Commercial Real Estate Market in Saudi Arabia: Shortage of 1 mln GLAs

Interview with Khalid A. Al-Sehaibany, General Manager of Hamat Properties

What is the situation in the real estate market? Prices, speculation, evaluation and land availability in the commercial real estate market?

The Saudi Arabian commercial real-estate market has been booming in the last decade. There has been an increase in the value of commercial properties and malls. Every year, there are almost 200,000 GLAs in major cities like Riyadh, Jeddah, and Dammam. There is a lot of demand since 2004 and right up to 2017.

Since 2010, the prices of retail space and rents have gone up because of the huge demand and the political situation in some of the Arab countries. There is a lot of potential here and new retailers are coming to Saudi Arabia to invest heavily – from 2013 to 2017. There are over 100,000 GLAs for the new retailers coming here.

What are the latest developments in the commercial real estate sector that are going to influence the market?

There is a lot of demand for retail space in the commercial centers and a lot of retailers are coming here to invest. There are 200,000 GLAs. There is a shortage in the market of almost 1 million GLAs in the next 5 years. Saudi Arabian market will have more shopping centers in the coming years. For example, Hamat Properties is planning to build 6 new malls in 2015/16 and 2017.

What are the factors driving this demand?

The demographics is driving the demand. Saudi Arabia is experiencing health population growth. In addition, there is a shortage in the GLA or the commercial center sector here. There is a lot of space on the supply side to build more shopping centers and accommodate more retailers in the coming years.

Tell us about the purchasing power of the people in Saudi Arabia.

Saudi Arabia is the largest retail country in the GCC. It makes up for 42% of the whole GCC. In 2011, the estimated sales figures was 83 billion US dollars. It is expected to rise up to 130 billion US dollars by 2018.

How important is the sector in Saudi Arabia for the national economy?

The real estate sector in general is a very important sector for the economy. Because of the demand and low construction costs, to build plazas, you only need an average land area of 10,000 to 15,000 square meters. The average size for shopping centers varies from 50,000 square meters to 200,000 square meters. The cost is controlled and regulated in the real estate and the retail sector as well. It is an attractive sector and many companies are moving towards real estate and commercial centers. 

How important is the retail sector for the national economy?

The government is pushing for “Saudization” and feminization. It is trying to employ more women in the retail sector. The Labor Ministry is pushing all the retailers to hire female sales staff. This will change the retail labor-force mix-up and bring more Saudis into the sector. This is very important for the economy and national employment.

Is there a significant upside potential when it comes to the retail sector or is the market fully saturated?

The retail sector is not saturated. There is still a gap between the supply and demand. We need to accommodate more retailers in the Kingdom. Saudi is almost 40% below the UAE in GLA.

In Saudi Arabia, there is a shortage in the retail and real estate sectors. In the next 5 years, the market needs one million GLAs in Riyadh alone. Jeddah is lagging by 1.5 million GLAs. In the main cities, there is a shortage of 2.5 million GLAs, which is quite a big figure. Many retailer want to enter the Saudi market as soon as possible, because of many factors.

Hamat Properties is one of the leading retail real estate companies in the country. What makes you the market leaders? What are some of the specialized services that you offer? Tell us a bit of the history of the company. What is the founding idea?

Hamat used to be Mohammad Al-Habib Real Estate Company. After the marriage with Jarir Investment in 2012, it became one of the leaders in the property management in Saudi Arabia.

We are the only professional property management company in Saudi Arabia. Currently, we manage 9 malls and 6 strip malls covering almost 500,000 GLAs. We will be doubling the capacity to 1 million GLAs by 2017. We have 6 malls and 6 strip malls in the pipeline.

Do you want to grow by almost 100%?

Yes, within the next 3 years from 2015 onwards. We have already started construction of 3 malls and 3 plazas.

Tell us about the Saudi culture. Is it a mall culture? Do people like to come to malls? What, in your opinion, do the malls need in order to cater to the needs of the people? 

There is a demand for shopping centers in the Saudi market, because of the climate. There is a lot of heat and dust. People want a covered place to hang around in and carry out their shopping in colder or warmer places.

Due to climate, malls are the only convenient places for the Saudis to shop and get entertained. That’s why there is a huge demand for the shopping centers. The footfalls give us an estimate on the number of daily shoppers in the destination malls. In the Hayat malls we receive almost 35,000 to 45,000 shoppers daily, which is quite a significant number. As a group, we receive almost 12 million shoppers a year. 
 
