landscape of the Real Estate Sector in Riyadh – Retail Supply Vs Demand
The retail sector in Riyadh has witnessed robust performance during the review period (2011-2016) despite the steady increase in gross leasing area.
The primary reason for this trend is because shopping is considered to be one of the few available recreational activities in the city, indicating that the market can support a higher GLA per capita in the coming years. The volume of retail that is under construction is much lower than those projects in the planning process.
It is essential to note that factors such as location, neighboring competition, catchment area and efficiency of mall management must be taken into consideration before the development of retail malls.
The total retail supply in Riyadh inclined from ~ million square meters during 2012 to ~ million square meters of gross leasing area during 2016, registering a CAGR of~% during the same period. Conversely, total occupied retail space inclined to ~ million square meters during 2016 from approximately ~ million square meters during 2012, achieving a CAGR of ~% during the same period.
The timely completion of major retail projects including Al Qasr Mall and Ethra Mall during 2012-2013 had resulted in the oversupply of retail space in this sector. As new brands and retail outlets entered this sector, retail demand grew faster than retail supply with occupancy rate inclining to ~% during 2013 from ~% during 2012.
While high rental rates (especially in super-regional malls) had deterred many retail chains from expanding their outlets, increasing expansion, renovation and repositioning of community centers and stand alone stores resulted in supply gap reducing to ~ thousand Sq M. of gross leasing area during 2013.
Retail Mall Categories
The retail real estate market in Riyadh comprises of various small and large scale developmental projects. The retail mall categories comprise of regional, super regional and community centers.
Super regional and regional malls accounted for ~% of the overall retail supply in Riyadh during 2016. These mall categories have witnessed a high occupancy rate during the review period as they are equipped with state of the art facilities and are located in lucrative commercial and residential areas. Community centers comprise of standalone retail outlets, supermarket and hypermarket, and have accounted for ~% of overall retail supply in the city during 2016.
Average Rental Rates
The rental rate charged by mall developers in Riyadh varies across different mall categories. It is evident that average rental rates across regional and super regional mall are much higher in comparison to community centers and standalone store because of better location and infrastructure facilities. Within these regional and super regional malls however, rental rates differ based on area required, location within the mall and brand power.
The annual average rental rate across all types of retail malls and community centers was estimated to be SAR ~ per Sq M. during 2012. Due to the poor performing regional malls and abundance of space across community shopping centers, average rental rates across these formats have witnessed downward pressure during 2013.
Future Retail Demand and Supply
The total retail supply in Riyadh is estimated to incline to ~ thousand Sq M. of GLA by 2021 from ~ thousand Sq M. during 2016, registering a CAGR of ~% during the same period. Conversely, retail demand is projected to augment from ~ thousand Sq M. during 2016 to ~ thousand Sq M. by 2021, achieving a CAGR of ~% during the same period.
Saudi Vision 2030 with respect to feminization in the retail sector has targeted women participation in the workforce to increase from the current 22% to 30% during this period. Increasing female participation in the retail sector will positively impact growing number of female owned businesses coupled with higher income and spending power.
Future Supply-Demand Gap
The negative decline in rental rates that occurred in 2016 due to excess retail supply is expected to continue during 2017 as well; causing occupancy rate to marginally increase as more retailers will look to expand their business portfolio and open new outlets across the city.
Given the oversupply in the market, mall developers are expected to delay large scale projects to ensure average rental rates do not continue to decline in the future. The completion of this smart city along with other malls and community centers coupled with a stagnant occupancy rate is expected to cause retail oversupply to reach ~ thousand Sq M. of gross leasing area during 2019.
The improving business environment and competitive rental rates are expected to cause occupancy rate to remain relatively stable during this period. Increasing retail supply along with a slow conversion rate is expected to cause retail oversupply to reach ~ thousand Sq M. of gross leasing area by 2021.
Key Topics Covered in the Report:
Ksa Real Estate Market
Community Center Riyadh Market
Shopping Centres in Riyadh
Riyadh Retail Real Estate Market
Ksa Retail Real Estate Market
Al Sadhan Malls in Riyadh
Rental Rates Super Regional Malls Riyadh
Shopping Malls in Saudi Arabia
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Ankur Gupta, Head Marketing & Communications