Given the scale of the pandemic and current world economic conditions, the government of Saudi Arabia has launched a set of stimulus packages totalling more than SAR 120 billion to support the private Sector. Asma Dakkak, CBRE Senior Manager Consulting, looks at demand drivers and trends that are emerging from the pandemic.

How is demand evolving?

Residential

Historically, demand for residential products was driven by large households with typology offerings focused on villas. However, demand is shifting to smaller, yet efficient unit sizing with affordable rates. The sense of community living, and the incorporation of shared facilities is also gaining prominence across KSA

Office

Demand for office spaces are primarily driven by business activities and the growth of SME’s supported by the government incentives and initiatives. A prominent trend witnessed in the market, is the introduction of innovative and flexible office offerings, with potentially larger allocations of space per employee supporting distance guidelines.

Retail

Retail developments are increasingly being offered as supporting assets within mixed-use developments, with large allocations towards F&B outlets incorporating outdoor spaces. Entertainment and leisure components continue to gain prominence supported by the demographic makeup across KSA.

Hospitality

Hospitality demand is primarily driven by the local market. However, Government initiatives, such as the relaxation of visas and the enhancement of key cultural sites, as well as improving the entertainment and transport infrastructure are also expected to support future demand levels.
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What trends are we likely to see in H2 2020 and beyond?

Residential

Residential sale prices and the cost of development are expected to increase, subsequently impacting demand and absorption rates in the short-term due to the increase in VAT. As many professionals are expected to continue a flexible workstyle, working from home (WFH) pinpoints the importance of delivering affordable yet efficient units and designs to allow and accommodate ample WFH space is expected. The latter could potentially impact performances for high-end and luxury products.

Office

In order to mitigate market risk, landlords are expected to continue offering flexible contract terms, all the while ensuring and adopting the required hygiene, health and safety regulations. Workers are expected to visit their office less frequently, but when they do, it will be to collaborate and create with their colleagues. As such, office spaces are expected to become more flexible and agile, increasing hybrid workplace and larger space per employee.

Retail

The evolvement of e-commerce coupled with the large supply expected to enter market could pressure overall performances. We expect an acceleration in e-commerce, touch-free and experiential retail ecosystems moving forward, with virtual shopping and frictionless delivery anticipated to become increasingly popular.

Hotels

In the short-term, hotel operators are expected to reduce their operating and capital expenses in light of COVID-19. Upon the easing of restrictions, international brands offering unique leisure experiences will explore market opportunities setting them aside from current market offerings.

What asset classes are succeeding during these times?

Industrial & logistics

Manufacturing companies have started partnering with logistic distribution companies to avoid distribution challenges, and with the aim of minimizing operational costs. This trend has led logistic companies to expand their footprint by acquiring built-to-suit warehouses in areas within close proximity to end-users.

Hospitality

Despite government restrictions caused by COVID-19, continued enhancement to support the natural sights and domestic tourism have been made apparent. Locals and residents are increasingly opting to travel internally to destinations with cooler weather climates, with Assir and Al Baha being prime destinations. Hotel developments, particularly across resorts and chalets have recorded higher occupancy levels relative to the market over the weekends and public holidays.

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