A time for building: Growing investor interest looks set to help remedy the housing deficit

Home to around 15% of the country’s population and a sizable industrial segment, the Eastern Province represents one of the most important real estate markets in the Kingdom. Major cities in the region are currently experiencing a housing deficit, although by contrast there is an over-supply of office space. This deficit has helped to attract investor interest, and several largescale residential and mixed-use developments currently in the works should help to address the housing shortage as well as anticipated future population growth.

Increases in the regional price of cement in 2013 point to the extent of construction activity. Much of this is taking place in the industrial segment, in the form of major new projects and developments. However, by attracting new workers to the region, these projects are also set to drive further demand for housing and other segments of the real estate market.

RESIDENTIAL MARKET: According to the “Comprehensive Housing Survey” for 2010, there were 619,285 housing units in the province, including 287,402 apartments, 161,911 villas and 103,175 houses. Al Ahsa had the largest number of housing units, at 153,12, followed by Dammam (149,101) and Al Khobar (96,809).

Population growth is set to drive expansion in residential demand. The authorities expect the province’s population to rise from an estimated 4.53m in 2013 to 5.68m by 2025, representing a compound annual growth rate (CAGR) of around 2%, roughly in line with the national population. However, recent trends suggest that major cities in the province are likely to see faster growth. For example, according to the 2010 census, the populations of Dammam and Al Khobar expanded at a CAGR of 3.3% and 4%, respectively.

Such growth comes against a backdrop of already tight residential supply; according to Kuwait Financial Centre (Markaz), the Dammam and Al Khobar residential markets faced a supply shortfall of around 43,000 units in 2010. In a report from late 2012, the firm forecast that the residential real estate market in the two cities would remain undersupplied in 2013 and 2014 as a result of population growth of around 4.6% a year and limited new supply. Local developer Injaz Development has put the annual demand for new residential units in the province at 60,000.

Several developers are looking to take advantage of such high demand growth: the region has attracted more than SR100bn ($26.67bn) of investment in real estate projects over the last couple of years, according to Injaz Development. One of the largest local residential projects is Khobar Lakes, a 2.64m-sq-metre gated community project being built 12 km east of central Al Khobar by Emaar Middle East – a joint venture between Emirati developer Emaar and Saudi firm Al Oula Real Estate Development Company – at a cost of SR4.6bn ($1.23bn). The project, the first phase of which is due to be completed by 2016, will contain more than 2000 villas of 230-650 sq metres in size, divided between nine separate “villages”; it will also host a 110,000-sq-metre shopping centre, two schools and various sports facilities. The development is aimed principally at Saudi and GCC nationals. Emaar Middle East has been handing over villas in the project’s first village, Al Nada, to owners since 2012 and is working on a second, Al Ghadeer.

Other significant projects in the region include Dammam Hills, which will contain 700 units and is due to be completed by 2015, and the 92,500-sq-metre Al Nada residential development (also in Dammam), which is being built by Al Mutlaq Real Estate Company.

OFFICE & MIXED SPACE MARKET: In contrast to the residential market, the office rental market is over-supplied, with vacancy rates in 2012 running at around 20%, according to Markaz. This has put downwards pressure on rents, which fell by around 15% in 2008-12. However, while the firm said it anticipates over-supply will continue over the “medium term”, it also expected the surplus to shrink faster than in Riyadh. In the mixed space segment, major projects include the 3.34m-sq-metre Al Marina complex, which is being developed by Injaz. The project will feature residential units, office blocks, a mall, hotels, a medical city and a manmade lagoon.