What are your tactical strategies to attract even more people to the malls and how to offer superior experience to the shoppers?

Hamat organizes a lot of campaigns and marketing events to attract more shoppers, and also to attract retailers to our malls. We are not only a commercial company; we are also trying to carry out our social duties as well. We are supporting many health organizations, hospitals, universities etc. by sponsoring their events.

Coming back to the retail sector, it is true that Saudi has been able to attract the global brands when it comes to clothes, cars etc. Do you think there can be more brands here?

60% of the Saudi population is between 17 and 25 years. Most youngsters are looking for new brands to be more fashionable. We get many suggestions from them for new brands. We conduct market research using our agencies to understand what the Saudi shoppers want and what brands they are looking for, so that we can accommodate these brands in our malls.

Quite a few Saudis are travelling around the world. They spend most of their times at malls. They always ask to bring in new brands to Saudi malls, especially in Riyadh and Jeddah and the Eastern province.

Do you think that people are dissatisfied with what is available here? Do you get a lot of suggestions?

Yes, we have done surveys in 3 malls. We get a lot of suggestions. There has been a recommendation for 2 or 3 brands. In our questionnaire, almost 300 shoppers have asked for only one brand – Forever 21. The brand targets the younger generation.

Saudis prefer the more fashionable brands. It does not matter if it is European or Asian. Some Korean and Japanese brands are popular. We were surprised at the suggestion to bring some Japanese brands.

But Forever 21 is a good example of the shoppers asking for one particular brand. They don’t always travel to Dubai to shop.

In this case, do you approach them?

I don’t approach them. I tell the Saudi retailers about any particular requests that have come out of our surveys. We ask them about the possibility of getting these products.

Who are these retailers?

They are Saudi retailers with multiple brands like Anesco Group, like Gear. Hamidi’s got 5 to 6 brands.

In the Panorama Mall, we brought in Joe’s Café. It is a Café, which also showcases fashion. It is a British brand. It is in Knightsbridge in London. The results are amazing.

After it was opened, people had to book one week in advance for tables. Most of the Saudi people visit Joe’s Café in London. This place is known for its desserts and for their risotto, which is one of their most important and delicious desserts on their menu.

Let’s get back to the three brands you mentioned.

We have received requests to accommodate some brands in our malls in Hayat and Panorama in particular. We have requested the Saudi retailers to bring these brands to the Saudi markets. We succeeded in bringing our shoppers the brands requested by them. It was Zeno, a great shop. It was a great pleasure for our shoppers to see their brands coming up on their request.

Do you think the government should give more importance to the retail sector?

The government of Saudi Arabia is pushing the retailers to employ Saudis in the retail sectors. This initiative will help the government to reduce the unemployment rate. We expected the retail sectors to employ over 1 million Saudis. This is an important development for the youngsters in Saudi Arabia. 

Can you mention the projects that you are currently working on?

We have 6 malls and 6 plazas in the pipeline. These are spread all over the Kingdom. We have one mall each in Riyadh, Jeddah, Al Baha, Tabuk and in the eastern province. This is just the malls. The plazas are spread across Riyadh, Jeddah and the Eastern province.

How do you face competition?

Hamat is the only professional company offering services in property management, because of our strength in operations, leasing, collections, and also in design concepts, manuals and facilities as well.

There may be some individuals and some small establishments trying to get more projects in this field. The shopping center business in Saudi Arabia is a very trendy and dynamic area. The retail real estate sector is attracting many investors with no prior knowledge of the sector. This will become a problem and many newly constructed malls might not be profitable due to design flaws or lack of professionalism.

Hamat is the only company that serves the third parties. We do not only service our partners. We have a very different clientele basis in different cities. This is how we differentiate ourselves from our competitors.

Do you see competitors from Kuwait or the UAE entering the Saudi market?

The Saudi market is attractive to everyone. However, there are some barriers to start business in Saudi Arabia.

What is the value of your current project?

The value of the 6 projects may be 2.5 billion Saudi Riyals.

Last year you got the “CEO of the year” award. What does the award mean to you? What are you trying to implement in your leadership style, your management style?

Being awarded the CEO of the year in the real estate sector is a big responsibility. It is very important to work harder and harder for in the coming 5 years.

The award is the recognition of our professional team working to support Hamat. My team has made Hamat the best property management company in Saudi Arabia.

Our retailers are our backbone, who are supporting us in all malls and plazas. We do not even start a project, unless we have initial approvals from the retailers. Only if our project is visible and attractive, they will join us in our project. It is all thanks to the Hamat staff for all the support.