Real estate in Saudi will temporarily slow before growth in the long-term – Savills

A combination of a SAR70bn stimulus package, monetary policies aimed at invigorating business sentiment, and previous experience with a coronavirus are all positives when it comes to anticipated recovery in Saudi Arabia, says Savills.

In its new report analysing the impact of Covid-19 on the Saudi market, the global real estate consultancy anticipates a strong recovery in demand, particularly across the office and retail sector during H2 2020 – provided the current situation is contained and business activity resumes at the earliest.

According to Savills, Saudi faces a precarious situation due to the declining global oil demand, dropping oil prices, and the looming threat of the pandemic spreading globally and within the region.

However, strict measures may prove effective in both preventing the spread of Covid-19 and supporting the private sector, especially small and medium enterprises and economic activities most affected by the virus.

Previous experience with Middle East respiratory syndrome (MERS) – a species of coronavirus that emerged in Saudi Arabia – has meant that the country was well poised to address the crisis quickly, said David O’Hara, head of Savills in Saudi Arabia.

“The country’s experience in dealing with MERS in 2012 has led to these quick and effective measures from the government. Its social and medical infrastructure is also well positioned to address the logistical challenges posed by the pandemic. These measures and support factors have so far been effective.”

The government has stepped in to support the economy with monetary policies aimed at invigorating business sentiments and ensuring sufficient liquidity in the market. In the past few weeks, the SAMA (Saudi Arabian Monetary Authority) has announced a SAR50bn programme to support the private sector, aimed at promoting economic growth through a package of measures.

In addition to the measures announced by SAMA, the Ministry of Finance has announced urgent initiatives to support the private sector, especially SMEs and economic activities most affected by the virus.

The financial stimulus package of these initiatives is worth more than SAR70bn, which consists of exemptions and postponement of some government dues to provide liquidity to the private sector .

Though the positive impact of these new policy measures will trickle down to the economy and the real estate sector in the long-term, short term economic growth is likely to remain muted, said O’Hara.

“As per latest estimates by Oxford Economics, non-oil growth is forecast to grow at 0.7 per cent (from 2.8 per cent previously) in 2020. This may have a negative impact on real estate activity in the country in the immediate future as expansion plans and market entry strategies may be postponed.

“The existing travel restrictions have already led to key policy decisions being delayed on a few of the ongoing mandates where our company is involved.”

Savills also reported that site inspections for new office leases have been postponed while the lease start date on a few contracts has been pushed back.

Close to 80 per cent of the active enquiries represented by Savills are ongoing but at a slow pace as companies struggle to start fit-out work on the new premises and key decision makers across multinational companies revisit their business strategy.

“Most of the above-mentioned delays are purely because of the current challenges posed by Covid-19. Fundamentally, there is a strong demand for investment grade real estate across Saudi Arabia,” said O’Hara.

“A few of the ongoing deals have been finalised in the last few weeks, indicating a long-term optimistic view most companies are adopting while considering their real estate requirement in the kingdom. Over the last 12-18 months, the kingdom has liberalised investments guidelines and opened up its economy to new business sectors. This has led to a surge in enquiry levels from regional and global companies keen to set-up / expand their operations in the country. We anticipate a strong recovery in demand especially across the office and retail sector during H2 2020, provided the current situation is contained and business activity resumes at the earliest.”