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Top Trends for Saudi ArabianReal Estate in 2011
27 March 2011
Trends
2
Jones Lang LaSalle (NYSE:JLL) is a financial and professional services firm specialising in real estate.
With 2010 global revenue of US$ 2.9 billion, Jones Lang LaSalle serves clients in 60 countries from 750 locationsworldwide, including 180 corporate offices.
We are the only real estate services firm who have been named as “World’s Most Ethical Companies” List by theEthisphere Institute for the third consecutive year (2008–2010).
Named as one of Fortune’s 2011 “World’s Most Admired Companies”.
One Company. One Experience. Around the Globe.
Jones Lang LaSalle MENA The largest real estate services firm in the MENA
region with over 110 professionals working in22 markets.
US$ 200 billion Real Estate Advisory.
US$ 1+ billion Real Estate Fund / Transactions.
Full service offices in Riyadh, Jeddah, Abu Dhabi,Dubai, Cairo and Istanbul.
Dedicated teams for Morocco, Maghreb andLevant.
Riyadh
Jeddah
Dubai
Abu Dhabi
Istanbul
Cairo
Morocco
3
Top Trends for Saudi Arabian Real Estate
in 2011
4
2011: KSA Offers Stability Amid Regional Political Shifts
Strategic importance of the region within a broader global context
Strong long term fundamentals of the region
Recent events reinforce strategic importance of the KSA as one of the largest and most stable markets in the MENA region
4.2
0.6
3.6
5.7
1.8
-1.9
4.1 3.75.5
1.3
4.4 4.5
-3.0-2.0-1.00.01.02.03.04.05.06.0
2008 2009 2010 2011
Real GDP (% growth)
KSA World MENA Source: Global Insights, 15 March 2011
5
1. Stimulus package opportunity to build communities
Largest budget ever increased to over SAR 1 Trillion, supports property- Real Estate Development Fund (SAR 40 billion)- 500,000 residential units (SAR 250 billion) - Write off of payments / loans, increase in loan limit
Impact on real estate sector in 2011 - Increasing supply and demand- Stimulate construction activity- Challenges: impact on land prices, increasing residential rents / prices
Short term implications: inflationary pressures Long term community investment
- Improves social fabric, increases standard of living, creates jobs- Requires holistic and coordinated approach to community building: urban regeneration,
transport / infrastructure, retail planning
Long term potential for growing economy and developing real estate sector
6
2. Government leadership is a catalyst for real estate
Direct / indirect impact across sectors 1. Residential: encouraging large residential communities
- General Housing Authority – 500,000 units- National Guards – 17,000 units- GOSI – 691 units
2. Retail: New communities and increased consumer spending => retail demand 3. Office: Job growth leads to office demand 4. Civic facilities: Schools (610, SAR 150 billion), Hospitals and health related facilities
(12, SAR 69 billion) Delivery issues will make partnerships with private sector key (PPP, BOT) Frameworks needed for implementation => opportunities for private sector Diverse range of strategic partnerships to ensure social goals achieved
Investments open excellent opportunity for partnerships with the private sector
7
3. Infrastructure critical for realizing real estate goals
Major long term investments in infrastructure and transport
- Airports: 6 Projects (SAR 25 billion) - Ports: 2 Projects (SAR 12 billion) - Railway: 23 Projects (SAR 96 billion)
Increases connectivity, improves competitive advantage, attracts investment
Direct impact on real estate - Rebalancing: integrating outlying cities - Creating new hubs of value - Job growth supports demand- Bolsters all real estate sectors, especially
industrial Connects the region with KSA as the core
Investment in world class transport infrastructure underpins investment in and demand for real estate
Source: Saudi Railway Organization
8
4. Property Management differentiates winners and losers
Extensive supply pipelines - Substantial capital assets, needs professional
management- Tenant favourable, widening gap between high / low
quality- Demand driven: global tenant prefer assets managed
by professional property management firms Leasing strategies, processes, frameworks needed Maximise revenues, minimise costs, minimise
depreciation Facility management
- Repositioning non-performing retail and office - Importance of lifecycle services
Protecting long term investments, world class assets
- Office & Retail (short term), Residential (long term)
Long term capital values will be determined by quality of management
Source: Jones Lang LaSalle
