Weak Oil Prices, Slow Economy Weigh on Dammam Real Estate Market

Dammam’s real estate market may be poised for a correction, as weaker global crude prices and a weaker economic expansion have weighed on Saudi Arabia's oil hub.

Property consultancy JLL, in its review of the Dammam Metropolitan Area (DMA) market said: “The DMA real estate market has suffered for the decline in oil revenues and the subsequent slowdown in the Kingdom’s economic growth over the past year.”

“All sectors the real estate market appear to have peaked over the past year and are now poised in the early downturn stage of their market cycle, with rents and prices generally experiencing a small decrease.”

Dammam’s residential sector posted a marginal decline in both sale prices and rentals over the past six months because of a steady hike in the inventory of available units, which JLL said grew an average of about 6,000 units a year between 2014 and 2016.

Average sale prices for villas dipped 2 percent while prices for apartments fell 1 percent over the past six months, while rentals for villas declined 2 percent and rates for apartments were cut by 4 percent.

The Saudi government under its Vision 2030 plan aims to increase the rate of home ownership among citizens by 5 percentage points to 52 percent by 2020. A government initiative is expected to provide 1.5 million housing units in the next five years.

The office sector meanwhile continued to suffer from subdued demand amid steady supply wherein, during the first the half, about 48,000 square meters of space was added to the market.

“This has increased vacancies to 38 percent, the highest level of any major city in the Kingdom and has shifted the market in favor tenants,” JLL said.

Rents however have not fallen dramatically, with the rates down by only 3 percent to SR1,014 per square meter. There is however pressure for steeper cuts in the face of further increases in vacancies.

Dammam’s retail stock meanwhile was almost stagnant, with only about 96,000 square meters added during the first half to boost the aggregate supply to 1.1 million square meters.

JLL noted only about 68,000 square meters of space were completed between 2014 and 2016, or an average of 23,000 square meters a year.

Retail rents will be unchanged for the next 12 months, the consultancy added, although the completion of the Dharan Boulevard (60,000 square meters) and Dammam Mall (54,000 square meters) mall projects by 2019 could exert downward pressure on prices.

Dammam’s hotel sector, highly dependent on travel related to the oil and gas sector, has softened during the past year with occupancies falling by as much as 10 percent, JLL said.

The additional supply of hotel rooms in the market, which resulted in higher vacancies and price competitions, likewise contributed to the weakness, the consultancy added.