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Saudi Arabia: Mecca real estate sentiment gets a boost in H1

The overall sentiment in the Mecca real estate market was boosted during the first half of 2017 as the government lifted the quota on Hajj pilgrims despite ongoing major infrastructural work on the Holy Mosque, a report said.

According to H1 2017 Makkah Real Estate Market Overview report from JLL, this shift in policy should further benefit retailers in Makkah who typically enjoy above average sales during the Hajj season.

Retail rents declined by 7.5% in the central area and over the past six months, as owners adjusted rentals to more realistic levels, to the benefit of retailers. Rents are expected to stabilise at current levels over the next six months.
Data from the Ministry of Hajj and Umrah highlighted an increase in the number of Umrah pilgrims during H1 as the number of visas issued increased by 5% to reach 6.7 million compared to last year’s Umrah season.

The rising number of pilgrims can be attributed to the partial completion of the Holy Mosque expansion, and extending the Umrah season by an additional month. Although the hotel sector witnessed a decline in performances in H1 2017, the expected increase in the number of Hajj pilgrims later this year paves the way for the sector to improve over H2 2017.

“The Mecca market overall witnessed a positive turn with the government now easing policies on the number of Hajj and Umrah pilgrims,” said Craig Plumb, head of research, Mena, JLL.

“With these changes and an increase of Umrah pilgrims in H1, all the real estate sectors are expected to benefit, with a particular focus on the hospitality and retail sectors. The increased efforts by the government to improve the city’s infrastructure and introducing the Mecca Metro, should increase the demand for commercial, residential and hospitality space,” he added.

According to JLL, Mecca is the only major city in Saudi Arabia to have witnessed a significant increase in sales activity in the residential sector over H1 2017. This is due to residential land prices dropping to reasonable rates following a glut in transactions, inducing interest from buyers.

There were three recorded completions in the office sector over H1 2017, which added approximately 7,700 sq m to the market. Unsurprisingly, there is limited supply in the pipeline over the next two years. Despite vacancies decreasing by 3% to reach 16% in H1 2017, rents also decreased by around 5% highlighting the limited demand for office space in Makkah.

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