1. proactive
development V i s h a l Pa n d e y
Leisure Is a Focus of Riyadh’s Mall-Based
Retail Development
In the past five years, changes the city from within and outside airport—shows that strong demand
to the demographics of Riyadh, the kingdom. exists for this kind of product.
New malls in the pipeline
the capital of Saudi Arabia, and an Along the northern periphery of The Rayadah Investment Com- could force some existing
influx of Western expatriates have Riyadh, four new developments pany (RIC), the property arm of the
increased demand for medium- to will help create demand and pro- Public Pension Agency, is under- facilities to upgrade their
high-end international brands, vide Riyadh businesses and resi- taking the most ambitious of the
which has, in turn, affected the type dents with a new form of urban four new projects north of the city: brands, parking, and
of retail offerings that have been environment. The differentiating the International Training Center
attributes of these developments Complex (ITCC), a planned mixed-
recreation offerings.
developed. To satisfy this demand,
retail concepts have started moving are their scale, cohesive master use technology complex; and the
to large-format destination malls, plans, mix of uses, abundant park- King Abdullah Financial District
main street stand-alone locations ing, landscaped public spaces, (KAFD), a large mixed-use devel-
(such as Olaya Street), and com- and secured environments. opment focused on the financial
munity/neighborhood malls in the
city’s suburbs (especially northern
Riyadh) that can satisfy a range of
consumer needs.
The outlook for shopping malls Population growth, increased tourism,
and demand for medium- to high-end
in Riyadh is likely to remain strong brands are supporting demand for
going forward because they are the retail space in the Saudi capital.
primary source of entertainment
for Saudi families. The mall-based
retail space has increased sig-
nificantly over the past three years,
with supply rising from 6.5 million
square feet (600,000 sq m) of
space in 2005 to 11.8 million square
feet (1.1 million sq m) this year. An
additional 4.5 million square feet
(417,000 sq m) of mall retail space Mixed-use developments have
is likely to be delivered by 2015, proved successful in Riyadh, as
bringing the total to 16.3 million shown by Kingdom Centre and
square feet (1.5 million sq m). That Faisaliyah Centre. Kingdom Centre,
would be close in line with esti- the second-tallest skyscraper in
mates based on population growth Saudi Arabia, is a mixed-use tower
projections that demand for retail with 13 floors of office space at the
space will top 16.1 million square bottom, a ten-story Four Seasons
feet (1.5 million sq m) by 2015. Hotel above the offices, and five
As development of Riyadh contin- levels of luxury apartments and
ues to push north of the city with the condominiums. Faisaliyah Centre,
construction of large master-planned the kingdom’s third-tallest tower,
areas, the retail market will begin to is located in the business district
be dominated by retail malls that of Riyadh and has a retail mall,
serve each master-planned scheme. a Rosewood hotel, and offices.
And the recent leasing success of
Riyadh’s New Riyadh Business Gate—a commer-
Business Districts cial complex that offers high-quality
Riyadh, which is primarily a busi- office space as well as retail and
ness destination, is now starting restaurant businesses in a low-rise
to implement strategies designed business park near upper-income
to lure more leisure tourism to residential compounds and the
September/October 2012 U r b a n La n D 159

2. development
services sector. Both should see Techno Valley, an 18.3 million-
their initial phases completed by square-foot (1.7 million sq m) sci-
the middle to end of 2013. ence and technology park located
Both projects will include a wide at the KSU campus; and the King
variety of environments for offices, Abdullah Centre for Science and
training, conferences, research Technology (KACST), the Saudi
and development, and start-ups national science agency and its
designed to create a cluster of national laboratories.
Saudi technology businesses. The King Abdullah Financial
The ITCC is located in the emerg- District is expected to emerge
ing corridor in the Imam Saud and as the new city center of Riyadh.
Prince Turki neighborhoods, close More than 60 buildings will be
to the offices of the Communica- linked by air-conditioned skywalks,
tion and Information Technology and the district will offer Riyadh’s
Commission (CITC) regulatory first pedestrian zones and public
agency; King Saud University transportation. Several attractions,
(KSU), the largest higher educa- such as a national aquarium and a
tion center in Saudi Arabia; Riyadh science museum, are intended to
Above: The Faisaliyah Center in Riyadh. Left: Kingdom Centre, with residential,
retail, office, and hotel space, is the second-tallest skyscraper in Saudi Arabia.
make this an interesting destina- est in Saudi Arabia, housing 235
tion for local residents and tourists. shops in 1.5 million square feet
The other two developments (140,000 sq m) of space.
north of the city are the Princess
Norah bint Abdul Rahman Univer- Retail Development
sity, the first women’s university As is the case with the planned
in the kingdom, and Granada developments, the forthcoming
Housing and Business Park (GBS). retail development will largely be
The GBS, located on the East Ring located on the Ring roads and in
Road and North Ring Road and other suburban areas with easy
being developed by the Saudi gov- access from high-speed arteries.
ernment’s General Organization for As these developments progress to
Social Insurance (GOSI), will house delivery, a substantial migration of
ten office buildings with 1.4 mil- employment is expected from tradi-
lion square feet (130,000 sq m) of tional, declining business districts
space upon completion, expected such as Olaya, Malaz, and Bathaa.
later this year. It will also include Saudi Arabia’s low retail gross
townhouses, an 830-room Hilton leasing area per capita, combined
hotel, and the existing Granada with high population and the growth
Shopping Center, one of the larg- of religious tourism, makes the retail
160 U r b a n La N D September/October 2012

