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ANALYSIS

Al Faisaliah Tower Mall in Riyadh.
Consumers are looking to malls as recreational facilities.

Strong fundamentals drive Saudi retail market

RIYADH, May 3, 2016

The sheer size of the Saudi Arabia market driven by a growing, young population with a high disposable income represent good long-term potential for brands entering the market, said an industry expert.

“The Saudi retail market offers investors a unique proposition,” added Imad Damrah, managing director, Colliers International KSA, a leading real estate services company.

“Factors including a high proportion of generation Y&Z, harsh climates in the summer and a lack of other entertainment options mean that consumers are looking to malls as recreational facilities where they can socialise and spend time with their families,” he added, commenting on an analysis released by the company.

“However, it is important to note that factors such as location, competition, catchment area specifics, and mall management must be considered before initiating the development of retail malls.”

Highlights of the analysis and data include:

•    Saudi Arabia’s population will increase from c. 32.3 million in 2016 to c. 34.3 million by 2019. Approximately 65 per cent of current population is composed of generation Y&Z.

•    The disposable income of Saudi Arabia’s residents has increased from c. SR674 billion ($198 billion) in 2011 to c. SR1,062 billion in 2015 (58 per cent increase). Growth in disposable income, however, is projected to slow down with an increase from c. SR1,147 billion in 2016 to c. SR1,485 billion in 2019 (30 per cent increase).

•    GLA per capita is lowest in Riyadh. This is expected to increase in the coming years due to strong forthcoming supply, planned to be c. 2.4 million sq m out of which c. 412,000 sq m is currently under construction.

•    Of the planned 2.4 million sq m of GLA, only 17 per cent is under construction owing to the challenges in developing a super-regional mall, as most of the forthcoming supply is in the form of super-regional malls.

•    Developers are increasingly focussing on size as a differentiation factor – either super-regional malls (with GLA greater than 150,000 sq m) or smaller retail centres (with GLA less than 20,000 sq m).However, more attention is needed on meeting the growing trend to socialise rather than shop in a mall.

•    Growing demand and limited availability of land in Jeddah might restrict forthcoming supply and shift supply dynamics towards smaller centers (which is already evident). This might make the operating environment of the current supply more positive in terms of potential increases in rents with sustained occupancies.

•    Colliers has collated and analyzed the majority of recognized retail outlets within targeted areas of Saudi Arabia and their franchise partners. Retail franchises are ranked according to the area they lease within line shops, which reveals that on average, the top 5 retailers lease c. 39 per cent of line shop space and pay c. 19 per cent less than other retailers (on a per sq m basis).

“As new supply comes online, we expect market dynamics to shift. In order to maintain higher occupancy and rentals, we anticipate that developers will look to new retail formats that will create destinations for consumers to socialise while also supporting hospitality and office components. This can be achieved through the introduction of entertainment and food and beverage options as well as first to market brands,” Damrah concluded. – TradeArabia News Service




Tags: Saudi Arabia | | Colliers | retail market |

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