Improved transport links and growing tourist and entertainment options characterise Jeddah's ongoing development

As Saudi Arabia’s second-largest city, Jeddah serves as an important commercial centre and is also the setting for a series of important developments that are under way, which will secure its place on the map as a regional economic centre. While Jeddah already boasts the biggest seaport on the Red Sea and is the gateway to the holy cities of Makkah and Medina, it is also set to become home to new tourist destinations and the world’s tallest building, the Jeddah Tower. As such, the city plays a central role in achieving the Kingdom’s aim of reducing its dependence on oil and diversifying its economy, as laid out in the long-term development blueprint Saudi Vision 2030.

Community Living

In the northern part of the city, a mixed-use development is being built with the goal of becoming a community-based centre for investment and living. Designed by Kingdom Holding – a firm that is owned by Prince Alwaleed bin Talal bin Abdulaziz Al Saud – Jeddah Economic City will occupy more than 5.3m sq metres. Besides having residential and diplomatic quarters, business zones, commercial centres, academic institutions and tourist facilities, the development will also house the Jeddah Tower. Set to be some 1000 metres tall, and therefore the biggest skyscraper in the world once complete, the structure has an estimated cost of approximately $1.4bn and a gross leasable area of approximately 243,866 sq metres. Jeddah Tower will comprise a wide range of hotels, residential apartments, office spaces, luxury condominiums, the world’s highest observation deck standing at some 663 metres and tourist attractions.

Speaking to the media in early 2018, Mounib Hammoud, CEO of Jeddah Economic Company, said, “As of 2020... Jeddah is going to be repositioned on the international scene of modern cities. You speak about downtown Dubai, and now we’re going to have downtown Jeddah,” he added. Kingdom Holding signed a consulting agreement with France’s telecoms operator Orange Business Services in March 2018 to design the ICT infrastructure as well as smart services for the tower and Jeddah Economic City project. Despite setbacks associated with corruption investigations, and amid a broader context of uncertainty and consequent lack of investment related to the recent economic downturn, the tower’s construction has continued and is scheduled to be completed in 2020.

Train & Metro

In October 2018 a new high-speed railway, the Haramain High-Speed Rail, was launched connecting Makkah with Jeddah, King Abdulaziz International Airport (KAIA), King Abdullah Economic City in Rabigh and Medina. Trains travelling on the line reach speeds of up to 300 km per hour, cutting travel time between Makkah and Jeddah to as little as 20 minutes and greatly improving transport connections between the two holy cities of Makkah and Medina. “What is now possible is that people who live in Jeddah can go to Medina and come back that same day,” Faisal Tahir Khan, founder and CEO of FT Konsepts, a general trading and consultancy company, told OBG. “People will go to Makkah to perform their Umrah, but they will live in Jeddah, enjoying the cosmopolitan life, malls, shopping and so on,” Khan said, referring to the numerous developments that are taking place in Jeddah as a “snowball effect of investment opportunities”.

Another major railway project, the Saudi Landbridge project, is currently in the planning and tendering phase and will link Jeddah with the Saudi capital Riyadh. After expressing interest in working with the private sector on the line, the Saudi Railway Company floated tenders for the project in early 2018.

Work on the railway was originally planned to commence in 2011 but was shelved after a financial agreement with a consortium failed. In October 2018 Rumaih Al Rumaih, president of the Public Transport Authority, signed a memorandum of understanding with China Civil Engineering Construction Corporation (CCECC) representative Yuan Li for the implementation of the Saudi Landbridge Project. Expected to be over 1000 km in length and have the capacity to carry 8m tonnes of cargo per year when complete, the railway will offer a cost-effective means of transporting goods across the country from either King Abdulaziz Port in Dammam on the east coast or Jeddah Islamic Port (JIP). In late February 2019 it was announced that the Public Transit Authority had floated tenders for transaction advisory services on public-private partnership packages for two segments of the line. Regarding transport infrastructure in Jeddah city itself, in March 2018 it was announced that contracts would be offered to the private sector for key parts of a master transport plan, which would see the expansion of the city’s public transport system, including several metro lines, a light rail, tram, commuter rail, a feeder bus network and a marine taxi service. The total cost of the master plan, which was endorsed in 2014, is estimated at roughly SR45bn ($12bn), with the projects expected to be completed in 2022 and fully commissioned for use by 2025. The total length of the redeveloped public transport network will amount to over 1700 km and connect many of the city’s key transport hubs, including JIP, KAIA and the Haramain railway. “The metro component has been put on hold while the two other major components of the project – the bus feeder system and the water taxi ferry service – are rolled out gradually over several years alongside a stand-alone suspension bridge project in the north of the city,” Nidhal Taibah, founding partner in Saudi Arabia of EHAF Consulting Engineers, told OBG. “These three works will be undertaken as public-private partnerships are increasingly made available to bid on by the private sector at the appropriate time. Planning of the bus feeder system has already begun with the Public Transit Authority, a strategic partner on the project.”