3. market attractive to both tenants and ary roads will suffer as higher-quality l The number of showroom and Middle East and 1,300 stores
investors. Recent and upcom­­ ing outlets are delivered to the market. community malls is increasing worldwide, still sees 90 percent of
trends include the following: l Retailers like H&M, Zara, Home across the new peripheral districts. its sales coming from Saudi stores.
l Retail formats involving mixed- Centre, Mothercare, Splash, New Average mall vacancy rates vary In the online world, eXtra in July
use developments and hotels are Look, eXtra, Adidas, Givenchy, from zero to 30 percent for major 2011 launched the kingdom’s first
increasingly being considered as Aldo, Fred Perry, Emporio Armani, malls, depending on location, the online retail website, providing the
the retail market becomes increas- Massimo Dutti, and Alsaif Gallery age of the mall, the type of mall, largest selection in Saudi Arabia of
ingly competitive and saturated have acquired units in main street and other factors. Rentals and electronics and home appliances,
with look-alike shopping centers. locations outside malls. vacancies in secondary locations with more than 3,000 products avail-
l Average retail rents are rising, l The 2011–2012 period has been continue to suffer as retailers able in 90 cities within the kingdom.
but several centers have be­­ come marked by a limited number of switch to the primary locations Riyadh’s retail market, as
obsolete and are seeing revenues retailers setting up their first stores generating higher foot traffic. one of city’s biggest sources of
fall. This year, the average estimated in the city. Among the new retailers Looking beyond the kingdom’s entertainment and leisure, has
rental value for in-line stores in major that have entered the Riyadh market borders, Saudi Arabia–based proved resilient during the global
malls topped 2,300 riyals per square are Victoria’s Secret, American Eagle retailer Fawaz Abdulaziz Alhokair economic downturn, with high
meter ($57 per square foot). Outfitters, Iconic, Boots drugstore, Co. in October 2011 announced disposable incomes, strong con-
l Main retail areas of Olaya Street, and Destination Maternity. plans to open 400 new stores sumer confidence, and a lack of
Tahlia Street, Uruba Street, and King l Among the new retailers entering within two years at home and alternative entertainment helping
Fahad Road continue to attract retail- the Saudi market are the fashion abroad. But company officials do sustain growth.
ers and command high rental rates stores Tesco and Garage, sporting not see demand in the kingdom Though the market still holds
because of their prime positions. goods and clothing store Decath- declining: the retailer, which cur- potential for additional retail
However, retail offerings on second- lon, and luxury jeweler Tous. rently has 75 franchises in the developments, developers should
Women in traditional dress shopping at a mall in Jeddah, Saudi Arabia.
September/October 2012 U r b a n La n D 161

4. development
consider trying concepts that will
offer a combined variety of retail
and leisure activities. A shift toward
community- or neighborhood-sized
developments may now take
place, which will help boost dif-
ferent retail formats.
Conclusions
The outlook for the Riyadh retail
market looks healthy from the per-
spectives of rents and occupancies.
However, because significant mall
supply is coming on the market
over the next few years, pressure
may increase on nonperforming
malls with lower-grade facilities
because tenants would prefer to
upgrade to malls offering higher-
quality space, a better tenant mix,
and better parking facilities.
Rents in the strongest-performing
centers are expected to increase
toward the second half of this
year. However, average rents are
unlikely to increase because many
poorly performing centers exist that
will need to reduce rents to retain
tenants. Other centers may suffer
because they are not unique in
terms of shopping environment or
shopping experience, brand selec-
tion, mix of recreational options,
quality of staff, or food and bever-
age options.
We believe that as the city’s size
and population grow, the future
of retail in Riyadh will be focused
more on community concepts that
provide service-oriented options
in line with the needs of the local
market and fast-changing con-
sumer demand. UL
Vishal Pandey is principal at Glasgow
Consulting Group, a research-focused advisory
firm based in Dubai providing market intelligence
and strategic advice on a diverse set of industries
across the Middle East, with a special focus on the
retail sector.
162 U r b a n La N D September/October 2012