“The Saudi retail market offers investors a unique proposition. The sheer size of the market alone represents good long-term potential for brands entering the market, while factors including a high proportion of generation Y&Z, harsh climates in the summer and a lack of other entertainment options means that consumers are looking to malls as recreational facilities where they can socialise and spend time with their families,” said Imad Damrah, Managing Director, Colliers International KSA. “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:

  • KSA’s population will increase from c. 32.3 million in 2016 to c. 34.3 million by 2019. Approximately 65% of current population is composed of generation Y&Z.
  • The disposable income of KSA’s residents has increased from c. SAR 674 bn in 2011 to c. SAR 1,062 bn in 2015 (58% increase). Growth in disposable income, however, is projected to slow down with an increase from c. SAR 1,147 bn in 2016 to c. SAR 1,485 bn in 2019 (30% 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 mn sqm out of which c. 412,000 sqm is currently under construction.
  • Of the planned 2.4 million sqm of GLA, only 17% 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 Sqm) or smaller retail centres (with GLA less than 20,000 Sqm).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% of line shop space and pay c. 19% less than other retailers (on a per sqm basis).
Damrah continued: “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.”