Airport

As the Kingdom’s busiest airport and the main arrival point for pilgrims travelling to Saudi Arabia by air, KAIA has been undergoing a three-phase expansion that started in 2006. May 2018 saw the new airport’s soft opening, with domestic flights launching in December that year and a full opening scheduled for the first quarter of 2019, according to the airport’s website. First opened in 1981, the facility aims to increase its yearly passenger capacity from 13m to 80m by 2035, and its expansion is expected to play an important role in driving economic development and realising some of the goals of Vision 2030, such as increasing capacity to serve Umrah visitors from 8m per year to 15m by 2020 and 30m by 2030.

Speaking to press after the soft launch, Abdulhakim Al Tamimi, president of the General Authority of Civil Aviation, which supervised the airport’s expansions, said, “The new KAIA is a major milestone for Saudi Arabia and one that will help meet the goals of Vision 2030 to support and drive the Kingdom’s economic development. The airport provides a platform that will allow the Kingdom to play a greater role as a regional hub for transport and logistics services, and support the growing number of pilgrims to the two holy mosques.”

The new airport covers an area of 670,000 sq metres and will accommodate domestic and international flights through 46 gates – up from the six gates which have been in use since the soft opening in May 2018 – with this to be expanded to 96 gates at a later stage. Besides a specialised Hajj terminal, the new KAIA comprises a five-star hotel, shopping centres and a public transport system. It is also connected to both Makkah and Medina via the Haramain High-Speed Rail.

Trading Centre

Jeddah’s regional importance stems from more than just its proximity to the holy cities of Makkah and Medina. For centuries, Jeddah has hosted the largest and busiest seaport in the region, and the shipping industry has always played a central role in the city’s economy. Today, this is reflected by growth at JIP, which was established in 1976 and has since increased its number of berths from 10 to 58. The port now has 10 specialised terminals, including two container terminals, a roll-on/roll-off and passenger terminal, and a chilled and frozen cargo terminal. JIP will also be the western terminus of the Saudi Landbridge project, connecting Jeddah to Riyadh.

According to the latest full-year data from the General Authority for Statistics (GaStat), SR310bn ($82.6bn), or 61.6%, of Saudi Arabia’s imports by value arrived by sea in 2017, 35.3% of which came via JIP. This is a greater share than any other Customs port in the country and up from 32% the year previously.

While GaStat does not break down exports by seaports in its annual reports, in December 2018, JIP recorded non-oil exports of SR3.1bn ($826.5m), representing growth of 4.9% year-on-year (y-o-y). Overall throughput is, however, declining, with JIP losing market share to other regional ports.

Of total non-oil exports, approximately 14.8% passed through JIP, second only to Jubail Port, which exported 37% of the total. In terms of imports, in December 2018 JIP lead the way, processing goods with a total value of SR11.8bn ($3.1bn), equivalent to 28.1% of the overall figure, although this was down from SR12.7bn ($3.4bn) in December 2017, when JIP received 29.8% of total imports. To reduce congestion at JIP and address the rising cost of transporting goods from the port to warehouses, the authorities announced plans to develop a dry port outside the city centre in 2013. However, the future of such a project is reliant on the land bridge being constructed between Jeddah and Riyadh. “If the freight line goes ahead from Jeddah, it will create a sufficient impetus for the dry port to be constructed,” Taibah told OBG. “The Jeddah Development and Urban Regeneration Company have proposed three different sites, but planning is on hold until the land bridge is finalised.”

The new King Abdullah Port (KAP), about 120 km north of Jeddah in the Western Province, was inaugurated by Crown Prince Mohammed bin Salman bin Abdulaziz Al Saud in February 2019. Its key role in the Kingdom’s logistics master plan was emphasised; it will enable higher growth, and translate into wider intermodal connectivity. With double-digit growth rates, KAP is expected to overtake JIP in terms of volume.

Real Estate

JLL’s “The Saudi Arabian Real Estate Market: 2018 A Year In Review” report indicated that the city’s office market continued to soften in 2018, with the vacancy rate rising from 16% in the fourth quarter of 2017 to 21% in the same period of 2018. While this is undoubtedly a concern for landlords, the city’s tenants have been benefitting from lower rents, with these decreasing by around 19% from SR1164 ($310) per sq metre in the fourth quarter of 2017 to SR947 ($252) in the fourth quarter of 2018. Developments like the Haramain High-Speed Rail and Jeddah Metro, as well as the full opening of KAIA in 2019, are expected to have a positive impact on the level of demand for office spaces, particularly in locations that have easy access to those transit hubs.

