Average rental rates across Riyadh’s retail market have increased marginally by 3% to SAR 2,725 psm for both regional and super regional malls in the last 12 months, while occupancy rates across the retail market increased by 5 percentage points to 90%, according to global property consultancy Knight Frank’s Summer 2024 Saudi Arabia Retail Market Overview.
The total existing retail supply in Riyadh stands at 3.6 million sqm, with around 27,050 sqm of retail space entering the market in Q1 2024. Knight Frank forecasts that the capital’s retail stock will grow by 28% to 4.6 million sqm by 2026.
In contrast to the capital, Jeddah and the Dammam Metropolitan Area (DMA) have experienced subdued retail market growth in the last 12 months with occupancy rates dropping by 1 percentage point in both cities, to 84% and 89%, respectively, says Knight Frank. Lease rates have responded, with average rents in Jeddah dropping by 7% to SAR 2,465 psm, while DMA regional and super regional malls rental rates have, on average, witnessed a decline of 1.3% to SAR 2,275 psm.
Average retail occupancy climbs by 5 percentage points in the last year to 90% at the end of Q1 2024
Faisal Durrani, Partner – Head of Research, MENA, explained: “The rapidity of the evolution of the retail and food and beverage landscape in Sadi Arabia cannot be overstated and Riyadh sits at the heart of this phenomenal growth, which is also powering the Kingdom’s economic diversification efforts. We are in the midst of a significant liberalisation of Saudi Arabia’s entertainment sector as well, resulting in the development of new cinemas, concert halls, theme parks, and sports complexes, facilities. This transformation is reshaping the retail landscape while also making a substantial contribution to non-oil GDP growth.
“Looking ahead, a further 100,000 sqm of space is likely to completed in the capital this year, which while welcome news for consumers, shines a light on the importance for mall operators, developers and retailers to double-down on experiential retail offerings in order to stay relevant and appealing.”
The retail sector (including hotels and accommodation) contributed nearly a quarter (23%) of the growth of the Kingdom’s non-oil GDP
Data-driven future success
Knight Frank highlights the importance of data to ensure the longevity of success of new retail market entrants.
Jonathan Pagett, Partner – Retail Advisory, KSA, commented: ‘What we are witnessing today in Saudi’s retail scene is a newly defined retail destinations and recent consumer demands evolving around ‘feels’ where purchases have become a by-product of shopping mall visitation with consumers continue to seek unique immersive experiences. With a particular focus on food and beverage and lifestyle retail developments, Saudi Arabia is undergoing an exciting transformation as it pivots towards steady adaptation to evolving consumer preferences and market dynamics.
Therefore, we believe developers should aim to avoid the ‘build it and they will come’ mentality and instead focus on ‘top down’ approach to define market share and a ‘bottom up’ strategy to fully understand consumer data and what is the optimal positioning to optimise footfall, conversion, net operating income and capital value’.
Making well-informed decisions about significant capital investment plans requires a thorough analysis of consumer trends, customer journeys, and evolving spending patterns, Knight Frank says.
Economic Diversification
Knight Frank also points to the e-commerce market in Saudi Arabia, which expanded by 28% to SAR 157 billion (US$ 41.8bn) in 2023. This growth is being fuelled by an increase in internet penetration and smartphone usage, coupled with government support for digital retail infrastructure.
Amar Hussain – Associate Partner, Research, ME, concluded: “The rapid adoption of digital payment methods and e-commerce platforms is reshaping the retail sector in Saudi Arabia. Retailers are increasingly investing in omnichannel strategies to integrate their online and offline operations, ensuring a seamless consumer experience. This digital transformation is essential for meeting the evolving preferences of consumers.”