Riyadh Office Market
16%8%
14%14%
15%11%
9
5. Light industrial / logistics on the rise
Strong oil prices leads to expansion of industrial sector
Key driver of economic and job growth More specialist logistics developments in 2011
- Major sector, but currently poorly serviced in terms of quality modern real estate
- Strong occupier demand for locations offering multimodal logistics networks (air, sea and rail)
- Modon: 75 million sq m. Investors’ interest strongest for securely leased,
institutional grade product Research Parks – university related research parks
to commercialise academia investment, promote growth
Growing asset class will promote economic / job growth
Developed Land Area within Industrial Estates (m2)
2007 2010 2015
Stock 42,200,000 75,800,000 150,800,000
Growth (m2 pa) 11,200,000 18,000,000
% Growth (pa) 26% pa 24%
Source: Modon
10
6. Growth of middle income, mid scale residential
Traditionally dominated by micro developments (less than 5 units) Stimulus
- Need 900 New Houses Per Day completed over next 5 years- Purpose built vs. purchase, impact on land prices
Market niche - Extensive high-end supply (70% of product currently targeting top
10% of households)- Government initiatives cover affordable housing - Private developers: niche is middle income housing
(SAR 650K – 800K) Middle income housing opportunities
- Best met through mid to large scale developments - Shift to professional developers, limited options - Infrastructure spend will encourage private development
Requires new acquisition structures - Family dynamics need higher space requirements, pressure
on affordability (SAR 200-250 / ft2)- Off plans sales starting - But mortgage law implementation remains critical
Achieving social objectives will necessitate innovative acquisition structures
11
Market Directions – Riyadh
Source: Jones Lang LaSalle
Q1 2011
Rental GrowthSlowing
RentsFalling
Rental GrowthAccelerating
RentsBottoming Out
Retail
Residential
Hotel
Office
Industrial
Rental GrowthSlowing
RentsFalling
Rental GrowthAccelerating
RentsBottoming Out
Q1 2012
Hotel
Retail
Office
Residential
Industrial
Riyadh: growth primarily in retail and residential
12
Market Directions – Jeddah
Source: Jones Lang LaSalle
Q1 2011
Rental GrowthSlowing
RentsFalling
Rental GrowthAccelerating
RentsBottoming Out
Retail Residential
Hotel
Office
Industrial
Rental GrowthSlowing
RentsFalling
Rental GrowthAccelerating
RentsBottoming Out
Q1 2012
Hotel
Retail
Office
Residential
Industrial
Jeddah: growth primarily in residential and hotel
13
Jones Lang LaSalle’s Top Trends in 2011
Stimulus packages provide long term investment in community building
Growth of middle income, mid scale residential housing developments
Saudi government leadership is the catalyst for real estate
Real progress on infrastructure will drive real estate growth in the Kingdom
Property management will become critical and determine the winners and losers
Light industrial / logistics on the rise
Riyadh: growth primarily in retail and residential
Jeddah: growth primarily in residential and hotel
14
Q & A
www.joneslanglasalle-mena.comCOPYRIGHT © JONES LANG LASALLE IP, INC. 2011This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the priorwritten consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation ismade, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not acceptany liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.
John HarrisCo-Head of KSA, Riyadh Office [email protected]
Soraka Al KhatibCo-Head of KSA, Jeddah [email protected]
David DudleyRegional [email protected]
Contacts:
www.joneslanglasalle-mena.comCOPYRIGHT © JONES LANG LASALLE IP, INC. 2011This publication is the sole property of Jones Lang LaSalle IP, Inc. and must not be copied, reproduced or transmitted in any form or by any means, either in whole or in part, without the priorwritten consent of Jones Lang LaSalle IP, Inc. The information contained in this publication has been obtained from sources generally regarded to be reliable. However, no representation ismade, or warranty given, in respect of the accuracy of this information. We would like to be informed of any inaccuracies so that we may correct them. Jones Lang LaSalle does not acceptany liability in negligence or otherwise for any loss or damage suffered by any party resulting from reliance on this publication.
Steve WilsonHill & [email protected]
Bansrelal GoshichandMarketing [email protected]
Hussam Al-MaymanHill & [email protected]
Jesse [email protected]
For Marketing and Media Queries: