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Key Takeaways
- Saudi Arabia’s retail real estate sector is undergoing a transformation, driven by the country’s Vision 2030 initiative, economic diversification efforts, and an evolving consumer landscape.
- The outlook for 2025-2026 remains optimistic, with strong demand anticipated due to factors such as population growth, increasing tourism, and changing consumer preferences.
- However, the sector is also facing challenges, including oversupply risks and evolving retail formats that could weigh on rental rates and real estate landlords’ profitability amid high capital spending.
- Additionally, lower oil prices and market volatility amid escalating global trade tensions and a fragmented geopolitical environment could dampen government spending and non-oil economic growth in Saudi Arabia.
The growth path for retail real estate in Saudi Arabia is looking good for 2025-2026. The government’s commitment to infrastructure development, the rise of mega projects, and the expansion of international brands into the Saudi market will boost demand for retail spaces. Riyadh, Jeddah, and other key cities are seeing a surge in new retail developments, ranging from shopping malls and entertainment complexes to mixed-use developments that integrate retail, hospitality, and residential spaces. An influx of tourists, driven by Saudi Arabia’s push to become a tourism hub, will further boost retail sales and attract investors and developers. The government’s foreign investment policies—such as allowing 100% foreign ownership—could also help grow the sector.
While the overall market outlook remains positive, the sector will also need to navigate challenges such as changing consumer behavior, e-commerce growth, and most importantly the potential effects of oversupply. Additionally, Saudi Arabia’s consumer spending and sentiment could be materially affected by weaknesses in oil prices, which remain volatile given trade tensions.
Underlying Retail Real Estate Trends Remain Robust
Saudi Arabia's Vision 2030 aims to diversify the economy beyond oil, with a strong focus on retail, tourism, and entertainment. The plan includes ambitious projects such as NEOM, The Red Sea Project, and AlUla, which are intended to attract millions of visitors, boosting retail demand. Saudi Arabia’s per capita income is strong, and consumer spending on retail and entertainment is expected to grow given the dominance of youth in the growing population. The country’s gradual transformation toward being a more socially liberal, entertainment-friendly society is leading to higher footfall in malls and retail destinations.
| Saudi Arabia selected indicators | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2024 | 2025 | 2026 | 2027 | 2028 | ||||||||
| Nominal GDP (bil. $) | 1,091 | 1,133 | 1,203 | 1,269 | 1,337 | |||||||
| GDP per capita (000s $) | 30.9 | 30.8 | 31.5 | 32.0 | 32.4 | |||||||
| Real GDP growth (%) | 1.3 | 4.0 | 4.6 | 3.7 | 3.6 | |||||||
| CPI growth (%) | 1.7 | 1.9 | 1.8 | 1.8 | 1.9 | |||||||
| Source: S&P Ratings, published in "Saudi Arabia Ratings Raised To 'A+' On Sustained Socioeconomic And Capital Market Reforms; Outlook Stable," March 14, 2025. | ||||||||||||
Saudi Arabia's population of over 35 million is increasing steadily, with a growing younger demographic drawn to shopping, dining, and entertainment experiences. Urbanization trends are driving demand for modern retail formats, including lifestyle centers, entertainment hubs, and high-end shopping malls. The country has become a major target market for international brands in the fashion, luxury, and food and beverage segments. Global retailers are expanding their footprints in Saudi Arabia, leading to increased demand for premium retail spaces.
The government has revised its annual tourist visitor target to 150 million by 2030 after surpassing its yearly aim of 100 million in 2023. As of third-quarter 2024, 85.5 million international and domestic tourists had spent Saudi riyal (SAR) 209 billion—both figures 5% higher than the same period in 2023. Events like Riyadh Season, Jeddah Season, and the expansion of religious tourism in Makkah and Madinah are key demand drivers for retail real estate. The country will also be hosting global events such as Expo 2030 and the 2034 FIFA World Cup, which support the need to grow retail offerings.
While e-commerce is growing rapidly, it is also driving demand for physical stores that offer in-store experiences. E-commerce in Middle East North Africa (MENA) is valued at $1.80 billion and grew 30% in 2024 according to a joint report by Flowwow and Admitad. Online orders in Saudi Arabia grew 9%, ahead of the UAE, which grew by 7% in 2024 according to the report. But for people in the Middle East, going to the mall has always been about much more than shopping: the mall is perceived as a space for entertainment, recreation, dining, social interaction, and more. Many brands are therefore adopting omnichannel strategies to integrate online and offline shopping, which supports retail space demand.
New Supply Will Pressure Rental Rates
The Saudi retail real estate market is witnessing a wave of new supply, with several large-scale developments set to open in 2025-2030. According to Knight Frank's 2024 Saudi Arabia Giga Projects Report, 7.4 million square meters of new retail real estate is under development, including at Diriyah Gate, The Red Sea Project, and NEOM. The volume of retail projects in the pipeline raises the risk of potential oversupply, in our view, particularly in secondary locations where demand may not be sufficient to absorb new retail spaces.
With the volumes of retail space entering the market, rental rates could face downward pressure. Key factors influencing rental rates are location, competition, and asset quality, among others. With new malls and retail centers in the pipeline, landlords will likely offer competitive leasing terms to attract tenants. Knight Frank forecasts Riyadh’s supply to grow by 50% by 2027 and Jeddah’s to grow 75% over the same period. This rapid growth could lead landlords to provide rental discounts, revenue-sharing lease models, and other incentives to maintain occupancies. Retailers are increasingly prioritizing foot traffic and tenant mix over sheer size. While prime locations in Riyadh and Jeddah will likely maintain stable rental rates due to strong demand, secondary locations might see a drop in rental values due to oversupply.
Traditional retail offerings face the need to evolve to meet changing consumer preferences. The demand for large anchor stores is declining as Saudi consumers increasingly shift toward digital shopping and experience-driven retail. We have seen this trend in the UAE as well. This shift could weigh on rental rates in traditional malls, where businesses could struggle if they fail to adapt to these trends.
Landlords Could Benefit From Exercising Caution
Risks in the sector are being exacerbated by high development costs that could burden the credit quality of real estate companies. The cost of developing large-scale retail projects is substantial, and landlords may face profitability challenges if rental yields do not meet expectations. They also face capital expenditure (capex) execution and operational risks given the greenfield nature of their developments.
For example, Arabian Centres Company (BB-/Stable/--, Cenomi Centers ) could be facing such pressures. Capex is high at SAR2.4 billion–SAR2.6 billion in 2025 as it advances its target to increase its 1.4 million square meter gross leasable area (GLA) by 44% by 2027. The company is working on six projects, with its two largest—Jawharat Riyadh and Jawharat Jeddah—scheduled for completion in late 2025 or early 2026. We forecast its S&P Global Ratings-adjusted EBITDA margin will improve from 2025, potentially exceeding 70% by 2026. This comes after its profitability weakened during 2020-2021, amid pandemic-related disruptions, then remained subdued in the ensuing years because of significant cost increases and high receivables impairments. We anticipate Cenomi Centers will continue to focus on cost efficiencies and cost controls following its structural operational spending improvements, which we think will boost its profitability in 2025. Given its high capex and limited free operating cash flow generation, Cenomi Centers has reported elevated S&P Global Ratings-adjusted debt to EBITDA of 10.2x in 2024 but we expect this ratio to improve to 8.0x-9.0x in 2025.
| Regional rated players: At a glance | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Company Name | Arabian Centres Company | Emaar Properties PJSC | Majid Al Futtaim Holding LLC | |||||||||
| Rating | BB-/Stable/-- | BBB+/Stable/-- | BBB/Stable/-- | |||||||||
| Description | Saudi-based retail real estate company | UAE-based diversified real estate company, with a substantial share of retail real estate assets including Dubai Mall. (#data relates to retail segment UAE ) | GCC-based diversified real estate company. (*data relates to MAF's Properties segments including malls, residential, and hotel operations) | |||||||||
| Reported Revenue FY-24 | SAR2,344 million | AED5,061 million # | AED8,712 million * | |||||||||
| Reported EBITDA FY-24 | SAR1,409 million | AED4,255 million # | AED4,235 million * | |||||||||
| Reported EBITDA Margin | 60% | 84% # | 49% * | |||||||||
| Operations | Predominently in KSA | Predominently in UAE | Predominantly in UAE | |||||||||
| No. of assets | 27 malls | Three malls and 76 community and speciality retail | 29 malls | |||||||||
| Retail GLA | 15 million sq. ft. | 10.5 million sq. ft | 19 million sq. ft. | |||||||||
| Footfall | 132 million | 194 million | 230 million | |||||||||
| Retail capex | SAR2.5 billion-SAR4.0 billion for the next two years starting 2025 | AED10 billion-AED12 billion for the coming five years starting 2025 | AED4.6 billion-AED5.2 billion for the next two years starting 2025 | |||||||||
| Retail capex details | Mainly relates to Jawharat Riyadh (SAR1.5 billion-SAR2.0 billion) and Jawharat Jeddah (SAR0.5 billion-SAR1.0 billion) | Mainly relates to Emaar Square Mall in Dubai Creek (AED6 billion-AED7 billion), expansion of Dubai Mall, and acquisition of retail space (AED5 billion) | Most of capex relates to Properties including Malls of Emirates (West end precinct) and other small projects. This also includes capex on other divisions. | |||||||||
| Investment Properties (fair value) | SAR27,431 million | AED73,666 million (includes commercial leasing space) | AED46,445 million (includes PPE) | |||||||||
| Source: S&P Global Ratings. Note: 1SAR = 0.98AED | ||||||||||||
In the GCC, we rate Emaar Properties PJSC (Emaar; BBB+/Stable) a UAE-based diversified real estate company with a large share of residential development and retail real estate leasing business, which owns Dubai Mall among several other retail assets. We also rate Majid Al Futtaim (MAF; BBB/Stable), which is geographically more diversified in the region and, apart from leasing retail real estate assets, also own several hotels, residential developments, and a retail business (Carrefour). Cenomi Centers is the leading and largest operator of shopping malls in Saudi Arabia, with an estimated market share of close to 20% in the major cities of Saudi Arabia (Jeddah, Dammam, and Riyadh). Cenomi Centers, however, has lower revenue and EBITDA compared to Emaar and MAF despite owning several sizable assets and having larger GLA than Emaar. Emaar and MAF benefit from better asset quality, higher rental rates, and higher footfall supported by strong tourism momentum and the healthy retail sector in UAE. Emaar's performance is boosted by Dubai Mall, the most visited mall in the world with annual footfall of more than 111 million. We expect elevated capex for these three players given the growth expectation for retail for UAE and Saudi Arabia. Emaar has announced significant capex after four years of limited investments. MAF on the other hand has been spending consistently since the pandemic but still less than pre-pandemic levels.
Saudi Arabia's Economic Transformation Is A Work In Progress
Saudi Arabia’s economy, while diversifying, is still influenced by global oil prices. S&P Global Ratings recently lowered its oil price assumption by US$5 per barrel for the rest of 2025 on our view that the oil market could be oversupplied (see "S&P Global Ratings Lowers Its Oil Price Assumptions On Potential Oversupply; Natural Gas Price Assumptions Unchanged," published April 10, 2025).
Intensifying global trade tensions could weigh on macroeconomic growth. We anticipate that investment in key emerging markets will be subdued until there is greater clarity regarding the effects of protectionism on economic growth, inflation, and interest rates. In addition, global geopolitical tensions are, in our view, at the worst level in decades, posing a serious risk of economic disruption. Lower oil prices and market volatility amid escalating global trade tensions and a fragmented geopolitical environment could dampen government spending and non-oil economic growth in Saudi Arabia.
A weakening macro environment could affect consumer spending and retail sector performance in Saudi Arabia. Challenges such as potential oversupply, shifting consumer behavior, and the rise of e-commerce will require market players to adapt strategically. If developers and landlords focus on differentiation, experiential retail, and flexible leasing models, they stand a better chance of remaining competitive. Overall, while the sector has strong growth prospects, careful planning and market positioning will be crucial for its long-term success.
Related Research
- Global Credit Conditions Special Update: Ongoing Reshuffling, April 11, 2025
- S&P Global Ratings Lowers Its Oil Price Assumptions On Potential Oversupply; Natural Gas Price Assumptions Unchanged, April 10, 2025
- Saudi Arabia Ratings Raised To 'A+' On Sustained Socioeconomic And Capital Market Reforms; Outlook Stable, March 14, 2025.
- Bulletin: Non-Renewal Of Dhahran Mall Lease Will Test Arabian Centres Co.'s Ability To Deleverage, Feb. 18, 2025
- Arabian Centres Co. (Cenomi) Assigned 'BB-' Rating; Outlook Stable, Dec. 6, 2024
| Primary Contact: | Sapna Jagtiani, Dubai 971-0-50-100-8825; sapna.jagtiani@spglobal.com |
| Secondary Contact: | Fares Shweiky, Dubai 971-0-56-681-7219; fares.shweiky@spglobal.com |
| Research Contributors: | Akansha N Manjrekar, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Mumbai ; |
| Vedika Mohandule, CRISIL Global Analytical Center, an S&P Global Ratings affiliate, Pune ; |
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