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Retailers grapple with rising rents as Riyadh market heats up: Regional retailers and mall operators in the Kingdom are now facing higher rents, with average rental rates in Riyadh’s retail market increasing by 3% y-o-y to SAR 2.7k per sqm for regional and international malls, according to Knight Frank’s Summer 2024 Saudi Arabia Retail Market Overview (pdf).
The rationale: The growth in Riyadh’s retail market is tied to the expansion of the entertainment sector, including new cinemas, concert halls, theme parks, and sports complexes, contributing to non-oil GDP growth, the release read. “The rapidity of the evolution of the retail and food and beverage landscape in Saudi Arabia cannot be overstated and Riyadh sits at the heart of this phenomenal growth, which is also powering the Kingdom’s economic diversification efforts,” explained Knight Frank’s Partner and Head of Research for MENA, Faisal Durani.
ِDespite soaring rent prices, occupancy rates have risen to 90% y-o-y, thanks to a tourism boom, Knight Frank said in the report. Supply of retail spaces is growing, however, with 27.1 sq km added to the market in 1Q 2024, bringing Riyadh’s total retail space to 3.6 mn sqm. Retail space supply is expected to grow an additional 28% by 2026 to reach a total 4.6 mn sqm.
IN CONTEXT- The Kingdom saw a 56% y-o-y increase in tourist arrivals in 2023, on the back of government initiatives such as a USD 800 bn injection in developing fresh tourist destinations like Neom, The Red Sea, Diriyah and Qiddiyah. The Tourism Ministry recently doubled its 2030 targets to 150 mn tourist trips, split between 80 mn domestic and 70 mn foreign travelers.
The e-commerce market is to thank too: The sector grew 28% y-o-y to SAR 157 bn in 2023, on the back of digitalization, and gov’t support for digital retail infrastructure.
Jeddah and Dammam aren’t following the same trajectory: Each city’s retail occupancy rates declined 1 percentage point y-o-y, with Jeddah reaching 84% and Dammam 89%, in the last 12 months. Rent prices in these cities are lower compared to the Kingdom’s capital, with Jeddah’s rents dropping by 7% to reach SAR 2.5k per sqm and Dammam by 1.3% to SAR 2.3k per sqm in the same period.