The residential housing market also saw a decrease in activity, with the prices of both apartments and villas falling by nearly 7% y-o-y in the fourth quarter of 2018. This is also directly correlated to the increasing costs of expat visas, which has seen some 1m blue-collar workers leaving Saudi Arabia. The fourth quarter of 2018 saw the completion of The Golden Tower residential project, bringing the total stock of residential apartments and villas to 817,000 units. JLL estimates that an additional 7000 and 16,000 units are expected to be handed over in 2019 and 2020, respectively. Among these are Emaar Residences’ Abraj Al Hilal 3 in the integrated community development Jeddah Gate. Furthermore, contracts for the construction of over 10,000 housing units for beneficiaries of Saudi Arabia’s Sakani programme – the principal goal of which is to increase home ownership in the Kingdom to 60% by 2020 – were awarded by the country’s Ministry of Housing in August 2018. Meanwhile, the retail market maintained a relative level of stability in 2018, with the vacancy rate staying flat y-o-y. Total supply in the segment currently stands at 1.4m sq metres, though this is set to increase by 108,000 sq metres in 2019 and another 280,000 sq metres in 2020. JLL expected rents to drop further and vacancy rates to increase as more supply enters the market.

Another important development that is gathering pace is e-commerce. Fayyaz Ahmad, country head of JLL, told OBG that “e-commerce, should it reach critical mass in the mid-market, has the ability to transform entire cities. It is almost creative destruction, as entire concepts will have to be rethought.”

Tourism & Hospitality

Jeddah is an important tourist destination for the region. In line with Vision 2030 the government launched its “Destinations for Muslims” initiative in 2017, encouraging Umrah pilgrims, traders and state guests from other Muslim countries to visit different parts of Saudi Arabia outside of Makkah and Medina. Meanwhile, the “Travel & Tourism Economic Impact 2018 Saudi Arabia” report by the World Travel and Tourism Council revealed that in 2017 the direct contribution of travel and tourism to the domestic economy was SR88.2bn ($23.5bn), or 3.4% of total GDP, and was expected to rise by 3.9% in 2018. The total contribution made by travel and tourism to the national economy was even more substantial, standing at SR240.9bn ($64.2bn), or 9.4% of GDP in 2017. This figure is expected to rise by 4.2% in 2018. The tourism sector is set to be one of the most promising for investors in the years ahead, with international tourism forecast to grow by 5.8% per year between 2018 and 2022.

Various new events are also boosting tourism numbers. The Winter at Tantora Festival was held in Al Ula between December 20, 2018 and February 9, 2019, with a programme featuring weekly cultural events and musical performances. Meanwhile, the inaugural Saudi International powered by SBIA European Tour event brought golf fans to the Kingdom between January 31 and February 3, 2019. To accommodate this estimated increase in tourism numbers, there have been multiple projects brought on-line in recent times, as well as further developments under way to expand Jeddah’s hotel supply. For example, two internationally branded four-star hotels opened in the city in the third quarter of 2018: the Centro Salama on Medina Road by Rotana and the 61-room TIME Beach Villas Resort close to the corniche. Hotel supply is expected to increase further over the next couple of years, with a number of international players – including Radisson, Ibis, Marriott, Sheraton and Hilton – planning to open new hotels in the city. While the pursuit of tourism goals under Vision 2030 will likely have long-term benefits from the hospitality industry in Jeddah, growth in the hotel supply brought with it declines in other key indicators in November 2018, according to preliminary data from research company STR. For example, while supply increased by 8.4% y-o-y, growth in demand only grew by 3.4% y-o-y, causing occupancy to drop by 4.3 percentage points to 43.9%. The average daily rate also fell by 10.1% y-o-y to SR624.69 ($167), while the average revenue per available room dropped by some 14% to SR274.35 ($73.14).

Entertainment

Expanding the entertainment sector is another key pillar of the country’s Vision 2030. To this end, the government set up the General Entertainment Authority in 2016 to “organise, develop and lead the entertainment sector to provide exciting entertainment options, and tailor experiences to the needs of people from all walks of life around Saudi Arabia”. In Jeddah the entertainment industry received a boost in 2018 with the opening by shopping mall operator Majid Al Futtaim of the city’s first multiplex in the prominent Red Sea Mall. The cinema features 12 screens, including three GOLD by Rhodes – a new dining concept whereby visitors can order meals directly to their seats – as well as special children’s programmes and an IMAX theatre. In early 2018 it was also announced that the Saudi General Culture Authority will build Saudi Arabia’s first opera house in Jeddah, which could be ready as early as 2022.

According to Craig Plumb, head of research for the MENA region at JLL, “The announcement of the Jeddah Opera House, and the subsequent development of cinemas and cultural centres will introduce further investment opportunities for international and local companies, looking to move into new sectors.” He added that, “Developments in the entertainment, art and cultural sector will improve the sentiment across all categories of the real estate market.”

Outlook

Jeddah, along with the rest of Saudi Arabia, was faced with a significant slowdown in economic growth when the price of oil started a prolonged drop in mid-2014. However, with prices showing signs of recovery since early 2017 and the city working to consolidate its role as a regional trade, transit and tourist hub as envisioned in Vision 2030, the current outlook is brighter. With the new KAIA is scheduled to open in early 2019, the opening of the Haramain High-Speed Rail to the public in October 2018 – which will soon be extended to include downtown Makkah in its network – and the ongoing construction of Jeddah Economic City and Jeddah Tower, the city finds itself on the threshold of an exciting chapter in its history.