The Saudi real estate market witnessed solid growth in the first quarter with the residential prices on the rise in both capital Riyadh and the Kingdom's leisure destination Jeddah, according to a report.

During the period, Riyadh saw an increase in both sale prices and rental levels across all sectors of residential market with the average sale price for villas increasing to SR4,200 ( $1120) per sq m and apartment prices also higher at SR2,600 per sq m, said the report by property expert Jones Lang LaSalle (JLL).

In Jeddah, the villa prices increased by 11 per cent in prime locations monitored by JLL hitting an average of SR4,600 per sq m with the western region of the city (closest to the Red Sea) remaining the biggest attraction for villas.

The residential and hotel sectors of the Jeddah market performed most strongly this year, with continued growth in sale prices, rental levels and occupancies, the JLL said in its '2012 Jeddah and Riyadh Real Estate Overview' report.

JLL pointed out that with more new stock entering the market, occupiers had an increased choice of options and this was resulting in greater competition and more variation in performance as tenants increasingly focused on better quality projects.

Older and poorer performing projects are losing out in the competition for tenants and are consequently requiring repositioning and more active property management, said the real estate expert in its key findings, said the expert in its key findings.

On the office sector, JLL said continued demand for new and high quality office space in Jeddah was reflected by the sale of the Eastern Tower in the upcoming Headquarters project on the Corniche (13,400 sq m) to the Savola Group for its new head office.

The completion of additional projects is however likely to result in downward pressure on office rentals over the second half of 2012, it stated.

On the retail sector, the property expert said the Jeddah market was becoming more fragmented. While rents for line stores in the best performing centres had increased to over SR3,000 sq m, other centres were experiencing increased vacancies and reduced rentals as landlords sought to attract tenants.

According to JLL, Jeddah had been one of the strongest performing hotel markets in the GCC during 2012, with occupancies (79 per cent), room rates (SR770) and RevPAR, all up over the year to April.

This reflects the continued attraction of Jeddah as a leisure destination for Saudi families, the report added.

Commenting on the Jeddah report, Soraka Al Khatib, the head of JLL’s Jeddah office said, 'The residential and hotel sectors of the Jeddah market have so far performed most strongly this year, with continued growth in sale prices, rental levels and occupancies.'

'In the office and retail markets, the completion of more projects will increase options for tenants during 2012 and will lead to more competitive rental levels being offered to retain and attract tenants,' he added.

In Riyadh, the take up of space in office projects due to complete later this year (eg: ITCC and Riyadh Business Gate) shows the continued demand for office space in the capital.

This includes an 80,000 sq m pre-commitment to a large Saudi telecom provider in the ITCC project which represents one of the largest deals in the Riyadh market for some time, the report said.

According to JLL, the Riyadh retail market remained relatively well balanced, with no significant change in either occupancies or rental levels recorded so far this year.

As with Jeddah, there is an increasing variation between the rents that can be achieved for line stores in the most popular centres  and the average rental value (around SR2,380 sq m) that has remained unchanged over the first quarter of the year.

No new hotels have been completed in Riyadh during the first quarter of 2011, with the market continuing to adjust to the input of 1,200 new rooms during 2011. However, the occupancy levels and room rates have declined over the first quarter of 2012, it added.

But this position is expected to be short lived as government initiatives promote more visitors to the capital, said a senior official.

“Continued take up in ITCC and Riyadh Business Gate shows that there remains active demand for new high quality office space in Riyadh,' explained John Harris, the head of JLL’s Riyadh office.

The completion of these and other major projects (such as phase 1 of the King Abdullah Financial District) later in 2012 will change the face of the Riyadh central business district (CBD), resulting in a ‘flight to quality’ as tenants trade up from older buildings,” he added.-TradeArabia News Service